All Forum Posts by: Hector Sapinoso

Hi BP,

I recently had some questions about estimating for capex (link below), and that got me thinking about taxes. If you add in a certain expense on your P&L for building up capex or deferred maintenance reserves, does that count as an expense that you can use on your tax returns? For example, if you receive monthly rent of $1000, and you estimate 6% for capex and deferred maintenance monthly ($60/month and $720/year), do you get to expense the $720 on your tax returns, even though you haven't actually spent the money? Also, do you just put that $720 in a savings account to wait for the day that you actually need it? Thanks in advance.

Estimates for capex

@Rivers Plowden and @Kay Kay Singh thanks for the responses. Do you use separate percentage estimates for capex (roof, HVAC, appliances, or other big ticket items) versus cleaning up and refreshing the property (like flooring maybe?) if/when you have tenant turnover?

@Emily S. at this point in time I don't have any properties yet, I'm just trying to build out my analysis tools and trying to factor in whatever expenses I might be able to  estimate so that I have as complete a picture as possible. Also, thanks for pointing out the podcast, I'm working my way through them and will be sure to listen to that one. 

@Henry J. thanks for the note, I'll have to look into that more. Do you invest locally or out-of-state? I'm just curious if I need to consider significantly different estimates if I invest in Southern California or if I end up investing out of state.

Hi BP,

I'm trying to refine my deal analysis skills, and had a question about capex. What are some of the big ticket capex or deferred maintenance items for a buy and hold SFR that I should build into my analysis? I can think of the roof and the water heater, but what are some other things I should be thinking about? Also, do you just figure out the estimated cost and then accrue it over the estimated useful life of the item?

Wow, thanks for all the info and the advice @Aaron Norris. 

That's pretty cool that the city worked directly with you. Most of the stories I've heard are about getting the runaround and difficulties with ordinances. In all fairness though, those have been more related to mansionization than initial development. Generally speaking, is the city of Riverside pretty investor friendly?

I've done a few analyses using J Scott's SFH tool on some Riverside houses on the MLS, and I haven't seen anything that would have positive cash flow, and in fact would have pretty large losses. I'm assuming that's because (1) I'm just using the listed price as my starting point, (2) I'm just using a formula for rehab/improvement costs, and (3) I have high accrual rates for PM and vacancy just to be conservative. I'll definitely look into properties in those other areas you mentioned as well. I used to audit the RCCD when I first got into public accounting and I remember that the area near by was pretty nice to walk around.

As far as the event, that sounds really interesting but unfortunately that's too short of notice. I downloaded the slide decks from last year's and 2014's event though, and will take a look through those. Hopefully CB puts up the presentations from this year's event quickly and I can at least read through those. 

Thanks @Aaron Norris for the info. That's a really huge undertaking going on right now. I like the idea of building up an urban core. When you first mentioned it, I imagined the impact LA Live had on downtown Los Angeles, but the map on the pdf looks like there are improvements going on city-wide. Are the planned new residential builds in downtown going to be condos or mixed-use facilities, again similar to downtown Los Angeles? Are there certain pockets or suburbs of Riverside that you focus on for your investments? What other areas of the Inland Empire do you focus on? I found some interesting economic reports at the link below. Would you say that Riverside is more of a commuter city, with most people driving in to the downtown core, or are businesses dispersed throughout? 

http://riversideoed.com/resources/city-data/beacon...

@Aaron NorrisI haven't seen PropertyRadar but I checked it out and it looks like a pretty good tool to use. In the FAQs it lists out the various export functions and the Excel nerd in me smiled. btw, is that your quote on the home page? Are you or your company related to them at all?

As far as Riverside, I wasn't aware of all of those improvements, and that makes it sound all the more intriguing. Were a lot of those improvements funded by public bonds or private money? I'm curious, as I'm not sure how the use of public money versus private would impact the tax base in general and the local economy as a whole. I have a feeling that might be a whole other discussion though. 

Also, thanks for the note on renting to students, I wasn't aware of that. UCR was one of the main reasons I wanted to look in Riverside, and you reminded me that looking up government regulations is another step in the process I need to get under my belt.

Lastly, I'd definitely love to meet up some time for coffee.

@Aaron NorrisNo worries, I appreciate the help. I've never heard of PropertyRadar, so I'll be checking that out. On a separate note, I see you're in Riverside. Do you invest there as well? I had been focusing my analysis on Los Angeles because that's all I know personally, but am curious about other areas of Southern California, Riverside specifically. I listened to BP podcast 140 about renting to students, and so thought about UC Riverside.

@Jose SotoI live in San Gabriel but work all over Los Angeles. PM me if you're interested in grabbing a cup of coffee or something.

Thanks @Derek Newton, I agree, the sub markets and pocket neighborhoods in Los Angeles make it a little tough to compare rents. For my practice analysis, I looked at SFH within the Arcadia, San Marino, and Diamond Bar school districts, with 3 or 4 bedrooms and 2 bathrooms. I figured if I target family-friendly rentals, suburbs with good school districts would be a good place to start. I hadn't really considered some of the other factors you mentioned, but it makes sense now that I think about it. I initially thought that the further you go east from, the lower the rents would be, but that wasn't always the case. I missed analyzing the amenities completely, so that's another thing to help me improve my analysis skills!

Thanks, @Aaron Norrisand @Jo-Ann LapinI agree, I feel like it's hard to generalize a rent rate when things can be so different from one block to the next. I hadn't heard about the Apartment Owners Association, but I'll look into that. Is the Association primarily focused on large multi-family properties though? I'm focusing more on SFH.