All Forum Posts by: Account Closed

Hey Erik

Very inspiring, I'm about to do something like this and your post has given me additional motivation that it will yield results.  

@Jeremy Galloway it doesn't appear that there is a PM. Even after asking the rent rolls, financials, T12, etc the most info we could get, could fit in single square of toilet paper. It doesn't help that we feel the selling agent is kinda clueless as well and has not been real helpful. But from our overall experience we believe the seller is just doing this as a "hobby" like they say. Although we can't be for certain on the payment history of the the tenants, we did find out that one tenant has been there for 13 years (unit B) while two tenants are getting their rents heavily subsidized by the government (I might add unit C is abandoned but the government is paying the rent until the lease is over in a few months or so I'm told and unit D is the one being evicted - he hasn't paid his portion). Tenant in A has a lease till December but can't say for certain their track record.

@Account Closed The thought had entered my mind but was unsure how the general sentiment was for investors and how they confront an eviction scenario right out the gates. Now, I know I should never get hung up on a property, but to be honest the only reason why I'm even still entertaining this place is to me is one I believe its a good deal after running my numbers and they work for me, two it's a 4-plex that's actually in my price range, and three since I'm doing an FHA there's already an empty unit (maybe even two) by the time I move-in.

@Greg H. No I am not yet in my option period yet as the seller hasn't signed my offer (which was accepting their counter from my original offer with a small caveat) but wanted to take a step back first before taking any further action. Also  I think the reason why he hasn't signed on the offer or any offers for that matter is because the tenant in D has not been cooperative and he is worried the tenant will not allow the inspector to get into the property to do an inspection on the unit. We never knew the reason why we couldn't inspect this particular unit during the walkthrough but now the cat is out the bag. Also thanks for your last advice that is definitely great info to know!

Estimating their captial gains is straightforward, but requires information you don't have.   Specifically you need to know their current basis in the propeties and you need to know the amount of depreciation taken (or allowed, if that's greater).  Whoever does their taxes will have this info.  

The tax they will pay is divided into two parts - capital gains and tax on unrecaptured depreciation.  You start by calculating their gain on the sale.  That is selling price less closing costs on the sale less the basis.  The basis starts at the price paid plus purchase closing costs.  The basis increases when they do capital improvements, decreases as depreciation is taken or allowed.  How much depreciation they has been depends on the original value of the improvements (not land) plus capital improvements. 

Now, having the gain on the sale you can split that into two taxable amounts.  First, the amount of gain up to the amount of depreciation taken or allowed (whichever is greater) is subject to the tax on unrecaptured depreciation.  That's taxed and their current marginal rate, but is currently capped at 25%. The rate will be lower if they're in a lower tax bracket.   Then any remaining gain is taxed as capital gains.  That's 15%, assuming they've owned it for more than a year.

Its not really "better" to do owner financing.  That doesn't avoid any taxes.  Rather it spreads them out becuase taxes are only due as the payments are received.

@Account Closed Multiple buildings on a single parcel is very common, but does not fit into the State Farm box very well.

Other insurance carriers write a single policy with 9 buildings listed.  Very easy to do.