All Forum Posts by: Jeff Thompson

Why not 3-4 units? (my guess is quality of the units thus quality of renters?) Price per unit wise generally the more units the better from what I see. I assume 50+ as staffing requirement makes more sense when you hit that scale?

I think the required down payment to clear DSCR requirements make 5/6 units hard to justify. Could be a good time to hunt for "creative financing" deals though?

Thank you for the insights, I really appreciate it.

I have noticed 5 or 6 unit properties list for similar prices to 4-plexes, and higher unit counts certainly get cheaper per unit. Commercial loans are harder to get so to a certain extent that dip from 4 to 5 makes sense. I for example can househack into a ~2m 4-plex no problem but a 5 unit I'd have to come up with 25% down which limits me to something like 1.4m without doing some cash raising. And that's only if I'm ok dumping in ALL the cash we'll get in selling our house (leaving just enough for reserves).

In general I think there has been a "compacting" of prices where the less expensive properties have been outpacing the higher priced ones as people end up shopping down market from where they would have with lower rates - Hell the house we are selling in Del Sur I wouldn't buy today, monthly payments would be like 2x what we pay and we only bought it 2.5 years ago!

@Dan H. You're close, but I believe you selected the Kelly St. property, I was looking at the Tait St. one around the corner which is 3/1.5 and has more reasonable projected numbers. (The Kelly St one could be more appealing as there is plenty of room to add 2 ADU's however). Thanks for the headsup on SD rent control, that's more of an issue than I was thinking.

But you guys confirmed what I was seeing and thinking: it's the comps that determine value on these rather than the financials. The numbers approach appeals to me vs the "black art" of valuation, but I guess I need to become best buddies with an agent with extensive multi-unit experience anyways if this is the course I want to pursue. Is there a certain unit count that financials become dominant or is it area specific? 

I was thinking maybe it's something like land value + financials where if we're talking someplace like Ohio the land is somewhat negligible even on a small multi, but obviously in SD is highly valuable so much more of a factor. 

Going in lowish down and house hacking a local 4plex has a lot of appeal as our "getting started" first multi, but traveling a bit to buy something that doesn't bleed cash (Victorville area maybe?) would probably be a better place to start.

Thanks, 

Jeff

Hi all,

I'm early in the "figure out where we are going" phase and will do a ton more research before doing anything, so my question isn't if this is a good idea for a newbie, the question is: How do I value a small multi-family deal in a "overpriced" area like San Diego and determine the ARV if I'm going to try to make money by forced appreciation? (cuz haha cashflow around here unless you have a huge pile of cash).

Just to have something specific to talk about here's a property: https://redf.in/DxEDC2 - 4-plex of 3/1.5 units listed at $2m and actual NOI of $74k which puts it at a 3.7% cap rate. Projections (rents are under-market and the owner is living in one unit) list a NOI of $126.6k which is a 6.33% cap rate at the list price. The projected numbers listed actually seem rather fair at $2,950 rents where market rates are more like $4,000 if the place was updated.

How should I determine a fair valuation of this place?

Then lets say we rehab the building and get it stabilized at $4,000 rents which is let's say a $170k NOI. What is the value of the place now?

Now lets say run the units as MTR and average $5,000 per month for something like $200k NOI. Did I further increase the value on the property?

Thanks,

Jeff

Hi everyone,
Just a simple question I can't seem to find the answer to. Previous years I did not claim active participation and have accumulated a few thousand in losses. Last year I had losses yet again, but spent a lot of time fixing the property and finding renters myself - needless to say I actively participated.

Can I claim all the losses last year and the previous years or just the losses I took last year against my normal income? The total losses are less than 25k and my AGI is under 100k.

Thanks,
Jeff

like Bill mentioned is a clean way to implement your idea: sign a lease with him that matches the term and payment of a note you write to him. It's a note secured by the lease.

At $600 monthly and 24 months that's a 18.157% interest note.

Be sure to charge fair market rents so you are realistic about the returns:

If you didn't live there and fair market rent is $1,000 and you charge $600 for 2 years you're essentially giving him something like 78% interest.

On the other hand, if you do live there with him and fair market rent is really $500 your actually giving him 0% interest....

If you can't figure out how to make more than $2000/month from the what, 400K after tax cash you'd get by selling, by all means keep it...

Seriously, sell ASAP.

Kyle Meyers: It does appear to be a great product.

Seems reasonable to me that the depreciation amounts should be based on the actual value of the improvements instead of some arbitrary percentage of the purchase price.

Lets say you own two very similar properties only differing in location: one is in Dayton Ohio and the other is in San Diego CA. Is the replacement cost of the buildings and intrinsic value in them really all that different? Yet, the amount depreciated will be drastically different in most cases. One could argue the land value in some cases is essentially nil.

Listen to Will, Even if you don't buy any properties for a while get involved. Make connections, watch the game and learn how to make deals happen.

You think of your age and lack of resources as a problem, but that can be quite the advantage too: Other investors are much more likely to take the mentor role. A master in the trade taking you under their wing is worth more than the cash you're lacking.