All Forum Posts by: J. Lee

@Rebecca Graziano as an FYI you can get around the passive loss AGI limitation if you or a spouse qualify as a real estate professional. I have been able to use this qualification for my wife, combined with rehabbing properties to offset income well in excess of the normal threshold. It can be quite substantial and if done properly you may be better off financially by having one spouse quit their job to become a real estate professional.

Michael- looking into submetering. You mind sharing who you used to assist with process? I am in Central Illinois as well. Thanks 

Michael- sounds good. Would be interested in meeting sometime. I would be particularly interested in any insight you could provide on finding good local contractors. I am actually an attorney with financial background so finding the deals, structuring, and organizational structure/paperwork is the easy part on my end. I struggle with finding the right contractors.

Michael- Thanks for the info. I have used First Mid but sometimes more stringent than alternative options I have seen. I have had luck in Charleston. While most others stay away from it, I see opportunity. At the prices available, it justifies the vacancy rate. For example, I acquired an 18 unit complex for about 150k. I put new roof, paint and cosmetic upgrades and expect to be full by fall. Units rent on average for 400 but have a few now rented for 600. 

I have 4 more units under contract and anticipate similar extraordinary returns. 

Much of the opportunity is in Charleston but I would prefer to also buy in Mattoon as it has a growing community.

Michael- interested the know what local bank you are using. I too started investing in the Mattoon/Charleston market almost a year ago. I have gone from 0 to 29 units in this period doing similar actions. I always speak with several banks when I do my financing and would be interested in what bank you typically use. Thanks 

Capex included within my maintenance calculation

most sellers scew the numbers and are not accurate. I am from Illinois and I am extremely conservative on my calculations to ensure worst case scenario all turns out well. I typically assign 10% for maintenance as well, another 10% for vacancy, reduce for property taxes (which are available online through assessor office) and then further reduce for insurance, and if multifamily any other utilities provided. After all this plus mortgage  payment reduction ( I typically only lay 20% down), I require a minimum of a 30% cash on cash roi. I typically negotiate to get my price right and find a few properties each year. At the end of day it is always better than this worst case and have excellent returns. Please note I get this in central Illinois and may be different where u are but being extremely selective has worked well for me so far. 

obviously depends on goals, but I would suggest the mortgage, as leveraging the investment will bump up your ROI and enable you to use excess cash to buy more

depending on income level may be a great idea. Ideally, if you have in excess of 100k in net then good idea if structured properly. The managing entity should elect to be taxed as an s-corp and make sure such entity charges enough of a management fee to shift all income to this entity.  Then you pay yourself a salary of about 40% (so long as reasonable in amount) with rest coming off as a dividend. Notably, the dividend is not subject to self employment taxes (I.E 7.65%) which is doubled up to certain threshold (cap on Medicaid portion of 1.45%) because you pay employee and employer side (over 15%).

In sum, on 100k in income where normally pay about 15k in self employment taxes, you can save 6k by using this approach. 

Somewhat complicated but get a good accountant.