All Forum Posts by: Fady Riad

@Jaysen Medhurst that’s interesting. $50/mo for taxes is less than 1%. Yes, the area I’m in is a bit high (3-4%) but the cheapest taxes in Cleveland are at least 2% or so. That’s at least $150/mo or so and those are mostly rough areas. Is my city just really high in taxes?

@Jaysen Medhurst thanks for the response! Can you walk me through how you did those calculations? I would definitely love to make $300+ a month on this place but here are my calculations:

Income: $1150

Management (10%): $115

Maintenance/Repairs (10%): $115

Insurance: $80

Utilities: $0

Vacancy (5%): $57.5

Advertisement (3.75%): ~$43 (this is based on menagement charging 1 month rent every time they place a new tenant and assuming that tenants turn over only once every 2 years).

Taxes: ~$330

Total Expenses: $745

Mortgage: $351

Total Monthly Costs: ~$1100

Net Monthly income: ~$50

To me this isn't a great deal but I thought maybe I can get it for $80k and the taxes could be lowered to $3600 and then it would flow ~$125/mo. That's still much lower than the $300/mo you're talking about. I feel like I'm doing something wrong with my numbers though because it seems very hard to find a good deal, and certainly anything better than this. That's why I'm asking for advice. Any input on how I'm doing my numbers and any mistakes I'm making? I can't seem to find those 10-15% cap rates everyone is talking about. Thanks!

Keith, thanks. Yes, I forgot to mention the financing. Conventional 30 year fixed at 20% at around 4-4.25% interest, so about $350/mo. Out of pocket would be $20-25k at full price, I'm hoping to get it at less though. I'm not going to occupy the unit, straight but and hold. Will renovate when tenants move out but not sure rent will go up too much. I'm new at estimating ARV, I think it's below value but would rather analyze the deal as if there's no equity gained right away in the purchase.

Thanks for your insights!

Hi guys, can you help me vet this deal? Newbie here making my first offer.

Property is a 3Br/1.5Ba is a B class area. School system isn’t good but close to some big employers (hospitals) as well as a few areas with a good amount of restaurants/bars.

Asking $89k. Taxes ~$4k per year (hopefully can bring down as buying under assessed value).

Currently has “long term tenants” paying $1150/mo

I’m going to be using management so their fee is 10% collected rent plus 1 month for placing a new tenant. No fees during vacancy.

Tenants will pay all utilities. Landlord insurance should be less than $1k per year.

The house itself has central air/heat but the kitchen is a bit dated. Average rent in the area is around $1200 maybe $1300/mo if I update the kitchen.

The property is being delivered point of sale free with a home warranty so shouldn’t be any money in repairs unless tenants move out right away.

What are your thoughts!? Thanks

Thanks. I do understand that the LLC itself doesn't have any tax benefits per se. My concern is mainly not paying taxes on my mortgage payments. If the mortgage is in my name, I can deduct mortgage interest from my taxes as well as depreciation but does that mean I can't take the personal deduction...or can I do both? On the other hand, if I charge rent through the LLC and make the income in the LLC's name, am I still able to deduct the expenses? Because if the mortgage is in my name the the expenses are technically due to a different entity so I wonder if I can't deduct them.

Hi Everyone,

I have a question about loans and making sure you're cash flow positive. I've doing all my calculations as if my loan interest is tax deductable and even though the principle is not I can claim depreciation to reduce my taxes. That way, I'm only paying taxes on money in my pocket and I can't get in a situation where my expenses are post-tax and I'm cash flow negative because of taxes.

Searching for loans, I can't find banks that will give a loan in the name of an LLC. My concern is that if I take the loan out in my name but I make the income through the LLC then I will have to pay taxes on everything and I can't claim deductions. Alternatively, if I forget the LLC altogether and charge rental income directly to myself then I can deduct all those things but I won't be able to take the personal exemption so effectively it's like not being able to deduct taxes on $4k+ of expenses.

Any advice on this? Am I able to take a loan out in my own name but still claim tax deductions on loan expenses (loan interest, depreciation) against the income coming into the LLC?

Thanks!

Yeah, this is the key for me. Since I’m new at this, I’m worried that my own due diligence isn’t enough to tell me if I’m going to have to pull out of a deal after an inspection. Are you saying I could get a very cheap inspection for $100 when I do my own initial walkthrough and then get a more formal inspection once I sign an offer? Even though it would be an extra cost I would definitely prefer to do that because it would give me peace of mind and I wouldn’t be wasting lots more money on full inspections that are destined to fail! Any advice on setting something like that up? 

Agreed, I guess I’m not trying to skimp on the inspection cost as much as I am trying to avoid paying a lot for an inspection on a property that I’m not going to buy. If I find 5 good deals and spend $600 on inspections for each and only 1 comes back good I put down $2400 for nothing. So I guess I’m wondering what I need to get upfront that could break the deal and what I can do later once I commit to the property. Or is that just a terrible idea in general?

I'm trying to assess a cash purchase for my first investment purchase and it's a cash deal so I'm trying to do my own due diligence. As part of that, I'm trying to figure out the best way to go about a home inspection so that there aren't some major surprise costs that will make the deal bad.

I have 2 major questions:

1. what are the necessary components of an inspection for a rental home (I want to do the stuff that will avoid big expenses down the road and will avoid law violations but nothing extra or unnecessary). This is the list I've got in mind:

• The plumbing system.
• The electrical system.
• The structural condition.
• The heating and air conditioning systems.
• The basement and foundation.
• The roof and attic.
• Evidence of water penetration or grading issues.
• Appliances and other general components of the home.
• Mold

Not sure about these

• Pests such as bugs and wildlife.
• Environmental issues such as radon, asbestos and lead paint.

2. I know that a point of sale inspection needs to be done and filed with the city. Usually that's the seller's responsibility but it doesn't seem to have been done here. Can I combine these somehow so that I'm not paying for 2 inspections? I'm looking at properties in Cleveland.

Thanks all!

Fady

Thank you both for your responses! I see what you're saying Joe and I think you're right, I do just need to jump into it. I tend to plan a lot, but I am moving forward (registered my LLC and got an EIN and reached out about a few properties). I'm in the Cleveland market so a lot of the more affordable properties need a good bit of rehab so I'm trying to learn about that now. My goal is to make an offer on a property by the end of June. Definitely love to learn about putting it in an IRA, but like you said I'll deal with that once I get my first property and see how it goes.

Aaron, I think part of the issue is that I might be over-estimating my expenses so much. Right now my expensive to income ratio estimate is about 74%, but based on what I've read that doesn't seem too unreasonable. Here's a breakdown of my estimates:

PM - 10% of income monthly

Vacancy - 10% of income monthly

Advertising - 5% of income monthly (to account for thinks like paying PM part of 1st month's rent for placing a tenant)

Repairs - 1% of property value yearly

Insurance - 1% of property value yearly

Utilities - 2% of property value yearly

Taxes - 3% of property value yearly

Assuming a 5% interest rate on my loan with 25% down and 5% in closing costs for my calculations. I'm also assuming that inflation is 3% but rent increase is only 2% to be conservative because around here I haven't necessarily seen rents go up too much year after year. I factor in depreciation into my taxes and even use an amortization schedule so I know the exact deduction for mortgage insurance every year.

I think Joe is right and I just need to get my first place but would love to know if any of my estimates up there are unreasonable. Thanks!