All Forum Posts by: James Piercy

@Bill Thomas - I tried to hold on to a 1% rule in Austin and had an extremely difficult time.  I ended up purchasing a duplex for $435k that brings in $3200 in rent.  I didn't meet the 1% but quite a bit and I am paying for it with undisclosed expenses that would have been better covered from positive cashflow.  

@Gerald Barron - I appreciate the positive thoughts! There is light in the future and hopefully the darkest days have come.  Thank you!

@Michael Boyer - Next time, time I'll change my profession to everyone but the lender :).  I do think they took me for an out of state buyer that they could get things past.  I really like your outlook on this was a real estate seminar.  What I've learned this time around, will not be repeated.  Thank you for your positivity!

@Aaron Lawson - Thanks Aaron!  I plan to turn this situation around and be much more efficient moving forward.  I am now aware of tools and expenses that I did not realize the first time around.

@Jody Schnurrenberger - Thanks Jody!  I plan on cleaning shop and starting fresh once the dust settles and my tenants are happy in their units.  The last thing I want is a broken property and unhappy tenants but I do plan on getting an entire team that has my better interest moving forward and diverts the blame on me being green to real estate and takes some accountability for sloppy and careless work.

@Patrick L. - Thanks Patrick!  I will definitely not trust people and technology as much as I did for my next deal.  I totally understand expenses and macitence but from the first month a tenant moves in to have 10k that was not told to me has been a wake up call.  At this point if I can only get the cost of the inspection back from the inspector, I will proceed to get that $500 as well on principal.  

@Caleb Heimsoth - I have no idea how it wasn't on the report!  I will explore all options moving forward and look more into turnkeys.  Thank you!

@Max T. - Thank you for your positivity!

@Ron Flatt - Thank you Ron!  Next time I will make sure the team I am working with is more focused on my success vs their gain.

@Thomas S. - The trust is gone!  I'll make sure I am more involved in the inspections moving forward.  Thank you!

@Josh C. - The dirt and blinds definitely bothered me! Still do!  I used a referral to purchase the property from a friend in the area.  The ignorance is on me but I trusted that people would do a good job as part of their job vs doing a job to get paid.

@Jay Hinrichs - Thank you for your insight!  I realize now how expensive the property tax is and how that doesn't benefit me living in California.  I do intended to move to Austin in the next couple of months but this experience has me putting Austin in a negative light.  I hope my foundation is fine for the next 30 years!  I had that corrected and proof of correction before purchasing.

@Joe Splitrock - It's been a terrible ride but I know I am on it!  I plan on holding the seller and inspector accountable until I am officially told it is my problem.  I will definitely spend the $400 on a flight next time.  The notary itself is almost the cost of the flight out.

@Dylan Vargas - Thanks Dylan!  I will not let this situation go unnoticed for anyone in the Austin area.  I will make sure to note who I worked with and what the experience was.

@JingJing He - Thank you Jingjing!  I couldn't get myself to pay Bay Area prices but I am kicking myself for not testing the waters closer to home.  I took California for granted.  There's no way this would have been acceptable!

@Fred Heller - That's great advice thank you!  I would have walked away from this deal, had these big ticket items been called out.  I will not make this mistake again!  No finished basements and no do-it-yourself sellers added to my watchlist.  Thank you!

@Bruce Lynn - Thank you for all of your insight!  I am waiting to talk to the inspector or realtor further until I know what my rights are as a buyer from a lawyer.  If I am screwed, I am screwed but I am not trying to point the finger at parties if they aren't the ones responsible.  I definitely had my realtor tell me about renting at a price point easily, etc.  I will never buy a multifamily without at least 1 tenant in, to get a better understanding of what I am walking into.

Thanks everyone for all of the insight and advice!

@Josiah Cammer - Would be happy to connect.  This will not be my last purchase and I will be creating a new team in Austin to give this a second go!

@Katie Hanner - Thank you for your kind words and insight!  I would love to connect with you as well about any attorneys, property management and lenders.

@James C. - Thanks James, I definitely trusted that these individuals had my best interest, when they did not. To clarify the cash flow comment. I watched the MLS (my first mistake) for 6 months and put in 6 offers with the best rent returns that came up. I did my math and after property management fees, I cash flow $550 a month. I purchased this property before I came across BiggerPockets and how to use proper formulas to plan for CapEx. The team I used insisted that you can not get much cash flow in Austin since the rent market hasn't caught up to the housing price and that my cash flow was excellent but appreciation was my ticket. I am not looking for a pity party, more so if this experience is common and I am being unreasonable by being upset by large ticket items not being disclosed and what my rights are as a buyer. I'll continue to plug away and check cash on cash more informed in the future. Thank you.

@Matt M. - Hey Matt, thanks for your response!  I will be more diligent and informed in the next purchase.  The property has a net cash flow of $6k a year but if I have new tenants I pay around $2,500 towards placing tenants (being remote).  Hence, I am looking at 2-3 years to break even on my $10k repair cost in addition to having the down of $110k not work for me during these times.

@Brian Pulaski - Thanks for the reply Brian.  I pulled the permits and the only ones are for the foundation and the electrical work I paid for.  I think my inspector was careless and negligent (never again).

@Jimmy Dudley - Thanks Jimmy!  I'll ride this out until I see the light!  I'll look for my own recommendations next time.  Have to do things yourself, sometimes to have them done right!

@Andrew Johnson - Thank you, it has been a lesson learned.  I will not being putting in offers without doing my own walk throughs moving forward (seems silly now I trusted people to have my best interest).  I hope in 15-20 years, I look back and laugh with many profitable properties in my portfolio!

@Justin R. - Thank you Justin!  Respect is definitely earned.  I gave people the benefit that they wanted to help me succeed vs helping themselves pocket some cash.  I will make sure my next property is close to 1% (which is what I wanted from Austin in the start but was told that's not possible, so I settled).  Paid my tuition this semester!

Hello Everyone,

I currently live in one of the most expensive areas of the country (Bay Area, CA). I work in tech at an amazing company (Facebook) and I am extremely fortunate to have a relatively high salary for my age. Despite this salary and having a large total savings, I am unable to afford a 1 bed/1 bath fixer upper condo for 1+ million (the going rate in this area).

Being in tech I keep an eye on areas that have exponential tech growth and Austin caught my eye. I connected with a coworker in that office for a referral of a broke and realtor in that area and things were great. I had never been to Austin but for 6 months as soon as a property hit the MLS, I would review and debate writing offers. During this period of time 6 properties hit the market that I was very excited about. My interest was in renovated properties that would require little to no work, being remote, I did not want to have the extra stress an outdated property. Out of these 6 offers, all were place on the day of the property hitting the market and the very next day each seller asked for best and final.

The 6 property that I put an offer on, was a duplex that hit the MLS for $419k. I had my realtor and broker check the property out and give me their feedback on wether or not I should more forward. They agreed that it was a great location and I should submit an offer. My offer was accepted for $435k (25%/$110k down, 4.65int). It was a completely renovated, beautiful duplex with no tenants in either side (due to the renovations before sale).

Part of the contingency, I had an inspection which returned some questionable items, like no outlet under the sink for the garbage disposal (one of many small things) and a huge electrical panel swap, estimated at $5k. This was extremely concerning for me at the time but after discussing with my realtor and working with the seller they agreed to fix the issues caught by the inspector and give $5k towards the closing cost for the electrical work.

We closed and I used the same people to list the property for rent, as quick as I could. The property sat for 4 weeks with no interest on either side (after the realtor and broker told me it would be rented instantly - people will say anything while you're buying a property). I became concerned and flew out to Austin to visit the property. I found that the property was extremely dirty and there were no blinds, the renovation was sloppy (paint, tape, rushed worked) but as disappointing as that was, I put the time in and cleaned the property and installed blinds and the next week, two tenants applied.

Then the problems FLOWED in. As soon as I got a tenant there were issues after issues. First, I was notified that there were no smoke detectors in any of the units or rooms and I was liable to do install that ($350 for 8). There were no screens on any of the windows and the tenants wanted screens (understandable - not required $500). I was never told that there were no screens but this is relatively minor. The tenants called and said that no outlets were installed in any of the bathrooms (I didn't notice this when I flew out after closing and it was never included in my inspection - not up to code, $1,250). The electrician found exposed romex wiring that was also not called out on the inspection. Immediately upon one of tenants moving in the water heater went out and needed to be replaced ($800). Undisclosed expenses are starting to add up and I am starting to feel like I am drowning in things that were not told to me. Immediately after replacing the water heater, I get a call that the other unit water heater is out and their heater is out as well (HVAC system from 1994, $4,500) this wasn't called out to me either.

So far I have had:

• Smoke detectors that were missing and extremely overpriced ($350) - not disclosed
• No electrical outlets installed in any bathrooms and wiring not up to code ($1,250) - not discussed
• Window coverings ($400) - not disclosed / not required by law but crummy to not know
• Bad water heater upon purchase ($800) - not disclosed / 2nd one in process of replacing
• Broken HVAC system ($4,500) - not disclosed
• Broken Dryer Outlet called out on Inspection was to be fixed (not fixed)

Total: $7,300 in expenses not disclosed that would have swayed me from purchasing this property. Not to mention an extra $1-2k on misc. maintenance expenses.

I am defeated. I feel taken advantage of being a remote buyer without seeing the property. The seller did not disclose (there's no way they didn't know these problems, while doing a renovation). The inspector failed to note any other issues. The realtor didn't catch them either.

Each day I wake up expecting to see some other large expense, that is creating a financial burden on me. The broker has changed up the tune from saying this is a beautiful property that will rent quickly and be low maintenance from a renovation, to saying that I should expect these expenses from a renovated property and I am being a "new investor".

I feel helpless being remote and that jobs that I paid people to complete were not done correctly and I am paying a high price for them. I bought this property with cashflow in mind but with the undisclosed expenses that have come up immediately after purchasing, I am looking at 3 years before I can break even from cashflow on a $110k down.

My plan is to continue to purchase duplex/fourplexs but this experience has been terrible. I am working with a real estate attorney now to figure out what my recourse may be and I look forward to a week/month/year where there are no large expenses. Is my experience typical?!

@Brandon Hall thanks for the reply.  I listened to your webinar today and that sparked this question, when you brought up gift tax.

I would set up the 50k loan to be paid back over 30 months - bi monthly @ $833 directly into  my mom's Wealthfront account.

Do I need to report anything to the government if I am paying I am paying her back?

So to to take this right, since the the $50k is $36k over the annual limit, tax would need to be paid on $36k?  

If you are gifted and wait several months and give the gift back does that null it or are you then looking at two gifting taxes?

@Richard Olshove - how can this be treated as a personal loan?  Since I am already doing that, this makes the most sense.

Hello Everyone,

If my mother is to gift me $50k and I set up a payment plan to repay her, how does that work with taxes?  I had never heard of being taxed on a gift (silly me).  I was originally going to use the gift as a down payment but I learned that gifts can't be used to purchase property, until it becomes "seasoned".  I DO NOT want pay taxes on any kind of money that my mom gives. 

What I want to do is use my mutual funds to purchase a property and replenish the mutual fund with the 50k to make interest, while paying back my mom with no interest.

Does anyone have experience with gift taxing?  The last thing I ever want to do is pay the government twice.

Thank you.

Hello Everyone,

I recently purchased my first duplex in Austin, Texas for $435k with 25% down.  I started my search over 8 months ago in Austin but with the competitive market it took many offers to close one.  When I started my search my broker told me I would need 20% down for a duplex and 25% for a fourplex.  By the time I was writing my offer she told me that it had now gone up to 25% down for duplex's and 30% for triplex and above.

I moved forward and purchased the duplex with around $110k down (25%).  I am looking for my second property but with 25% down minimum on all multi it becomes extremely difficult to continue to purchase.  I know there are creative lending strategies but with a traditional mortgage is it now the law to require 25% down or are there different lenders that will allow 20%?

Thank you!