All Forum Posts by: David Krulac

John M.

Dave T is right, as he almost always is.

LLCs have been oversold by gurus and other many of whom make money by selling more LLCs. I know several "real estate investors" who have multiple LLC, but don't own any real estate. Seems to me to be the cart before the horse.

Trusts offer anonymity, but no asset protections.

LLCs initiated in states that you don't do business, doesn't make a lot of sense if you have to register and pay fees as a "foreign entity" in the state that you actually do business. If somebody slips and falls on your property in Iowa, that's owned by a Delaware LLC, trust me they will be suing you in Iowa.

Piercing the corporate veil is a lot easier than most people realize. Don't keep corporate minutes. Have a single member LLC. Don't have a separate bank accounts. Are you under capitalized. Do you co-mingle funds.

I've heard people recommend a separate LLC for each property. good luck if you have 100 properties and are in CA, where the state fee is $800 a year for each LLC and you'd have to file 100 separate income tax returns for each LLC, with 100 separate bank accounts all adequately funded. That looks like a full time job just managing the LLCs.

Jimmy H.

Simple answer no.

One way to reduce your expenses is to reduce deprecation. However, do it wrong and you just screw yourself.

This happens sometimes when people claim the the home office deduction and forget to claim the depreciation for that portion of their home.

The regs on deprecation says "allowed or allowable", which means if you were allowed to take depreciation but for any reason you didn't tough luck, you still owe recapture on depreciation that you didn't take.

But there is another way and that is take a longer deprecation schedule that the IRS recommends. Currently residential is 27.5 years and commercial is 39 years. These are minimums established, but you can always take monger deprecation schedules which will reduce your depreciation expense. Say you used 50 years or 100 years schedule instead of 27.5, that would reduce your depreciation expense and increase your current income and reduce your future income in the year you sold the property.

Just a thought.

Caleb Green

In general, I would disagree with paying off rental mortgages early.
Two factors that i would consider are your young age and the fact that you want to continue buying more rental properties.

Of course there are exceptions and everybody's situation is different. But if you were 65 and were not buying any more rental, then I'd say yes, sure pay off those mortgages to generate more income for your retirement.

But when starting out and still growing your portfolio, I say "Borrow as much as you can for as long as you can." To add to that as a viable plan, the interest rates are at the lowest they've been since they started tracking in like 1960. These low interest rate may be a once in a life time event. Think about it, if you started buying rental property in 1960, that's 53 years ago. And back then you had to be 21 to buy real estate, that's means you are now 64 years old and ready for full social security, and interest rates have never been LOWER in your investment lifetime!

Load up on those low interest rates, get the goods while the getting is good. It won't always be like this. Just ask anybody who bought real estate in 1981 when interest rates were fixed 18% for 30 years.

The caveat to borrowing the max is obviously that too much debt can be your downfall too. But as long as the the property supports the debt service. I'm not suggesting negative cash flow, I'm suggesting max imum debt with positive cash flow.

Rich Weese

The dollar figures on the HUD website are the MAXIMUM allowable rent. Each local office can vary their application of the rules, so different areas may have slightly different rules. But in my area that is the max rent and they do NOT allow the tenant to pay more rent. The idea being that they don;t want the tenant committing for more rent than they can pay and getting in over their head. There are other rules that affect the amount of the rent like that the tenant can pay no more than 40% of their income to rent.

If the rent allowed was $1,000 a month and the tenants income was $1,000 a month, that doesn't mean the tenant pays $400 and section 8 pays $600. First they figure out what the section 8 portion will be. And lets say that is $500. The tenants portion can be no more than $400, so the max rent would be $900, not the $1,000 max. So the actual rent allowed would be less than the max rent.

Another limiting factor has been the economy and the effect that it has had on the waiting list for section 8 rent assistance. In the years a long time ago, like before 2008, when the housing and the economy were better, things were a little different than now. A certain percentage of people would get off the section 8 list every year. Some would move, some would marry, some would get better jobs and more income and be disqualified. In some section 8 offices this might have been as high as 25% every year. Since the funding that the section 8 office gets locally is limited, the fall out rate would open up essentially 25% slots every year for new section 8 candidates to get rent assistance. With the slowing of the economy, these fall out figures dropped significantly as fewer and fewer people were staying on the section 8 active rent assistance list. Waiting lists grew and the only way to get new rent section 8 money was for somebody else to get off rent assistance.

Some local offices had waiting lists that were several years long and getting longer. Some local offices shut down their waiting list and were accepting no more new applications. So it has been harder to get on section 8 today that it was in years past.

Most of my rentals are at a higher rent than the section 8 max, which essentially rules them out as section 8 rentals. When i do have a vacancy that meets their max criteria, I'll put in the ad "Section 8 OK", which causes the phone to ring/emails to fly.

The max rent is determined by an actual rent survey conducted by the local section 8 office every year. I've participated in the survey for many years. They ask for addresses of rental properties and what is the actual rent and bedrooms for that property. By this they determine the actual fair market rent, and since the results are published at www.huduser.org, it is available to the public, so you can see was the average fair market rent is in your area, so you can use that information in your rental business.

For 2013, in my area the rent rose, but in the previous couple of years, the average rent went down. I questioned that at my local office, since I knew I wasn't lowering rents. I was told that some large complexes were actually lowering rent to fill vacancy, and that lowered the average and lowered the amount that section 8 would pay to ALL landlords.

Aaron Mazzrillo

I've probably seen over 100 "gurus" including William Nickerson, Albert Lowry, Robert Allen, Ron LeGrand and many others.

Current gurus that I've meet and like a lot include John Hyre, Ray Alcorn, Leigh Robinson (he wrote the best selling book on Landlording selling over 300,000 copies), and others. I've seen Frank McKinney a couple of times and he is inspirational, but I'm not sure I'd call him a guru. I like Andy Heller, also and have talked to him a few times. The gurusthat I've like the most are ones than do deals and have done what they say they've done.

I'd like to think that there is some kernel of wisdom in all the pitches/presentations that I've sat through, but in some cases its very difficult to discern that kernel.

I've gotten a lot from various real estate books and am still an avid current reader. So far I've read about 15 books this year and have about 3 others that I have started

Brian Hoyt

I've never had a car loan, not because I'm opposed to them, just sort of turned out that way. I'm not sure how many cars I've owned maybe 50. I've had a brand new Corvette, a Porsche, SUVs, trucks, vans and convertibles.

I good friend of mine has 30 cars, mostly because he can, and mostly because he's always bought real estate. The real estate is the bread and butter, the cars are toys.

I'd rather put nothing down on a house and pay cash for a car, than put nothing down on a car and maybe not be able to buy a house. One time I saw a single wide trailer on the foreclsoure list, the owner had a Cadillac and a Mercedes. Maybe somethings wrong with that picture?

Besides the tax deductability, I'd just rather borrow for investments and pay cash for fun and toys, but that's just me.

Geoffrey Murphy

You have to define exactly what is A, B, C, D. Here's how I would do this... I'd look at the HUD rents for all areas of the country at www.huduser.org

Im my area for 2013 the section 8 rent is $1,160. This is the average rent as determined by the HUD rent survey. And it is also the MAX that HUD will pay for section 8 rent. So if that's the middle rent then I'd consider that to be C+/B-

I'd say that the B rents would be about $1,100 to about $1,400. Above $1,400 would be A rent. Below $1,100 to $850 would be C rent. Below $850 is D rent. These are only my approximations for my area. Your mileage will vary.

For me the best spot is the B & C+. Once you get into A class, the tenants are very fussy, they're paying a lot of rent and they expect lots of service/amenities. And often times the A renters can afford to buy, and sometimes are short termers, maybe between purchases or building a new home.

Joe A

If all you are looking for is cashflow and you don't car about appreciation, there are small town USA, towns that you never heard of where you can buy houses for $20K and rent for $450 a month. And ten years from now the house will probably still be worth $20K. Theses towns are typically 50+ miles away from urban centers, so that they are at best on the fringe of the commuting areas.

Best, though implies to me growth & cashflow. The above example is a cashflow NO GROWTH investment. For the best areas look for:

1. Population growth
2. Economic growth
3. Increased employment numbers
4. Increased hourly wages/family income
5. Increased school population
6. Diversified employers in the area
7. Infrastructure that supports the current employment and employment growth
8. Good to great educational facilaiites in the area
9. Low crime rates
10. Favorable tax rates

Joe A

There is no "right" answer.

1. Some of the answer depends on your risk tolerance.
2. Do you want positive cash flow but don't care about appreciation?
3. Do you want appreciation but don't care about positive cash flow?
4. Do you want to manage property yourself?

As they say in the securities field, "Past performance is not indication of future potential."

I agree with the above commments that you need to "know" the area. There are a ton of places that are the right place to invest now, but just like all investing nothing is certain.

Jeff Henderson

I would not recommend that you lie about owner occupying.

1. You will sign a document at settlement saying that you will live there as your primary residence for the next 3 years.

2. These documents will be between you and the Federal government, owner of the home, as HUD is a Federal agency.

3. One way that they catch people doing this is via your tax return. And if you were ever audited, it would probably come up there also.

4. The penalty is $250,000 fine and up to five years in jail.

5. To quote "Dirty Harry", Do you feel lucky?