All Forum Posts by: CJ Pilon

You're still getting the 3 units. You're still getting $11k+ in NOI. This is only affecting your Cash on Cash and that's still 20%.

The only question I'd be asking is will the taxes increase  dramatically  when its reclassified as 3 units. That could hit your bottom line.

Other wise, why would you want to walk away when you are getting exactly the the money you expected out of it. If it does get reclassified, you can get the bump in equity on a refi.

Realtor, every time. It's his job to know the secret handshake. If he hasn't brought up  what the good folks at BP have suggested here, you need a new guy, or girl.

I am not an accountant, but the following excerpt explains it fairly well.  

The Boiler is part of the heating system.  Therefore, if the replacement of the boiler did not " better or adapt"  the HVAC system overall it is an expense. However, since you changed out the boiler  and the components to make it individual systems, that will be an adaptation or betterment, and your accountant may confirm it was a Capital improvement.

Unfortunately, the Bonus depreciation extensions ended at the end of 2013.

You might investigate whether there is some way that your new system qualifies for a MACRS accelerated  depreciation. Certain alternate energy components, they qualify for a shortened depreciation period.

In any case, by shifting the heating costs, you've increased the value of your asset pretty dramatically.

From  bizfilings.com/toolkit/sbg/tax-info/fed-taxes/cost-of-capital-assets-not-deductible-expense.aspx

Beware: Buildings Are Actually Multiple Units of Property

If you own a building, you already are aware that there are numerous systems within that building, such as the plumbing system and the heating system. For purposes of determining whether an expense or a repair, each of those systems is considered a unit of property. So, you have the building structure as one unit of property that contains the following distinct units of property:

• Heating, ventilation, and air conditioning (HVAC) systems. This includes all motors, compressors, boilers, furnace, chillers, pipes, ducts, radiators.
• Plumbing systems. This means all pipes, drains, valves, sinks, bathtubs, toilets, water and sanitary sewer collection equipment. It also includes any site utility equipment that is used to distribute water and waste to and from the property line and between buildings and other permanent structures.
• Electrical systems. Included are wiring, outlets, junction boxes, lighting fixtures and associated connectors. As with plumbing, this also includes any site utility equipment used to distribute electricity from property line to and between buildings and other permanent structures.
• Gas distribution systems. As with other utility systems, this includes the pipes and equipment used to distribute gas to and from property line and between buildings or permanent structures
• Elevators. All elevators in the same building are treated as a single building system or unit of property. In effect, each separate elevator is a component (part) of the elevator building system.
• Escalators. Just like elevators, all the escalators in a building are considered a unit of property.
• Fire protection and alarm systems. This includes sensing devices, computer controls, sprinkler heads, sprinkler mains, associated piping or plumbing, pumps, visual and audible alarms, alarm control panels, heat and smoke detection devices, fire escapes, fire doors, emergency exit lighting and signage, and fire fighting equipment, such as extinguishers, hoses); and
• Security systems. Among the components included are window and door locks, security cameras, recorders, monitors, motion detectors, security lighting, alarm systems, entry and access systems, related junction boxes, associated wiring and conduit).

You need to test whether the costs you incurred bettered, restored or adapted the particular system, not the impact on the building as a whole.

When you purchase a building, the building structure and all of the various building systems are depreciated as a unified whole based upon the cost of a building. However, this scheme is radically altered when a building system is replaced or when improvements are made to it. In that case, the cost of the improvement is separately depreciated using the modified cost recovery system (MACRS) periods that applies to the building

Thanks for the replies folks , the deal died on the block. 

Will,

Thanks for  posting.  There was a lot to learn here, mostly about human relations, and there was a lot of interesting and diverse insight by the posters.

You sound like a motivated, efficient business professional used to travelling in a circle of like minded people and as you said, you have expectations that the folks you deal with will carry a similar attitude. 

The only challenge is that sometimes the individual with whom we are dealing sees  life from a completely different perspective. Sometimes,  they don't understand the challenges of our world, and sometimes they just see the whole damn thing as one giant inconvenience. 

I can think of 50 reasons that  she verbally might have  agreed and then put off returning your calls, everything from being busy with the kids, to getting conflicting advice from family or friends, to just plain shopping the agreement. Very few have to do with you, and one of those is the positive traits I outlined above. She could have just felt outgunned.

However, since another deal may come up with a non-professional, reluctant investor, it undoubtedly would  serve well to review this situation for clues that could have guided you and for anything in your actions that could have been improved  to increase  the chances of success.  Always something to learn.

Congratulations on your your new deal.

Listen to this;

http://www.biggerpockets.com/renewsblog/2014/07/03...

Read this;

http://www.biggerpockets.com/forums/93/topics/9817...

Get busy

I am looking at a deal that i think is perfect for seller financed but I need to get a better understanding of some details. 

The seller is relatively young, about 50 , but is forced to sell her home because she is disabled and lives in an assisted living complex. Her intention is to set up an annuity with the proceeds from the home to provide a steady income going forward. While her parents have been helping manage her affairs, they are older and wish to put the funds on auto-pilot. It seems to me that seller financing will provide a higher, more secure return than nearly other investment strategy

I want to structure a 30 year  mortgage (about $100,000) that would pay the seller  4% to 5% per year. Because income security is important to the seller, I need to understand how I can structure this deal so the sellers are not put off buy the risks of carrying a mortgage. Specifically how do you manage a sale tto avoid an unscheduled  lump some payout, or the possibility of getting the house back.

While I'm asking, what else do I need to think about?

I too, am curious about the roofs in these brick homes. I made a trip to Chicago in college to tour its architecture, because the styles are so unique, given the fire, Frank Lloyd Wright and a few other reasons. 

You said you sold it to a re-habber, so you might not know this. Can you give us a guess on the unobstructed dimensions of the great room renovation. Scaling from the cabinets and the fireplace, I'm guessing the house could  be only about  22' wide x about 15',   although it looks much bigger.

It is a pretty reno. Thanks for sharing it.

CJ Pilon, Boise, ID

You are exactly right. You don't know enough yet. 

Did he pay 152K for a run down empty building, renovate it and  fill it up with market rents? If so, the seller is probably looking for his payday, and be willing to wait for the right buyer, particularly if its running smoothly. Some buyers are just looking to place their cash into an asset that will do better than bonds. The building you describe should return 4-5% on a cash purchase, depending on where they settle. If its turn-key and full, that can be a pretty attractive  long term investment today.

That said, there are a lot of reasons I can think of that someone with a 200 day old listing and an 84% margin might be willing to look at a lower offer. I can also think of several  why you want to be duly diligent on the purchase side.

I'd find out what I could about the building and the circumstances, talk to some  tenants, call the property manager, if there is one, get the sellers story and the P&L - not the proforma, then make the offer you are comfortable with.

Best,

CJ Pilon