All Forum Posts by: Sam LLoyd

To the best of my knolwledge, the clock starts ticking when you take title to the property.  If I understand your post correctly, no, paying rent even with a sales contract in place does not make it your property as far as Unlce Sam sees it.  Call up any CPA to confirm that though.

The only thing I would look more closely at is the repair budget.  I've been using 5% for a while, but that's because I do all the work myself.  So, that's only the materials.  And.... I've found that it is a bit low.  I don't know what repair costs are in TX, but that's the one number that has me worried.  Other than that, if you are comfortable with the neighborhood, it looks good to me.

In addition to how you work the roof line, you also have to be aware of how you are going to do the insulation and venting.  If it is a cold roof, and you add into the corner, you run the risk of have the new roof not properly vented, as wells as compromising the existing roof's venting.  For insulation, make sure you have the hieght in the roof for the insulation you are going to use.  I did an addition in a similar situation, and it was a pain.  We had to bring in 2lb spray foam, because there was not enough roof for fiberglass, venting, and still have a slope.  This all being said, I can't think of a good way to do it without completely redoing the roof given the information you've given.  Also, you have to find a way to tie into the existing roof in a way that your snow loads do not exceed limits in the way it was built.

Good question(s).  Here are my thoughts.

1st, never go with the seller's rent and vacancy numbers... If the numbers were as good as they say, then why are they selling?  Yes, there are many reasons to sell, just always find a way to double check the seller.  It may be that the seller isn't motivated to keep up grounds/building maintenance, and doesn't advirtise, and you'll be able to rent it easy by just fixing things up.  It might be that business has shifted a few blocks over and you'll never find a decent tenant (or buyer).

I don't have experience with NNN leases, but if you have a building with multiple units, there will be expenses that are not covered by tenant such as parking lot maintenance, grounds keeping, water/sewer, exterior maintenance. In my experience (residential), it is not worth it to try to distribute these costs. Rather, just ask a little higher rent, and point out all the neat things that are included. Having higher rent makes the investment look stronger as well.

@Justin Elliott  Sure.  Picture a manager that owns a 4plex that's not doing well.  He can keep managing it and make a few dollars/loose a few dollars, or he can sell it to some out of state investor who he may or may not disclose everything to.  Manager pockets a ton of cash, gets the liability of a potential money pit off his plate, and then has no reason to manage well... he already made his money.  Who is he going to provide better service for?  His own properties, followed by his friend's properties... Followed by local investors he knows.... And then maybe 6months later he'll ask for money to fix up a unit and make it rent ready even though it was supposed to have been listed for half a year.  

There are many managers that do better than this, but there are conflicts of interests when you have the same people selling, brokering, managing, etc...  Also, if you don't have a rental in the area, you need to find a local investor to get real numbers regarding rental performance.  Never use the numbers the sellers give you if there is any way to find your own more accurate numbers.

@Patrick Philip  That's what I meant about having a lot of numbers to gather.  You are going to have a hard time finding them all from the internet.  You have to go out and find them.  Talk to real estate brokers and agents.  Find out from similar business locations what people are paying. Even if you could find an accurate vacancy rate for the area, that won't work for you because you need to have a good idea what the vacancy rate is for that type of building, that age, in that area, with that amount of visibility, in today's market (tomorrow's market would be nice to know too, but that takes even more work.)  That's just the vacancy rate.  @Brian Garrett gave you good direction for some of the others. Go find those numbers.

It sounds simple to me.  Do the seller finance purchase last since they are less likely to care how your financial situation has changed in the recent past (and might be more understanding than a bank if they do).  2nd:  If purchasing the apartment building depends on pulling money out of your rental, that sequence should be obvious.  If purchasing the apartment is not dependent on the money from the refi. do the refi first (assuming it's a conventional loan) because the residential lending will be more picky than commercial lending about recent financial changes.

If all three of these are not critically tied to the others, again it sounds simple.  Do whichever one is the most important to you first.  Are you more likely to come across another short term rental or an apartment building if this deal happens to fall through?

Obviously the simplest option would be to keep lowering the price till it sells.  

The next option that comes to mind is to sell it owner financed contingient upon the buyer being approved by a note buyer, and then sell him the note in a back-to-back closing.  Example... buyer buys it for 180 at 9% interest with 10%down.  You have a note for about 162k that you sell the same day for 120.  You walk away with 138.  You might be better off just lowering the price till it sells for cash, but I have seen this option work as well.

A thought that I had was that you might be able to find an auction service to sell the property.  I know you can set a reserve price with some of them, but other than that, I have no experience with this option.

The way it was explained to me (in my state at least), is that since the LLC is a pass through entity, it won't matter on your taxes. The liability protection aspect of the LLC is a different matter... but I know for sure taking the rent personally and then trying to switch to the LLC will throw any liability protection out the window. Again, as far as taxes are concerned, I don't think there will be any tax implications should you operate your business as the LLC now. The bank will probably charge more fees for a business account, but I can't help you there.

Here are my thoughts based on my experience in Alaska, half a world away:

Stay away from the condo if you can.  My first house was kind of like a condo.  When the bank lent me the money, they didn't factor in the dues, so I probably shouldn't have been approved... I could have should have bought the house a block away that was only 20k more since I spent over 20k on dues during the 10 years I owned it.  If I had bought the other house, the tenants would have mowed the lawn and removed snow, and I would have had to paint once or twice, which would have been away to add sweat equity.  That brings me to the next point, which is don't be afraid to make a low offer.  There have been multiple times when I didn't offer on a property because I thought my offer would be too low, only to meet the person who eventually bought it for less than I was going to offer.

Over the years, when struggling to afford a decent investment, I've come back to condos time and again because they can be high quality homes in nice neighborhoods, and at an affordable price.  However, I have yet to get one to cash-flow in my spreadsheets.  I think you will be better served being aggressive in making offers, shopping hard, building relationships with real estate professionals, and in the end tackling a house that you can add value to.  Make sure you have a property that you would consider a good investment even if you weren't living there.