All Forum Posts by: Jason Maestas

After speaking with my CPA, It looks like the property has been fully depreciated and will be subject to the full gain of the sale minus the 1/4 I lived in, which $38,600 will be tax free  of that 1/4th.

Basically say I sell for a net of $500k. $500k/4 units is $125k each. 3 of the 4 units will be taxed on the $125k and the 4th unit I used will be taxed on $125k-$38,600= $84,400. So $125k*3=$375k+$84,400=$459,400. Taxed at 15% is $69k.

So I would definitely want to 1031. I just get worried about finding a good deal and having deadlines to do it within. 

@Basit Siddiqi the previous appraisal came in at $350k which was before a renovation in the $1350 rate unit. All the other units are the same as the time of the appraisal but rents have increased. The $1350 rent was $725(worst unit in the building) for a long time tenant(13 years). Another unit is increasing from $900 to $1250 next month after his initial 2 year lease. Market has definitely accelerated in the immediate areas.

Thank you @John Warren and @Jaysen Medhurst for your the input.

The property is fairly easy to manage and I could possibly have some expenses coming up like AC units, water heaters, and the roof is getting a bit on the older side.

My cashflow with existing mortgage is $36k minus the $150k second private loan at 8% interest only ($12k a year) leaves $24k actual cashflow.

The returns are good but I do want to scale up. The building has been on the market for about half a year and had trouble with the appraisal coming in way low. Maybe they were looking at comps instead of income approach.

I am worried about finding a good deal within 90 days (45 days to close and another 45 after close) if I go under contract and choose the 1031. Not under contract at the moment.

The value that has come out of this building has been amazing and I know it will be difficult to replicate because market timing and appreciation had a lot to do with it. However, a bigger deal with a little less % in returns is still more valuable to me because it is a scale up and in the direction of my investing goals.

Do I wait until I find another good deal to 1031 into and risk having to sell for less because I wouldn't have to time to let the 4 unit sit on the market waiting for a cash or strong buyer who will not have an appraisal stipulation, or do I sell it now and risk not finding a great deal or no deal at all and paying the capital gain taxes?

And @Jaysen Medhurst, my question is about the difference between my purchase price of $140k vs the total Debt amount of $280. In the 1031, how much exchanges over? The difference between the sale price of $550k and the $140k original purchase price? or The difference between the $550k sale price minus the $280k debt amount?

Hi Guys,

I Purchased a 1925 4 unit in 2013 for $140k as a bank owned property and house hacked with it as my primary resisdence. I now live in a singe family home with my family as of 2017. The rents were $500 in each of the identical 1/1 units when I purchased the quad. I have made improvements to and raised rents over time with a fast growing market and now my rents are up to $1200-$1350 in each unit.

I obtained a private 2nd mortgage of $150k interest only at 8% a few years back.

I have had the 4 unit on the market for $550k since mid 2018. Rents were a bit lower and we were in the process of making more improvements and waiting for leases to expire. We went under contract twice and fell through for appraisal coming in too low and second for a cash buyer looking to retrade a significant amount.

We took it off the market for a month and a half while renovating one of the units thats now getting $1350. We are now stabilized at the higher rents mentioned above and put it back on the market. We are looking for a cash buyer or someone with a strong down payment to avoid any future appraisal issues.

We have a buyer who is putting 50% down and is coming up on a 1031 exchange deadline to identify a property. It is a sophisticated investor who we are confident will close the deal.

Now my dilemma is the taxes I will face upon sale. If I try and 1031 exchange at this point, that gives me a very limited time to identify and close a qualified deal ( 45days after my close to identify 3 properties and 180days after my close to then close on one of those identified properties). Also, if I do happen to find and close a deal within the timeframe, will I be able to pay the second mortgage? ( original purchase price is $140k and debt is $290k)

I have a good buyer now but risk having to pay the capital gain taxes plus depreciation I have taken in previous years taxes.

I would love to hear your imput and any ideas and advice in moving forward. Thank you all so much!

Jason

Welcome to BP @Shawn Wade,

Your story sounds similar to mine. I live in Tampa ( 7 years now) and made the decision to get RE license and jump in Real Estate full time a few years ago. Fortunately my brokerage passed on enough leads to make some deals happen and get the ball rolling.

 I had the same goal as you when I moved to FL, to purchase a small multifamily and live in one unit and rent the others. I looked for a while before the right deal came but it sure was worth it. I found a 4 unit that was bank owned with below market rents which was a perfect opportunity to add value right away. Keep up with that goal, keep learning, keep looking for deals, and when you come across one that makes sense, take action!

Feel free to reach out with any questions or even just to chat about real estate, I'm happy to help!

Thank you all so much! I am currently speaking with other lenders to get this done. I am definitely open to any recommendations you have for lenders as well. I am in Tampa, FL.

@Account Closed Thanks for the response, I was also told this by one of the lenders I spoke with. So does that mean it would be considered an expense to the flip, eliminating the capital gains? Or does it just depend on the way my CPA files the income?

Hi BP,

I am trying to do a cash out refi on a single family property which I purchased cash and renovated. My primary source of income is capital gains income through flipping. I was told by a lender that I cannot use that income to qualify for the Mortgage. Is anyone else having this issue? Could it be that particular lender or is this an industry standard? If so, what other options do I have to release the equity in the home? If its the specific lender, who are you guys having success with for your cash out refis? Thanks!

Hi Rick,

Welcome to bigger pockets! I myself bought a 4plex to live in one unit and rent out the others to get some experience managing. It was such a great decision as it still cashflowed while I was living for free. Also, gave me a great hands on experience to multifamily investing at a smaller scale with more forgiveness if I totally messed it up lol. Thanks to Bigger Pockets, I had plenty of resources to help my success.

I say either one is great to start with. If you find a good deal on a 3 unit, I wouldn't hold out for a 4. As a 4 plex gives you that extra unit which can boost your cashflow a bit, getting started and taking action is much more important I feel.

If deals are scarce, you might want to look into trying to find deals off market by approaching owners directly.

I hope this helps some and I wish you luck with your search!

Hi BP,

I wanted to share the questions I find myself searching the answers for in hopes you guys can shed some light for a small investor making his way into the Multifamily space(25-100 units). Let me know your thoughts and maybe others have similar questions. Here they are:

- What are some of the creative ways you guys are finding/identifying multifamily deals/motivated sellers. I'm looking for some things outside of MLS, LoopNet, Brokers, etc.

- As a Broker can be a great resource, how should a new multifamily investor go about choosing the right Broker and also building a relationship with that Broker? What does that conversation and/or process look like?

- Once an off-market property of interest is found, how do you reach the "decision maker" as most are owned as an entity instead of a sole proprietor? How to get around the management company (considering it is not owner operated) and directly to the owner?

- And once you do get a hold of that "decision maker", how are you approaching them with your interest of buying their property? What does that conversation/process look like as to increase your chances of converting it into a deal?

P.S. These questions are related to Value-add approaches as that is what I find most interesting and appealing about multifamily investing as I continue to educate myself with books, articles, and podcasts. Thank you all! Excited to hear your input!

@Tyler Goulden Great post! I too am in the hunt at scaling my real estate business to larger mid-sized apartments(25-100units). I am looking to educate myself while I look for properties. I have read Steve Berges's "Complete Guide to Buying and Selling Apartment Buildings" and just finished "Crushing It in Apartments and Commercial Real Estate" by Brian Murray. Both are great books which give a strong foundation to the concept and process behind Multifamily Apartments and other Commercial investing. They also have more detailed info and dig deeper into some areas which I appreciated. I also have read "What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures" by Frank Gallinelli. This is more of a text book type and is not as "exciting" as the others I read but is still a great resource. 

@John Jacobus Thank you for taking the time to put that list of books and podcasts together as I am also looking to further my education in Multifamily Apartments. They seem like great references.

@Chris Tracy I wanted to share the questions I find myself searching the answers for. Let me know your thoughts and maybe others have similar questions. Here they are:

- What are creative ways to find multifamily deals/motivated sellers. I'm looking for some things outside of MLS, LoopNet, Brokers, etc.

- As a Broker can be a great resource, how should a new multifamily investor go about choosing a Broker and also building a relationship with that Broker. What does that conversation and/or process look like?

- Once an off-market property of interest is found, how do you reach the "decision maker" as most are owned as an entity instead of a sole proprietor. How to get around the management company (considering it is not owner operated) and directly to the owner?

- And once you do get a hold of that "decision maker", how should you approach them with your interest to buying their property? What does that conversation/process look like as to increase your chances to convert it into a deal?

P.S. These questions are related to Value-add approaches as that is what I find most interesting and appealing about multifamily investing. Thank you!

Hi @Mark Callicott

I would you please send more info about the property such as past years financials, rent roll, any other pertinent info, and more pictures would be great. Thank you!