All Forum Posts by: Jeff Copeland

A little touchy feely for me, but you do bring up some great points. Investors (especially newer ones) do tend to get wrapped around the axle over "the numbers". 

But here's the thing, the numbers we project during due diligence are never going to be more than an educated guess. They are never going to be exact. And even if they were perfect, 15 different things could happen tomorrow that change the global, national, or local economy and/or real estate market. 

Sure, it helps if you love the property and it brings you joy, but love and joy don't pay the mortgage. 

I think an important corollary to what you're saying is to be confident in your ability to implement your strategy, or abandon it altogether and change course if needed due to external factors. 

If you are confident in your ability to implement Plan A, and/or shift to Plans B, C, or D if needed, there's no reason you should ever lose money in real estate. Thus, there's no reason you should get so bent out of shape trying to guess the numbers on the front end. 

Just keep it between the ditches and keep moving forward (and if it brings you joy, even better)!

With conventional financing, 25% down is typical for investment properties. 

Some lenders will allow 20% down, usually with additional fees/points.

A CPA will tell you one thing, an attorney will tell you another, an insurance broker will tell you another, and a lender will tell you something else. Ultimately, you have to do what works for you based on your financial situation and risk tolerance. 

If you place your properties into an LLC, you'll need to update your insurance coverages to reflect the new ownership (and to maintain an insurable interest in the property). This in turn often tips off your lender (who is a named insured on your insurance policies) if you have financing in place in your personal name, and can (but doesn't always) trigger the due on sale clause in your mortgage(s). 

Advantages: Improved (but still imperfect) asset protection via a "corporate veil". More anonymity. Possible tax benefits depending on how you distribute the income. 

Disadvantages: Higher insurance costs (the same insurance coverage, but in the name of an LLC, is almost always more expensive). Risk of causing issues with existing financing. Lots of hassle (transferring title, changing insurance, setting up new bookkeeping, etc)

If you keep the properties in your own name, insurance coverage is key. Most landlord/homeowner policies max out on liability protection at $100k, $300k, or sometimes $500k. This isn't enough for an investor who owns multiple properties. You need to insure against a worst-case scenario: A wrongful death that occurs at one of your properties. This can me done via a $1M or $2M umbrella policy. 

It's important to note that your insurance company doesn't just stroke a check for the policy limit anytime there's a claim. On the contrary, they have a duty to defend you against claims, and will fight tooth and nail to minimize payout. So, when (not if) there is a claim, your insurance company will assign counsel and fights the lawsuit on your behalf. 

I'll PM you some additional info on asset protection and insurance. 

(Also, be sure to update your insurance coverage when you convert your primary to a rental!)

I hereby summon @Dave Foster!

I will also PM you some info. 

Great answers here already. 

1. Confirm zoning, and get it straight from the City to be sure. There's no point spinning everyone's wheels if the zoning is single family and does not permit multifamily use (which is fairly common). I'd be somewhat surprised if the City let you tear down a small SFH and build a 4000 sq ft triplex in its place.

2. The value of the land is nice to have, but would be offset somewhat by the demolition costs on the existing structure (I'm guessing $20-30k for demo and removal?). 

3. Architect, $10k +/-

4. Months of back and forth with the City and the Architect to get the plans approved and finalized. 

5. As already stated, $175 to $200 per sq ft for the actual new construction. You said 4000 sq ft, so that's $700k to $800k in construction costs, and 6-12 months for the build (I don't have to tell you that weather can be a factor in your neck of the woods). 

For real estate market stats: The local boards of realtors (example here). 

For economic stats: The local Economic Development Council, Convention & Visitors Bureaus, and Chambers of Commerce. 

The links are just examples (no affiliation). You should be able to find something similar for just about any large metro area in the US. 

1. Check with a local attorney.

2. I am not an attorney and this is not legal advice. 

3. There is probably nothing stopping you from transferring ownership to a foreign* LLC without registering it in your state. However, if you ever need access to the court system in your state, such as to file an eviction or take any other legal action, then it will need to be registered. The process is usually simple, so it makes more sense to do it ahead of time. The last thing you want is to delay an eviction for a month while waiting on your LLC registration to be processed. 

(*By foreign, I mean "from another state". This is typically how States refer to this)

You might even consider a local answering service. 

This would kill two birds with one stone (local number + always answered by a live person), and can be surprisingly inexpensive at low volume. 

They can either take messages and notify your right away, or even connect the call to you after a quick screening (according to your instructions). 

What about your current vocation prohibits you from qualifying?

If you are self employed, lenders typically just need two tax returns showing stable income. If you are W-2, they just need your most recent pay stubs. 

So are you:

Self employed with adequate income, but not for long enough to qualify?

Employed, but not making enough money to qualify?

Doing something off the books and don't report enough income to qualify?

The most obvious answer seems to be a DSCR loan, but more context would be useful.

Interesting stats and observations for sure. Are you pulling these stats from the MLS?

Not that the MLS is not a good data source, but 95% of our rental inventory in this market does not flow though the MLS, so it's an incomplete picture. There could be 10 times more that want you see in the MLS, or it could just be a blip in the stats.

Either way, it will be interesting to watch!