All Forum Posts by: Justin Mathews

Anyone hosting a REIA Meeting in St. Joseph, Mo?

Has anyone used an SBA loan to buy and reno a commercial property? I am looking at buying a 11,000 sq ft warehouse space in KC for around $190k that needs about 250k work to white box it. I already have a potential lease in play for $5 sq ft NNN which would make my Cap Rate around 9 -10% in the end. The numbers are working but I need a loan and don't have a lot to put down. The SBA option looks like it would let me put down 10% but I have never done one. Anyone have any advice here?

My other option is a personal loan against the significant equity (~125k) in my first rental - I can't find a HELOC on a rental yet, this would be my first best option. Any advice welcome!

@Dave Foster this is what I was thinking. I might hold the lot. I've got two years at least to rent before my 125 exclusion runs out. Plan now is rent for two years, sell ( possibly to my LLC), take the exemption and separate the lot for single family development.

@John Barnes I really like this idea. I'd thought about it but read that investing from an LLC precludes my first few deals from.taking advantage of lower rate lending for my first four or five deals as a private consumer using conventional personal financing. Thoughts? @dave

@Dave Foster any thoughts on my comments above on keeping the garage and empty lot after selling the house?

You all are AMAZING. So I definitely hear sell it. The decision then is 1. whether to keep the yard/ empty city lot for future development next door and 2. whether to hold the house for up to three years to still get the 125 exemption while renting it so that the appreciation continues to rise. This assumes I could deploy other limited resources to buy deals over the next three years while waiting to sell. Might be too much trouble. There is a huge development that is down the block that is creating big value for the home value and comes online in the next 2 years. Of course, the market crash between now and then too...

Another thought... What if I paid of the property aggressively with the cash flow from rent and accelerate my cash flow goals early to increase my ability to risk better deals next (de-risking my cash position while I have kids at home)? I could loose the 20% on CG but maybe I can find a way to postpone paying it until later via 1031 exchange when I sell much later once I have the business built?

This is helpful folks! My tax accountant seems to agree because I can get the CG exemption having lived there 2 out of the last 5 years. As soon as I rent it I have to get a prorated CG exemption. Seems like I should sell it and then find the right deals to invest in. 

You all have me thinking ....

Since I have a full side lot on the house with a 2 car garage on it that was partially finished for a rental by a previous owner, what about splitting the lots, selling the house for a bit less now and building a single family home on the lot I retain. I could do this when I am ready for something that big in the future. In the meantime I can make the garage into a duplex or live/work space to rent on the back of the lot I retain? Alternatively I could turn the garage into my business storage & "office" as a write off against my rental taxes. Property tax on empty lots is still nil in this area.

Greetings! I am trying to build up a rental investment business in KC to provide passive income to eventually replace my primary income. I need some strategic and tax advice.

Here is the Background: 

I own a 4 bedroom/2 bathroom house with a large attached lot in KCMO. Currently the market comps supports could sell for $245,500. I bought it for $110,000 in March 2013. I have a primary residence loan at 4% originally for $105,000 and I have about $78,000 still on the loan to repay. My monthly mortgage, tax and insurance is $760 /month. I have made previous improvements while living there over the years totalling $21,000 in CapEx and repairs since 2013.

I have two options I see and I am trying to figure out which would give me the best start on building my property investment business.

Option 1:

I could rent the house in today's market for $1600-$1800 /month. For assumptions I am assuming I rent the house to a single family for $1700 a month. With mortgage/Insurance/Taxes, maintenance, management, CapEx, and vacancy expenses I still make a significant free cash flow per month. Here my IRR and Cash on Cash return is very strong.

If I would use a HELOC to pull out up to 80% of the equity and buy/renovate other smaller rental properties using BRRR to get cash flow and build equity over time. In my assumptions I figure 6% interest on the HELOC and 6% interest on the eventual refinance for 30 years after remodeling and renting the new places. I am shooting for $250 per single family home free cash flow after all expenses each month.

An advantage of this scenario is that I do not sell the home, keep leverage for tax advantage, and do not incur capital gains tax in a sale now. This strategy gives me a very nice first rental property and allows the property to continue build equity that will come because the neighborhood is still actively flipping.

Option 2:

I could sell the house for $245,000, and with a 6% realtor commission I could pocket approximately $230,000 cash. I could then put this cash in a money market and use debt free cash to buy deals, make repairs, etc. I can get an exemption from capital gains tax this year because I lived in the home as a primary residence for two out of the last five years.

The house is in an Opportunity Zone in KCMO so I have also thought about forming a LLC and an Opp Zone fund myself and then investing from that fund into new rentals.

Which of these options, or another option I have not thought of, is the most advantageous to started on growing my rental investment business?

Any advice you can offer would be of great help! Thank you.