All Forum Posts by: Kyle Kyzer

Sorry, I lost this post so I haven't responded to this point. If you're still looking for financing, small banks are your best friend when looking to count rental income. Buying at 105 for a property that is worth 120 would still kinda scare me. I just closed on a house that will appraise for 120-125 and was able to pick it up for 76,500, plus about 4k in repairs. I know you're getting close to your move out date, but have you been looking at foreclosures (particuly homepath, homestep, and va--vrmco.com I think)? I've gotten two properties through them because I was an owner occupant and was able to bid before cash investors. My market is probably difference then yours, but with bother properties, I paid about 50% of the after repair value, which gave me a lot of equity going into it. If you could do a hard money loan or have access to someone personally who would loan you money at a better rate (they may have an open HELOC that's not being used or something like that), you could buy the house cash, do repairs, then get a mortgage later, which would cover all short term financing costs and repairs. Just a thought...

Sorry...just bumping this forum because I feel like this is a huge issue that will affect all of us--one property or 100 properties...

Not giving advice one way or the other, but to my knowledge--based on my experiences--be careful about this model; someone else please correct me if I'm wrong.  Remember, if this is your primary residence, all those things that you're repairing are no long tax deductible.  For example, if you repair the HVAC during your occupancy, you will not receive a tax deduction for it at the end of year as it is not a business expense.  I could be wrong, but again, this is based off of my limited knowledge and experience.  I did the same thing you're doing now and am now reevaluating my property acquisition model...as for what to do in this situation for the acquisition, what do the numbers say?  What are your repair costs+acquisition costs+holding costs?   Do you have access to the capital for the repairs or is the bank willing to give you a money out loan to cover expenses?  Take your final numbers--annual property taxes (at non-owner occupant rate)+all annual loan costs+annual insurance costs.  How much will you be able to rent the property out for?  You need to be clearing more rent than your costs with a little extra to cover vacancies and repairs (plan on losing about 1 month's rent for this), so monthly rent x 11.  What kind of cushion do you have there for profit (and remember this is PRETAX profit that you will be taxed on)?  More importantly, how much of a cushion do you require to be comfortable with the deal?

-Kyle Kyzer

Hi All,

I got recently received this email from my CPA:

"The new [IRS] regulations break apart building property into a 'building structure' and its 'building systems' for the sake of the improvement rules and say that any improvement to a building system is an improvement to the building as a whole. The building is considered a single 'unit of property' when capitalizing the improvement."

She then went on to explain what systems need to have a value assigned to them: 

-HVAC systems ( motors, compressors, boilers, furnace, chillers, pipes, ducts, radiators) 

-Plumbing systems (including pipes, drains, valves, sinks, bathtubs, toilets, water and sanitary sewer collection equipment, and site utility equipment used to distribute water and waste to and from the property line and between buildings and other permanent structures)

-Electrical systems (including wiring, outlets, junction boxes, lighting fixtures and associated connectors, and site utility equipment used to distribute electricity from the property line to and between buildings and other permanent structures)

-Gas distribution systems (including associated pipes and equipment used to distribute gas to and from the property line and between buildings or permanent structures)...

-etc.

Now my question is have you all done this yet, and if so, did you use some kind of system to determine the value of each of these systems--say 15% of acquisition price+repair value for hvac, 10% for plumbing, 70% for building structure, etc.?  I just find this a very complicated change for taxes!  For example, if the HVAC is now one system, what happens with the cost of replacing the outside air conditioner unit but not the entire system (same furnace, blower, vents, etc.)?  Is that just a $3500 repair now that I don't have to depreciate over several years?  Thanks for yall's help!

-Kyle Kyzer

 As Frankie said, it's about protecting your investment.  At this point, I'm primarily working with single family rentals, and good school systems do tend to bring a higher caliber renter to the table, particularly with 3-4 bedroom homes.  Furthermore, renters who have kids in schools will hopefully begin to feel connected to the school their kids are in, so  they won't want to move and pull their kid out of their school and away from their friends.  If it's a bad school system, sure the kids lose friends with the move, and that might be a sacrifice the parents are willing to make.  Neighbors matter to me as well because property values and rental values, at least in my local market, correlate with the rental vs owner occupant ratio.  I'm still pretty new to this, but so far these things have been in my mind as I'm looking at properties and I'm pleased with my results...

In my experience, private money is not cheap and the loan is based on the transaction, not your credit.  Basically, the collateral they have is that they have first access to all money to satisfy your debt after your seller's closing.  In other words, all the money comes in up front, but you don't get a dime into your bank account until they have received their payment in full.  And yes, this transaction is usually done through an llc.

Rental or flip, 5 things I think are mandatory:

1) Neighbors

2) School system

3) Ratio of your investment to ARV (after repair value)

4) Roof condition (I won't touch a property with a bad roof--I've yet to get a large enough discount to warrant purchasing the home)

5) Condition (if any) for ductwork for central HVAC (same reasoning as roof)

This is going to depend on several things--namely your state laws, the lease arrangement, and who you have the lease with (each tenant, one principal tenant who is responsible for assigning roommates, does he have a roommate agreement with them, has he broken any of those stated rules, etc.).  In my state, if you have one lease with the owner's son and no lease with the roommates, it would be the son who evicts the roommate and he would need a letter from you, the property management company, giving permission for him to do so.  He would still need grounds for the eviction, which is a lot easier if there is something stated in his roommate agreement that the roommate is specifically disregarding.  Good luck.

Hey everyone,

I'm a lower level (2 single family homes) REI in the Greenville market already, but am excited about growing my portfolio. At this point, I'm really looking to expand my "team" (partners, CPA, contractors, lawyers, etc.), so I would love to network with any locals and hear your story!