All Forum Posts by: Greg Houts

Hi Erlene, investing in Bermuda is a bit tricky for non-Bermudians. There are income/asset requirements and property value thresholds that are quite hefty. Like everywhere, the market has appreciated since the strict pandemic restrictions were removed. Your best bet is to find a local Bermuda realtor if you're still interested.

Regards

Greg

@Stefan D. Thanks for sharing your story. I can relate, since it sounds like a couple of the ground-up rehabs I got into while living out of country. Always painful and it can be very emotional, but it’s the best way to learn. Take some time to write those lessons down on paper while they’re fresh in your head so that you can apply them and adjust for the next deal.

As to your question of sell now for breakeven or hold and rent, I would put your final rehab numbers and rent estimates into the BP BRRRR calculator and see what your 10-yr ROI will be. If it cash flows and you can manage the rental without a full-time property manager (another consideration when OOS) then best to hold it and let the rental income recoup some of your costs over time. Add depreciation and other tax benefits and could be a long-term "win" even if it feels like a "loss" today.

Selling it outright will be taxed as “active income” and treated like a flip. Any gain would add to your W-2 income (I assume you have a full-time job), but any loss would also deduct from that. So “flipping a loss” can at least save on taxes (if you’re looking for an upside spin on this). You should also consider what else you would do with that money back in your pocket. If the 10-yr return on another deal (using the same money invested) is better than the 10-yr return of the rental option, then you might be better off selling and starting fresh.

Best of luck and keep at it!

Thanks @Willie James for the comments. Confirmation that I'm half insane! I have the cash available to complete the rehabs, as well as a reserve for down payment on the land. I also have a lender lined up for the refi loans. We will start the underwriting process as soon as the properties are nearly completed and an appraisal can be performed. That leaves a gap for the balance of the land purchase (e.g., say the land purchase would close in late Sept or Oct but the refis might take to Dec or Jan to complete).

Just trying to sort out some creative financing ideas to bridge that gap without doing anything that would adversely impact my ability to complete the refi loans. Seller financing is a potential option. Friends and family was another thought, since they know me and what I'm about plus they know where I live...

@Ryan R. I worked with a real estate attorney and CPA to do just that. They're both members of BP but not openly pitching for them. You should define your reasons for putting property into a LLC in the first place. Are you the only investor (i.e., is this a single-member LLC)? If yes, then this would "pass through" accounting/tax wise onto your personal 1040 return. If others are involved then do you need a LLC or would a JV agreement work? LLCs structured as partnerships require filing a separate business tax return (1065) and then each partner gets a K-1 that flows to their personal 1040. That costs money for a tax accountant to create. Are you doing this to separate business from personal? Are you doing this for the liability protection (assuming you do everything correctly and set it up with professionals)?

Regardless of an LLC, you should keep business expenses completely separate from personal. LLCs allow you to open a business bank account (and possibly a credit card) with the business EIN/Tax ID so you can build credit for the business (you will have to personally qualify since the business will have no initial credit established). If you don't use a LLC then create a separate bank account and potentially get a separate personal credit card that's only used for the business. Do proper bookkeeping regardless, but this is imperative with an LLC since failure to do so can invalidate the liability protections. Have an attorney draft a proper LLC operating agreement, etc. Finally, know the state and local rental/tenancy laws (especially in NY) to keep yourself out of hot water (as best possible...people will sue you for sneezing these days).

@Jonathan Taylor is 100% correct about conventional/personal financing. The mortgage and note has to go against your name and then the "due on sale clause" becomes an issue if you deed directly into a LLC after closing. Using a land trust in the middle (especially if you're 100% owner of the trust) is one creative legal way to (potentially) avoid that. Seek proper legal and tax advice first.

I've heard "cash is king". I'd argue that "cash flow" is even more important for any business owner or active investor. I'm currently in a position where we have three rehabs underway, with renters expected in all three properties between Sept and Dec. The two most cash-intensive properties currently have no mortgage (i.e., all-cash investment and rehab) and will require approx. $275k to complete. I plan to cash-out refi once the rehabs are completed and the properties qualify for a mortgage loan. Given market appreciation, those refis will return multiple six figures, which I plan to leverage for future investments.

I was planning on playing it cool, finishing the existing rehabs, focusing on getting great tenants and completing the refis by year-end. Let the dust settle, get all accounting and tax filings completed, etc.

An opportunity to purchase 60 acres of commercial land in NC (in a prime location) recently became available. That land would be leveraged to create sustainable, cash-flow-positive business that I plan to pivot into once the BRRRRs are completed. I have partners who bring experience to the table, but they are also in a cash flow bind with their other investments. So we have a net investment gap/shortfall of $325-350k in order to make a cash offer on the land.

I have friends and family (and friends of friends) with deep pockets. I need a personal loan to cover the 3-6 month gap between completing the existing projects and being able to pay of the loan(s) with the cash equity received once they're completed. That would allow me to have my cake and eat it to (finish existing projects while simultaneously buying the land for the future business). There's absolutely risk that the refis wouldn't go through, but I think it's minimal (I have a well-paying, full-time job and excellent credit).

My plan is to approach friends/family for a 12-mo, 6% loan with 30-yr amortization. Interest payments made quarterly, with a final balloon payment of principal plus remaining interest. No mortgage lien attached. I plan to get commercial financing once the land is acquired; however, there is a huge amount of work required to prepare a full-blown business plan and pitch to commercial lenders (i.e., this land will be long gone before then). 

Please opine if you think I'm completely bonkers. Looking for advice on how best to approach people for something like this. Thanks in advance!

@Ronald Allen Barney check out mashvisor.com. Sounds like what you're referring to.

@Toby Khan I'm a software architect/developer (slightly rusty these days) and manager for enterprise software. I think business process/workflow is an area where investors could always leverage better tools. Some folks build out Podio or similar CRM platforms to manage deal flow. There are also custom-built (and expensive) solutions for that. Likely room for improvement in that space though, especially something that included add-ins for Office/Microsoft 365 and/or Google Workspace.

If others are like me and my team, transitioning from purchase to rehab to rental to refi (follow the BRRRR) wasn't super smooth and we're still building out tools and processes to automate and stay on top of things. Staying on top of various insurance policies/payments, mortgages/lenders, taxes and utilities setup/payment both during the rehab phase and then transitioning to rental phase is a chore. Accounting/bookkeeping and related tax filings are also super fun, especially if you do like we did and segregate ownership with a holding LLC and day-to-day with a separate LLC. Finally, throw in renter management; hence, why most folks outsource a good bit of this to expensive PM companies. If the average property manager is taking 8-10% of gross rents then that can kill any CoCR/ROI pretty fast. Accounting and rent management software can help but most are lacking. So your idea of a dashboard that would cover all stages of a property investment (especially when heavy rehab is required prior to renting) would likely gain traction if done properly.

Hope this helps get the juices flowing...feel free to PM me.

Greg

Hey @Ika Sargeant, this particular house is Newnan 30265. All the best.

Thanks @Adrienne Green! I will definitely check out Chattanooga!

I love the concept that some of the STR YouTubers call the "golden triangle". Pull up maps and look at Atlanta-Nashville-Charlotte (draw a mental triangle). Chattanooga, Knoxville, Gatlinburg/Pigeon Forge/Sevierville, Greenville/Spartanburg, North Georgia, etc. all fall within that triangle. So many REI opportunities still exist in all of those cities (and the mountains and lakes in-between). It would be great to connect and chat with everyone on this post who's investing in the various areas!

My Greenville realtor found a "castle" (built in the '90s) in the SC hill country. It hit MLS and loads of people showed up just to look at the place. We loved the uniqueness of it and were looking at it as a joint AirBnB + wedding/event venue. Issue was that we had 45 min to make an offer and it required substantial work ($250-300k) to see our vision through. They were asking $195k and we almost went in with a $230k cash offer with no strings attached. Rushing into a deal that big didn't feel right with zero time for due diligence.

Turns out the winning bid was an investor who picked it up for...$230k cash. Fast-forward a couple weeks and the buyer's agent (shhh) asked my agent if we were still interested...for $350k. Apparently HGTV contacted the broker and wants to do a show with three unique properties undergoing rehab. The winner gets the mortgage paid. And the buyer? Zero personality, no interest in TV, doesn't care about doing anything cool with it and just wants to make quick buck. Win some and lose some. Dang, that would have been a blast! I wish him the best.

Thanks @Dmitriy Fomichenko and @Kwadwo Banahene! Yeah, late 2018 was a great time to get into the markets on the outskirts of Atlanta. Who could predict what was coming! We have two other properties in inner-city, and they have been a completely different ballgame. I'll post those up soon, since they're kinda laughable.

I started looking at what I was calling "the second cities" (likely more popular terms on the forums/blogs). The cities that (even pre-Covid) sit within an hour of a major metro area yet have (had?) lower prices, less traffic, room for infrastructure expansion and better growth opportunity (less investors chasing the same deals). For example, around Atlanta you have Chattanooga, Greenville, Newnan, Macon, Augusta, etc. The pandemic accelerated, if not completely popularized and validated, that trend. We have two properties in the Greenville area, which is now also exploding (sitting between Atlanta and Charlotte). So I'm now looking at what lies between the big cities and the cities that saw massive expansion and growth in 2020+. I'm also pondering a pivot to STR, since small-ball investors like us are being put in the same "evil landlord" camp as the BlackRocks of the world...