All Forum Posts by: KC Pake

Quote from @Jonathan Cisneros:

I use caprateindex.com to get a general idea of what the cap rate is in any particular area. Is there another, better website that share cap rate information? How do you all go about figuring out cap rates?

Hi Jonathan!

I've also used caprateindex.com as a starting point for gauging cap rates in various markets, and I've found it to be quite helpful. However, cap rates are market-specific and can vary widely even within a single city or region, depending on the property type and local economic conditions.

As for other resources, there are a few additional websites and methods you can consider to estimate or obtain cap rate data:

Costar.com: Costar is a commercial real estate database that offers extensive market and property-level data. They track cap rates across various markets and for different types of properties, but their service requires a subscription.

CBRE Cap Rate Survey: CBRE regularly publishes a survey of cap rates across the United States, which can be very informative. It's a useful resource for understanding market trends.

RealtyMogul.com: RealtyMogul provides educational resources and research articles that sometimes include cap rate information for different regions and property types.

Local Commercial Real Estate Brokers: Often, the best information comes from local market experts. Reaching out to brokers or firms that specialize in the type of property you're interested in can yield the most current and location-specific cap rate data.

Real Estate Investment Groups or Online Forums: Engaging with local real estate investment groups or participating in real estate forums can provide anecdotal but current insights into cap rates. Members often share deals and cap rate information based on actual transactions.

Calculating Cap Rates: You can calculate an approximate cap rate by dividing the annual net operating income (NOI) by the property purchase price. So, if you can gather data on recent sales and NOI of comparable properties, you can estimate the cap rate yourself.

Remember, while these resources can provide general information, the most accurate cap rate will come from an analysis of a specific property. It's also important to note that cap rate is just one tool in evaluating real estate investments; don't forget to consider growth potential, property condition, and market trends.

All the best,
KC

Quote from @Brandi Young:

Hello. Detroit investor here! I have one single family home and in search for my second rental property. Currently, interested in a recently toured brick duplex to BRRRR. One side is vacant which looks like mainly cosmetic work (can easily get $1000/month). The other side (well maintained) is rented by a 10-year paying elderly tenant that is only paying $500/month.

Questions

-"Can" you still BRRRR/does it make sense to BRRRR when you can only add value to one side of the duplex?

-In general, what is the suggested way to increase rent when going into a situation like this where the tenant is paying significantly lower than market rate?

Hello Brandi, and congrats on considering your second rental property!

To answer your questions:

BRRRR Strategy with Half Occupied Duplex:

You absolutely can still use the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) with a duplex where only one side needs work. Having a tenant already in place can be beneficial as it provides some immediate cash flow to help cover the property's ongoing expenses.

It still makes sense to BRRRR because you can add value through the unoccupied side by rehabbing it and then renting it at market rate. This increase in income can positively affect the property's valuation.

When you refinance, the lender will likely look at the income potential of both units, so the improved and rented side can help demonstrate increased value.
The fact that you already have a long-term, stable tenant in the other unit is also favorable in the eyes of lenders.

Increasing Rent for a Long-Term Tenant:

Research Local Laws: First, understand your local laws and regulations regarding rent increases, especially with elderly tenants. Some areas have rent control or require a certain notice period before increasing rent.

Gradual Increase: If you plan to raise the rent, consider doing it gradually. A sudden significant increase could lead to the loss of a stable tenant and potential legal issues.

Improve Tenant Relations: Before increasing rent, ensure that you maintain a good relationship with the tenant. Communicate openly about your plans and the reason for the increase.

Enhance Value: If you're going to increase the rent, it might be a good time to make some improvements to the occupied unit as well. This will not only justify the rent increase but also ensure the satisfaction of the tenant and maintain the value of your property.

Market Rate Evaluation: Regularly evaluate the market rate for similar properties. If the tenant is paying significantly below market rate, you could make a case for an increase, but ensure that it's fair and justifiable.

Offer Renewal Incentives: Consider offering the current tenant an incentive to sign a new lease at a higher rate, like property improvements they value or services such as yard maintenance.

Tenant Replacement: If the tenant decides to move due to the rent increase, be prepared to rehab the second unit and find a new tenant, ideally at a rent that reflects the current market rate.

Remember, with long-standing tenants, especially those who are elderly or on a fixed income, it's crucial to balance business objectives with empathy and respect. Not only is it the right thing to do, but it also builds your reputation as a fair and responsible landlord in the community.

Good luck with your investment, and may your BRRRR be successful!

Quote from @Sean Meyer:

I am currently in the planning stages to purchase a new primary residence and then rent my current residence.  It does need a few minor repairs and upgrades.  Should I wait to start repairs until after I move to my new primary residence to take advantage of tax depreciation for the repairs before renting?

Sean

Hi Sean,

The decision to make repairs and upgrades to your current residence before or after moving out can have different tax implications, especially when you convert your primary residence into a rental property. Here are some key points to consider:

Primary Residence vs. Rental Property: Generally, repairs and improvements to your primary residence are not tax-deductible. However, once the property is classified as a rental, you can begin to deduct expenses associated with its maintenance and improvement.

Repairs vs. Improvements: The IRS makes a distinction between repairs and improvements. Repairs are typically considered as maintenance that keeps your property in good working condition, while improvements add value to the property, prolong its life, or adapt it to new uses. Repairs on a rental property can be deducted in the year they are made, while improvements must be depreciated over the life of the property.

Timing for Repairs: If you wait until the property is officially classified as a rental, you can deduct the expenses of repairs in the same year you make them, which can offset rental income. Doing repairs while it's still your primary residence means you will not get this immediate tax benefit.

Depreciation and Improvements: When you start renting out your property, you can begin to depreciate the cost of the property (excluding the land) over a set depreciation period (27.5 years for residential property). Improvements made after it becomes a rental property can be depreciated over their useful life as well.

The Importance of Good Record-Keeping: It’s important to keep accurate records of all expenses, whether they are repairs or improvements. This documentation will be critical for tax purposes.

Consulting a Tax Professional: Tax laws can be complex, and there may be nuances to your specific situation that could impact the best course of action. For example, if you live in the house for 2 out of the 5 years prior to selling, you may be eligible for the exclusion of capital gains tax up to a certain limit for single or married filing jointly taxpayers. This may affect your decision if you plan to sell the property after a few years of renting it.

Consider the Market and Rental Readiness: If the market is currently favorable for renters and your property needs minor repairs to be rental-ready, it might make financial sense to do those repairs now rather than waiting, especially if you can command higher rent.

Quote from @Kiana Rose:

Hi all! - I am a real estate agent stepping into the property managment space and like to stay as organized as possible. Any property managers or landlords out there have some good spreadsheets they are willing to share? Or any tips for keeping records? TIA!

Hi Kiana!

I wanted to reach out and share some insights regarding property management tools, especially since you're looking to set the foundation for your operations in this new venture.

Transitioning from spreadsheets to dedicated property management software can significantly enhance efficiency. While spreadsheets are versatile, they tend to become unwieldy with growth, often requiring multiple separate files for different aspects of property management. On the other hand, a comprehensive software program centralizes all your data, allowing for better integration, easier access, and ultimately a more cohesive management process.

By adopting property management software, you'll have the ability to oversee all facets of your business within a single platform – from tenant screening to lease management, maintenance requests, and financial tracking. Moreover, the additional features such as automated reminders, online rent collection, and real-time reporting can save you a ton of time and reduce the margin for error.

With that in mind, I've created a list of some of the best property management software programs currently on the market. Each of these has been designed to cater to the different needs of property management professionals, helping to keep your business organized and your records meticulous.

Buildium:
Great for property managers handling a range of property types.
Offers accounting, maintenance requests, leasing tools, and an online portal for tenants.

AppFolio:
Suitable for residential, commercial, student housing, and HOA property management.
Provides features such as online rent payments, vacancy posting, maintenance requests, and accounting.

Yardi Breeze:
Ideal for smaller to mid-sized property managers and landlords.
Features include accounting, operations, leasing, and rent collection.

Propertyware:
Designed for single-family and low-density residential properties.
Offers customizable reports, maintenance, and inspection management.

Cozy (now part of Apartments.com):
Best for individual landlords rather than large property management companies.
Features include listing properties, tenant screening, rent collection, and tracking expenses.

Rent Manager:
Good for managing a diverse portfolio of properties.
Comes with a comprehensive set of tools including financial management, CRM, and reporting.

RealPage:
Suitable for larger firms with extensive property management needs.
Provides solutions for revenue management, expense management, leasing, and more.

MRI Software:
Offers flexible solutions for real estate owners, operators, and occupiers.
Includes tools for property-level management, accounting, and investment management.

TenantCloud:
Good for DIY landlords and property managers.
Includes rent collection, tenant screening, and property maintenance features.

Hemlane:
A technology-enabled property management solution.
Offers tools to advertise rental properties, screen applicants, and support local agents.

I recommend exploring these options and taking advantage of any free trials they offer to find the software that best fits your needs.

All the best with your property management endeavor. 

Quote from @Lexi Blevins:

Hey everyone! I am a realtor and a real estate investor in Atlanta. I’ve done five fix and flip deals so far. I have a new investor partner that has all of the money and is willing to carry the mortgage. They have have  never done a flip before and want to bring me onto the team for my experience, they get better loan terms with me, and want me to manage the rehab etc. Since I already have four homes in process between flipping rentals etc, I’m not able to contribute monetarily to the project. How would y’all divide the profits in a situation like this? They’ve asked me what I’m comfortable with. And I have no idea what to offer them.   

Hi Lexi,

In situations like the one you described, profit splits can vary widely based on perceived value, risks involved, and the roles/responsibilities each party will take on. Here are a few key considerations and potential structures you might consider:

Roles & Responsibilities: Make a detailed list of everything you'll be doing versus what your investor partner will be doing. This includes finding the property, assessing its value, overseeing the rehab, managing contractors, handling the resale, etc. By quantifying these tasks, you can get a clearer sense of the value you bring to the partnership.

Risk Analysis: Your partner is fronting all of the money and carrying the mortgage, so they are taking on a significant financial risk. However, with your expertise and management, the project has a higher chance of success. It's crucial to balance out these risks when determining profit split.

Common Structures:

Experience/Money Split: Often, new partnerships will split profits 50/50, especially when one party brings the capital and the other brings expertise and management. This reflects a balance of risk and effort.

Tiered Split: You can structure the deal so that the investor gets a certain percentage (say, 70%) until they've recouped their initial investment, and then any profits beyond that are split 50/50. This gives them some added security on the front end.
Management Fee + Profit Split: You could take a smaller upfront management fee (e.g., 10% of the rehab budget) for managing the project and then split the profits 40/60 or some other ratio afterward. This can help cover any immediate operational costs.

Consider Future Deals: If this is going to be a long-term partnership, you might want to consider a structure that incentivizes both of you to work together on future deals. Maybe you're willing to take a slightly smaller cut on the first deal in exchange for a more favorable split on subsequent deals.

Open Communication: The most important thing is to maintain open and transparent communication with your partner. Discuss your concerns, your perceived value, and your goals for the partnership. It's crucial that both parties feel the arrangement is fair for the partnership to thrive.

Good luck with your new partnership!

Quote from @Matt Palumbo:

I own a house in Englewood CO, that I am considering selling, based on the current state of the Market I wanted to explore the possibility of offering seller financing to a potential buyer. I wanted to see if anyone on here has any advice related to offering a seller financing deal. Does anyone have a lawyer they would recommend using for setting this up, or suggestions on how to advertise and find potential buyers. Also, any other advice, experience or lessons learned you might be willing to share related to seller financing would be greatly appreciated. Thank you!

Hi Matt,

Considering seller financing is a crafty move in today's market! Here's a quick rundown of my thoughts:

Benefits: Attracts a broader range of buyers, provides an income stream, and may yield a higher sale price.

Finding Buyers: Advertise "Owner Will Finance" on platforms like Craigslist, Facebook, and local real estate sites to attract interested parties.

Legalities: It's essential to consult a local real estate attorney. They'll ensure your interests are protected and terms are compliant.

Set Terms: Aim for competitive interest rates and terms, keeping in mind things like down payment and potential balloon payments.

Vet Buyers: Require credit checks, and references, and consider their job stability.

Tips:

Use a clear written agreement.
Employ a loan servicing company for payments.
A larger down payment can reduce your risk.
Always be prepared for possible defaults.

Best of luck with your property sale!

Quote from @Logan M.:

A few months back we finished putting in this new road.

Before we put in the road it has been dirt since the community was created.

This road cost us $115,000, it is much bigger than what is in the picture.

The day the road was finished about a dozen kids came outside and began riding their scooters. At that moment I realized that these kids never had that opportunity, they never had a place to play other than the dirt.

I learned that it is worth investing in your communities because of the impact it can have on future generations. Too often we are thinking about today's one dollar instead of tomorrow's two dollars and the impact on those that live in our communities.

Even though you own the community, it is their home and those kids will be making memories just like you did in your neighborhood, you can impact that directly.

Hello Logan,

Your post resonates on many levels. Transforming a dirt road into a paved one isn't just an upgrade—it's about enhancing community life. The sight of kids immediately enjoying their new play area on scooters shows the profound impact of such decisions. Instead of just seeing immediate financial returns, it's heartening to note the lasting communal benefits these investments can bring.

Your insight underscores a vital point for all in development: we aren't merely building properties; we're crafting spaces where memories are made. Prioritizing long-term, community-focused thinking ensures that we positively shape the lives of residents, especially future generations.

Thanks for sharing this valuable perspective. It's a beautiful reminder of the broader impact our work can have in real estate and community development.

All the best!

Quote from @Travis Kellems:

I am looking to house hack a house in Monroe, MI. and it is a boiler system with one thermostat located on the 1st floor within the lower unit. There is no way to control the upper unit (which I will be house hacking). I WILL BE PAYING THE HEATING BILL. Is it acceptable for me to install a lockable thermostat in the bottom unit to ensure it is not being abused by the lower unit?

Greetings Travis!

If you're paying the heating bill and are concerned about potential misuse or waste, it's reasonable to consider measures that would allow you to maintain some control over the system. Here are some points to consider when thinking about installing a lockable thermostat:

Communication with the Tenant: It's crucial to discuss your plans with your tenant(s). Transparency is key. If they understand your concerns and the reasons behind your decision, they're more likely to be cooperative.

Contractual Considerations: Make sure to review your lease agreement. If there's a clause regarding utilities or any amenities, ensure you're not violating any terms by making modifications. If necessary, you can modify the lease agreement to reflect any changes to the heating controls.

Alternative Solutions: There are modern thermostat systems that allow remote monitoring and control via smartphone apps. This way, you can keep an eye on the temperature settings without physically locking the thermostat. This can be a less invasive way to manage the heating without making the tenant feel restricted.

Comfort and Safety: It's important to ensure that any changes you make don't compromise the comfort and safety of your tenants. For example, ensure that the temperature doesn't drop to levels that might cause pipes to freeze in the winter or create unhealthy living conditions.

All the best with your house hacking investment.

Quote from @Harshraj Thakor:

Hi, I live in Charlotte, NC and I am brand new to house hacking and real estate I have 4 rooms in my house to collect rent from and I am looking for the best software/way to collect rent/manage the property. I need a software/tool that can help me collect rent from 4 different tenants in the same property. Also, it would be great if I could get some suggestions on what website/tool to use to do background checks and e-sign lease agreements.  

And if you have any suggestions/advice for someone who's just getting into house hacking please feel free to put them down. I would love to gather as much knowledge as possible. Thank You

Hi Harshraj!

Here is some information that might be helpful.

Rent Collection/Property Management:
For collecting rent from multiple tenants and managing your property, here are a few popular options:

Cozy.co: This platform is free for landlords and provides rent collection, expense tracking, and even maintenance request functionalities.

Buildium: This is more comprehensive and suitable if you ever decide to scale up and manage multiple properties. It offers online rent collection, expense tracking, tenant screening, and more.

Zillow Rental Manager: Another free option where you can collect rent, screen tenants, and even list your property.

Background Checks and Lease Agreements:

Avail.co: This platform not only allows you to collect rent but also provides comprehensive tenant screening, including credit, criminal, and eviction checks. They also offer customizable lease agreements.

TenantCloud: This is a more holistic property management solution, but it also offers tenant screening and customizable lease agreement functionalities.

Rocket Lawyer: For e-signing lease agreements, this tool is useful. It also provides a library of real estate-related legal documents you might need.

Quote from @D'Andre Brumfield:

Hello all,

I am developing a partnership with 3 other people who I know and trust well. We are looking to fix and flip our first 2-3 deals and use the profits to scale up towards buy and hold strategies. This will be the first deal for each party involved but we all have history in construction, remodeling and project management. We are currently discussing financial options for acquisition. We have a potential private money lender to fund our first deal and would most likely set up an LLC for this instance, but nothing has been set in stone.

In the case where this private money lender retracts their help, what options do we have in terms of credit union/conventional loan financing? We do realize that an LLC may not be an option in reference to conventional loan packages. We are actively sourcing CPA's/Tax advisors for legal advice and I was wondering if anyone in the BP community had any other suggestions or even questions that we may need to bring up during the advising meeting.

Hi D'Andre!

Entering the fix-and-flip arena can be quite exciting and rewarding, especially when partnered with like-minded individuals who have a background in construction and project management.

Regarding your financing concerns:

Conventional Loan Financing: If your private money lender falls through, conventional loans can be a viable option. While it's true that many lenders hesitate to lend to an LLC, some will still do so if the managing members personally guarantee the loan. Here are a few options:

Residential Loans: If one of the partners agrees to reside in the property for a specified duration (usually at least a year), you may qualify for an owner-occupied mortgage, which typically has better terms than investment property loans.

Investment Property Loans: If you don’t intend for any partner to live in the property, you'll be looking at investment property loans. These typically require a larger down payment (often 20-25%) and may have slightly higher interest rates.

Portfolio Lenders: Some local banks and credit unions hold onto the loans they make (instead of selling them on the secondary market). These lenders can be more flexible with terms and might be willing to finance a project under an LLC.

Hard Money Lenders: These are private individuals or groups that offer short-term, high-interest loans. They're more concerned with the value of the property and the deal itself than your credit score, making them an option for fix and flips.

Home Equity Line of Credit (HELOC) or Home Equity Loan: If one of the partners has significant equity in their primary residence, they could potentially tap into this equity to finance the deal.

As for your upcoming meeting with the CPA/Tax advisors:

Ask about the tax implications of flipping properties within an LLC compared to doing it as individuals.
Discuss pass-through taxation and how it will affect each member.
Review the benefits and drawbacks of different business structures (LLC, S-Corp, Partnership, etc.) for your specific situation.
Address the issue of distributing profits and losses among the partners.
Get clarity on the tax consequences of using private money lenders vs. conventional loans.
Ask about any state-specific regulations or tax incentives that might benefit your venture.

Lastly, always ensure you have a well-drafted partnership agreement in place that clearly outlines roles, responsibilities, profit-sharing, and what happens in various contingencies (like if one partner wants to exit the business).

All the best to you and your partners.