All Forum Posts by: Jeff Lever

The real estate market here in NC, specifically the N. Charlotte area, has been going absolutely nuts for the last few years. Wondering when the train ride will end...or if we should just ride it until the rails fall off. 

I'm doing major renovations to a 3/2 1500sf rental we've had for the last 6 years. I'm guessing we'll throw about $15k into it for new windows/flooring/paint/landscaping/etc. It was actually my first house that I bought back in '05 for $140k. The RE sites are saying it's now worth $315-335k which is shocking if not unbelievable. Of course, there's a 2/1 800sf shack on .44 acre that just sold for $325k about 200 yards up the road. If you look at zillow, almost every house in the area is going over asking price and avg time on market is < 30 days. 

The rental history has been stellar - vacant only 2 months out of the last 6 years at $1400/mo. We've had the house listed for $2100/month and believe it's likely to get $2k/month. Our mortgage on it is about $1200/month for P/I/T/I. The property also has a significant amount of equity in it at the moment - despite us refi'ing last year. Balance on it is about $160k. 

If we decided to sell it, we'd probably bump our budget to $25k to really make it shine. If the shack up the road really did sell for $325k, I'd be surprised if we couldn't get at least $400k. The sale price says $325, but it's tough to tell if it wasn't part of a larger RE deal. 

Now for the real curve ball. Simonini homes is building a 180 home neighborhood directly behind the house which used to be nothing but beautiful farm land. Unfortunately, they'll be stacked on top of each other with lot sizes of only .15-.25/acre, but the good news is they'll be on the expensive side. At the end of last year, they were saying ~$700k/home and w/ the way the market has been performing, I'd be surprised if that wasn't $800k. My rental is on a country road w/ a 45mph speed limit that will be just in front of it. I have no clue what effect the neighborhood will have on the value of my home. Those homes are really a different price point, so I don't think they'd be direct competition. The bad part is the entire 95 acres will be a dust hole for the next 2 years starting Q1/2022. 

What would you guys do? Rent it for $2k-$2.1k and ride out the dust bowl hoping the RE market continues to soar? Sell while the market is hot and before the fed starts raising interest rates?

Overall, none of this makes any sense to me. I never thought the house would see a $300k valuation, now that's on the low side! Add that to the fact that we have the gov't printing money at a breakneck pace spurring inflation, so naturally - the stock market and RE markets are soaring, and then the really odd aspect - the USD index is... rising?! It's happened in the past, but the RE/stock market correlation to the USD index has usually been inverted. 

What's the straw that's going to break the camels back? When the gov't end the mortgage/rent subsidies? When Biden's new tax scheme takes a big wet bite out of everyone's bottom line? When the feds bump the interest rates? Something else?

Hi Folks, 

My father-in-law is semi-retired, just bought an RV he plans to live out of and is looking to sell us his home for us to use as a rental at a good price. Wanted to get advice from others who may have bought homes from family members in the past, and any recommendations on making such a transfer as tax friendly as possible. Here's what we're considering....

Background: 
4BR, 2.5BA 2-story home ~2.5k sqft w/ small 8x10 storage shed, carport, but no garage
Outstanding Debt: $88k
Home Value: $250-270k 
Estimated monthly rent: $1600 (low) $1800 (expected) $2000 (high)

Where to go from here? 

From what I understand of present IRS rules, you're allowed to earn up to $250k on your primary residence and pay no capital gains tax. He bought the home like 35 years ago for $88k, and present valuations are ~$310k. Since he'd pay no tax up to $338k, and a higher purchase price would help us since we'd show lower capital gains - I'm thinking the best move is to pay $338k to minimize any cap gains we would pay when we sold it many years from now since it's not our primary residence. 

Thus, we would be responsible for his current mortgage where he owes $96k remaining (about $850/mo), we'd then offer him 1/2 of the proceeds of any rent - present estimate is ~$1800-$2000. If it's $2k/mo, we'd split the gross revenue after mortgage of $1150/mo - $575 to us for main/repair/etc...$575 to him to pay down the debt ($338k - Outstanding Mortgage $96k = $242k our debt to him - $575/mo)

I'm wondering are there any other ideas on how we can minimize our payments or our future capital gains taxes that we'd pay when purchasing a property from a family member? 

I've tried to make this as brief as possible to avoid boring anyone to tears, so please ask any questions you might have. I'm trying to determine the best way to structure this real estate deal with my father-in-law(FIL). 

Property: 4 BD / 2.5 BA 2-story Home
Online Value: $284k (Z: $292.5k, R: $285k, Red: $275k) less repairs
Rental Comp Range: $1500-$2100/mo - Most likely $1650-$1750
Repairs: $34k
Actual Value: $250k
Outstanding Mortgage Balance: $110k
Previous Purchase Price: $88k
RV Purchase Price: $134k

How would you structure this deal to minimize expenses, fees, & taxes given the following info:
1) FIL can give transfer property to us given any of the following strategies: 
   *$0 (gift)
   ** $110k (we assume the outstanding balance on his mortgage)
   ***We transfer at market rate (quit claim deed adds us to property deed, $110k refi with wife & I assuming all debt, then he's taken off deed w/ quit claim & we pay him 140 payments at $1k month for the equity he has in property w/ no interest).
   ****We can gift him $110k to pay off his mortgage, the he can gift us the home valued at $250k. I believe the only ramification from this is we will both have to file form 970 w/ the IRS which will reduce the gifts we can give by the said amount less $15k (so his lifetime gift allotment would be $11.4M less $235k and ours would be less $110k)? We would then be responsible for paying him for the equity on the property (140 payments of $1k/mo)

2) We want to maximize cash flow on the property, and my best guess is rent will be $1700/mo

3) The house will likely be used to pull cash out to finance another real estate purchase in the future since we will most likely have between 65-100% equity in the house. This will likely not occur for at least 1-2 years with real estate prices going absolutely gangbusters around here, we're questioning when we might see 2008 all over again. So we'd be hesitant to take on any more real estate deals unless they had terrific cash flow until we rebuilt our cash reserves to $30-40k.

Quit Claim Deed:

We plan to use a quit claim deed to transfer ownership to minimize the transaction fees. Couple tax related questions:
1) A 1031 exchange would never come into play in this scenario since there's no actual 'sale' taking place.
2) If we did an actual sale instead of a transfer, could he use a 1031 exchange to pay off his RV and pay no capital gains on the difference between the sale price and the $88k he bought it for 30 years ago?
3) If we're gifted this property, the taxes we'll eventually have to pay when we sell it will be huge - we'll have to pay cap gains on the full sale price (less expenses)

Any advice is greatly appreciated!

I wish I could find a property that wasn't section 8 that met the 1% rule. Here in NC, the market has been so hot, it's more like the .5% rule. Seller's already took an offer after saying we had until the end of the day to get other offers in - that was at about 3pm, so I'm guessing that means >= full price offer. Granted, the properties all looked to be in great condition. Brick duplexes, nice neighborhood, great schools. It's no wonder all the units were rented out. 

Still, the price was up there. $490k, and with the 6 units rented out it was generating $44.3k/year (or .9%) Debt service on that would have been $1775/mo + Taxes $250/mo + Insurance $150/mo = $2175/mo ($1520 cash flow)
Property Manager at 10% of rent = $370/mo ($1150/mo cash flow)
Landscaping = est. $300/mo ($850/mo cash flow)

That's before all other maintenance & cap exp. Rule of thumb says 50%  of rent(which takes the landscaping back off the table) - that'd be $1100/month, which likely means there's next to no cash flow on the property. 

But if that's the case, why was it on the market for less than 48 hours? NC is crazy. Finding any property at the moment is almost impossible. 

What would you pay for 3 Duplexes (6 units) in what appears to be pretty good shape - fully rented w/ each unit bringing in $625 on average ($3750/mo)?

Property is also an hour away, which means that more than likely we'll have to use a property management firm to handle tenant issues and maintenance costs. I'm not sure what landscaping costs would be, but it's a very open/flat space that's about 1.5 acres of 99% grass. 

Brick duplexes all look to be in good condition w/ no deferred maintenance, on septic systems, tenants pay all utilities. 

Just ballparking it right now to see whether the asking price of $500k is fair or overpriced?

Thanks Andrew...any advice on these 'best and highest' offers? I don't have much experience with them. Not sure how a bidding war can ever end up good for a buyer in a 'buy and hold' scenario...

My wife and I have an offer in on a duplex and with the way the market has been lately, it's another instance of multiple offers. The sellers are soon to ask for everyone's 'highest and best'...which is really what I was hoping to avoid given the real estate market here in NC has been on an absolute tear since '15. Not to get too political, but the new administration's promises of higher taxes isn't something that doesn't give me the warm fuzzies about the stock or housing markets. 

So we found a damaged duplex in a marvelous location, but the thing could be declared a biohazard. The house had the carpets all ripped out because of the cat piss and poop...and it's still completely all over the place. The smell is so bad it gags you. The lady must have had a hundred cats. Underneath the carpet was those thin width hardwood floors. Be nice to salvage them if possible...but I don't know enough about floors to know if 1) They're salvageable at all 2) If I will have to tear any decent flooring out to get to the subfloor to replace it. The unit totals about 1400 sqft w/ about 200 sqft being the kitchen area that has linoleum flooring. 

Part of the duplex is presently rented with an older couple that has been there 5 years paying $650/mo. That's about half market rate :(, but I'm not about to push an 80+ year old couple out to a new place. We haven't seen the occupied unit yet, so not sure what damage it has (if any), but the tenants said they took good care of their pets. 

Here's a tentative list of repairs we've estimated. The duplex in total is 2800 sqft (each unit is 1400 sqft)...

• Floors (Soaked in cat pee/poo): Repair (if possible-clean/seal/vinyl planks over top) $7,500, Replace: $15,000
• Roof (decent condition but looked like one soft 4'x4' soft spot): Repair: $750, Replace: $17,500
• Plaster Walls/Ceilings (like absorbed cat pee odor): Repair (multi-coat oil paint kilz): $2,500? Replace w/ Drywall: $8,000
• Windows: $6,000 (optional...they are single paned windows)
• New Half Bath: $10,000 (optional...full ball + $5,000)
• New Appliances: $2,000
• New Front Porch Roof & Railing (optional, has existing patio): $3,000
• New Kitchen (optional...countertops, cabinets, fixtures): $10,000
  

Purchase Price: $180k

• Livable ($1,100/rent) - repair floor w/ vinyl, fix roof, seal walls/ceiling, new appliances, new half bath: $22,750 + 20% overruns: $27,300 
• Nice: ($1,250/rent) "Livable" + new windows, new covered front porch, new full bath): $36,750 + 20% overruns: $44,100
• Excellent: ($1,400/rent) Gut house - new floors, walls, ceiling, appliances, kitchen, front porch, full bath, and new roof: $76,500 + 15% overruns: $88,000

We'll probably target 'Nice' as I think that will give us the highest rent relative to costs. Probably mix in some kitchen upgrades as well but not go all out...which would put us at $50,000 which includes a $10k cushion. My realtor is telling me ARV is likely to be $275k, so not a 'great' flip, but the location is so great we'd probably buy and hold long term, which would be good news for grandpa in unit 2. :)

Would like opinions on my projections...and what method would be the best way to finance all this....

Financing, we have 3 options:

• $150k cash + we could take out a $100k equity line of credit on our primary at prime + 1.5%: ARV refi pulls cash out/pays of LOC on $275k valuation = $206,250 out or $23,750 out of pocket & $1,102/month pymt = ~$900/CF/mo
• 30 year traditional and roll repairs into cost: $80k down $150k financed 30yr @ 3.375% (total out of pocket: $80k + $858/month = ~$1200/CF/mo)
• 30 year traditional: $45k down $135k financed 30yr at 3.375% + $50k in cash for repairs (total out of pocket: $95k + $792/month = ~$1250/CF/mo)

This is only our 2nd rental property, so any advice is greatly appreciated! :) Thanks!

Hey Folks,

We presently have 1 rental property and are considering expanding our portfolio since our first rental property has been pretty good to us for the last 5 years. Wanted to get some opinions on the P&L for the last year for a MF property we are considering:

Purchase price is $440k - so i think that puts the cap rate at about 7.2% - which seems a bit low to me...but that does include full property mgmt as well. Without the property mgmt, you'd be looking at income of about $37.4k which would put the cap rate at 8.5%. What would you guys say is a fair price to pay for this property?

Hi, 
Was hoping some members here might be a contractor, handyman, or realtor that specializes in investment properties in the Charlotte, NC area - specifically north of Charlotte. We live in west concord north of CLT, and are primarily interested in properties from Mooresville south to huntersville west to concord and north to kanapolis - and everywhere in between those towns. 

Looking for a realtor w/ investing experience to help us find BRRRR properties. If they also provide property mgmt services, that would be a bonus. In addition, we're also looking for handymen/contracting for rehabing the projects. I used to try and do everything myself, but found out I do like to sleep every once in a while. Any recommendations are appreciated or feel free to send me a message if you match what we're looking for. Thanks!

~Jeff
Leverage Props

Hi Guys,

We're thinking of giving the BRRRR method a shot. We've got some idea of the most cost effective ways we can add value to the property we purchase, but wanted to hear from those with more experience.

A few of the ideas we've had are:

1. Houses that can have the heated square footage easily expanded - unfinished garages/basements/sunrooms/etc
2. Unkempt/Overgrown landscapes
3. Aesthetic Damage - Needs basic repairs or updating - paint/trim/etc