All Forum Posts by: Greg B.

When I search for my rental property address in google, the results include a catering company at that address.  On further research, it seems that one of my tenants is running this company out of their apartment.  It doesn't appear that they are serving food on the premises, but they are offering personal chef services.   Is my property open to liability here?  what comes to immediate mind is:  what if somebody gets sick off of food they prepared/partially prepared at my property?

I don't know that you'll be able to make a lower offer because of cash in this market, but you'll be more attractive than the other bidders at the same cost.

Be sure to have a bank statement showing the full funds available to provide as proof of funds after your offer is accepted.

People do the refi after purchase all the time. You're doing a version of the BRRRR strategy. Some banks may want you to season in the property for 6 months, so might not.

Thanks for the heads up @Bill S.  Out of curiosity, do you know if the same applies for a pergola?  We're really looking to deflect hail, so don't really need a full carport.  I know permitting kicks in with percentage of the yard covered by a roof for watershed, but perhaps a pergola is different?

I'm looking to add a carport over an existing parking pad in the back of a property in Denver.  Anybody have a recommendation for a good carpenter that could knock this out?

Thank you in advance,

Thanks @Dave Foster.  I don't think he would do a 1031, as his offsetting carried forward capital losses from another deal mean that he wouldn't pay tax on the appreciation.

I would be retaining the property on purchase for at least 3-5 years, so it looks good there for a 1031.

some of the less clear areas of the scenario are how to handle capex and if this would be considered up and up by the IRS.  eg, would the forced appreciation nature of the lease option not be considered capital gains?

I have an interesting purchase strategy being presented to me, and I wanted to put it in front of the community here to help me poke holes in it. 

The situation:  I have a family member who wants to help me out in growing my portfolio.  When we first started talking, he was going to do a straight private financing loan to me for the purchase of a property.  After some discussions, we started coming up with a strategy to help him whittle down some carried forward capital losses.

So, instead of lending me the money to buy a property at 6% interest, (which he would have to pay income tax on) he would buy the property himself and lease it back to me.  I would pay him a flat annual leasing fee equivalent to 2% of the purchase price.  I would also purchase the property from him in 3 years at a 4% appreciation rate.  The 2% lease and 4% appreciation is equivalent to the 6% interest I would have paid, but he would be able to apply the 4% to his carried forward capital losses, because they would be considered capital gains when I buy the property.  I would then sub-lease the property to tenants and manage the property, retaining the rents minus expenses.

Advantages to me:  

• greater cash flow now, as I would be free to rent out the property and keep all revenues (minus expenses and the 2% lease fee)
• I can use the purchase in 3 years as the replacement property in a 1031 of another property, alleviating some of the concerns around finding replacements.

Advantages to him:  

• less tax, and therefore better returns.

Here are the downsides that I can identify, and I'm looking for input on others:

• I have to pay tax on the net income, as I would have no offsetting appreciation.  So, the tax he saves comes from my pocket.
• If the market turns, I would be underwater when I purchase in 3 years because I'm locking in 4% appreciation.
• Capital expenditures are a grey area.  If I have to put in a new furnace, do I own the furnace at a house he owns?  Can I depreciate that?
• The big one:  would the IRS consider this tax evasion?  I have no interest in doing anything below board, and this has me concerned.

Thank you all for any help you can give in brainstorming disadvantages.

@Cary P. Thank you for the recommendation!

I am in the process of acquiring several new duplexes in the Denver area, and am looking for a reliable property manager.  I have PMs in place on other properties, but they specialize more in larger apartment complexes and haven't done a stellar job transitioning to duplexes.  I see on  other posts that Atlas Real Estate Group. (http://www.realatlas.com) comes highly recommended and I will contact them.  Any others?

I'd be looking for soup to nuts:  tenant placement, modern reporting tools, 24/7 on call for tenant, experience in area duplexes, great communication skills, good network of contractors.

Thank you in advance,

Greg

That's a big question.  I guess I would say "it depends on what you want".  The wording of your post indicates that you're looking for cash flow (although you called it earnings, which can be very differnt).

I'll make some assumptions. I assume at that comp level, your DTC property is a condo in DTC area, and that your wash park is a small SFR...maybe a bungalow or a condo? Both are premium areas, as you stated. You can truck along and make smaller cash returns and (potentially) larger appreciation. That's the game with those types of properties in those neighborhoods. I assume you aslo have some nice low rates locked in on those properties, which is very valuable as rates go up. A nice conservative strategy could be to leave those properties as is and keep chipping away at them. Down the line you'll have a nice equity position.

If you want to be a bit more aggressive and focus on cash flow, you can up your game to small multi family properties. There are duplexes in the surrounding areas with better cash fflow (6ish cap rates). Lakewood, Arvada, Littleton, Aurora. You could either 1031 your properties into multiple multi-families, or throw a HELOC on top of your existing to free up some equity.

Even more agressive is the suggestion to go out of denver and get a 20+ unit somewhere else.  Lots of people on here making great returns out of state with this strategy.  I only call it more aggressive because you will have a lot of leg work to do to learn other markets and you'd be leaving your comfort zone.

I personally like #2, and that's just what I'm doing.  Small multi family in the denver surrounding area.  Cap rates aren't what you get elsewhere, but I love denver and believe in long term growth here.  I've toyed with the idea of larger buildings here 20+ units...but am concerned with the competition of all the giant new buildings that have hit the market.  Duplexes get the market of people who don't quite want an apartment, but maybe can't quite afford a house.

Hope this helps.  Just my two cents.  There are probably thousands of other possibilities of where you can go next.

@louis porter jr.  so this is a flip, not a buy and hold?  Did you run the numbers using the flip calculator as well?  for buy/hold I use vacancy of 5% and maybe cap ex of the same.  For cap ex the idea (to me) is to set aside a little bit each month to buy the bigger items over time.  I use 10% for maintenance.  in the end, if you're comfortable with the numbers, that's what matters.  To me, there's not enough left at the end of each month to justify the risk.

I've never done a flip, so I don't know the right numbers for that model.