All Forum Posts by: Justin Brown

Thank you all for your candid feedback. You all have great points. Hopefully the shutdown ends soon so we can minimize the damage. I will keep posting as we go through this.

We received a letter from our tenant (a great tenant so far) and they are concerned about making full rent in Feb as one of them has been furlowed by the govt shutdown. I appreciate their proactive letter and they have never been late. I am curious if others are seeing this and how others will handle it. I have always heard to Not accept partial payment and to be firm but in this case the job is stable and at some point the gov will resume. I don't want to lose the tenant but I want them to make paying rent a priority when his job resumes. Look forward to your feedback.

@Keith Tidwell Welcome Keith. I was born and raised in Louisville and have lived here my whole life. I started investing a couple years ago and look to add more SFR and MFR this year. Let me know if i can help you in any way.

@Jordan Moorhead I am also born and raised here in Louisville. I work as an engineer for a consumer product company. We currently own 4 SFR and 2 small MFR. I would love to connect with you over coffee. My treat. Also, i am interested in finding good PMs if you don't mind sharing. Your call.

@Terrance Hall Thank you for responding.

Thanks Cody.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $40,000
Cash invested: $4,000

This one is a brick townhouse with 3 BR and 1.5 Baths. Hardwood floors, a fenced in back yard and full basement. Low maintenance rental and no HOA fees.

What made you interested in investing in this type of deal?

This was our first BRRRR. We bought it FSBO from another investor who held it for 20yrs. We bought it for $40k, put $4k in the kitchen, baths and paint and it appraised for $70k. We borrowed enough to pay back our private lender and left a few thousand $$ in the deal to cashflow >$100/mo.

How did you find this deal and how did you negotiate it?

On Zillow as a FSBO. Negotiated a cash offer directly with the seller who was an investor. Closed in 2 weeks.

How did you finance this deal?

Private lending from a friends HELOC. Paid them 10% on the purchase price. We funded the rehab with our own cash.

How did you add value to the deal?

New kitchen cabinets, new bathroom floor, vanity and painted the interior.

What was the outcome?

Appraised for $70k and we borrowed $45k against it to pay back the lender and recover closing costs.

Lessons learned? Challenges?

Start refinance ASAP. We waited a couple months thinking that we needed a tenant in place to get the appraisal. We could have started sooner since the work was done after 1 month. This cost us in holding costs and opportunity costs on putting our lenders money back to work.

Consider the street as well as the property. We had a more difficult time renting this one due to the street it is on. It is safe but doesn't look like it. We had to reduce our price from where we initially wanted to be.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

No. This was a very simple transaction from one investor to another. We didn't even sign a contract, just a hand shake (not advised).

We own a few SFR's and are looking to move into small multifamily. As we consider taking on equity partners I am trying to fully understand the outs on depreciation recapture. I have several questions and would love to here from experienced investors on how this works.

1. Is an MFR (8-plex) useful life considered to be 27.5 yrs like SFR?

2. Can we slow down the depreciation in the first 5 yrs to match closer to the cash flow deliver to optimize annual taxes on the this deal while reducing the recapture that will occur if sold within 5yrs?

3. In what ways can recapture be avoided other than a 1031 exchange?

I look forward to your input.

Thank you,
Justin Brown

Momentum Properties, LLC

Louisville, KY

@Kai Van Leuven,

Thank you for the feedback. That makes sense. But it on two loans and combine them later on a commercial loan if it is more favorable.

Kai,

Thank you for the response. I agree that the debt service is much better and I understand using rubs to decrease expenses. However, I am really after the forced appreciation driven by the increase in NOI. I am trying to understand if having 2 4-plexes (total of 8 units) would be evaluated by the bank based on NOI or as 2 appraisals of the 4-plex.

If the valuation is the same, then I 100% agree that 2 residential loans would be the way to go. Hoping someone can help me better understand valuation of portfolios like this.

Thanks again!