All Forum Posts by: Lance Lvovsky

In regards to gift tax, they will more than likely not owe gift tax, assuming they have not used their lifetime exclusion (5.43 million in 2015). If they gift more than $28,000 (they can each $14,000 annually without any gift tax) they will be required to file a gift tax return to report the gift. Gift tax will actually not be owed, again as long as they have not used their lifetime exclusion

@Jon Huber I am not able to attend this meeting, but please do tag me for the next meeting as I would like to be part of the group!

A degree in finance or accounting cannot steer you wrong. Remember, accounting is the language of business, and it can help you tremendously in your future real estate investing career

@Jordan Lagrassa would you mind sharing which lender gave you that rate?

They have also been active in the Palm beach and broward county areas (south florida). It is certainly attributing to our low inventory here making it super competitive with them being active here 

Yes, I see where you are coming from. NOI is crucial in determining the potential profitability of multi-family properties.

I suppose this would be seen (from an accounting standpoint at least) as the income approach in that we are evaluating the the property based on expected NOI.

Certainly, that makes more sense in REI. In accounting, assigning the fair value for the property (like my post above explains) would probably be more beneficial to larger acquisitions - specifically for companies that are looking to value purchases accordingly on their books. In a scenario like that, knowing how to interpolate the fair value is very important, for numerous reasons.

Just curious, when you examine a mult-family/apartment deal, how do you allocate what the fair value of your purchase should be? In one of my accounting classes in graduate school, we are learning about fair value measurement and how to apply it to real estate transactions. I am wondering if this method (matrix pricing) can be used / or is used by folks here.

I am assuming when evaluating a deal, you look at comps and cap rate. But what if your target deal is say 33,000 square feet and has a cap rate of 8.7% and you return 4 comps of:

• 8% cap rate, 30,000 square feet, price is $1.75M
• 8% cap rate, 40,000 square feet, price is $2.25M
• 9% cap rate, 30,000 square feet, price is $2.0M
• 9% cap rate, 40,000 square feet, price is $2.5M

Using what I learned, I come up with a fair value price of $2.075M. Which makes me wonder if anyone uses this method to negotiate their deals. Here is how I came up with the solution:

• 30,000 sq. ft:
  • 2.0M-1.75M = 225,000... 250,000 * .7 = 175,000 ... 1.75M + 175,000 = $1,925,000 (fair value of 30,000 sq.ft building at 8.7%)
• 40,000 sq. ft:
  • 2.5M-2.25M = 250,000... 250,000 *.7 =  175,000 ... 2.25M + 175,000 = 2,425,000 (fair value of 40,000 sq.ft building at 8.7%)
• Now to find fair value of building w/8.7% Cap rate at 33,000 sq.ft:
  • 2.425M-1.925M = 500,000 ... 500,000 * .3 = 150,000 ... 150,000 + 1.925M = 2.075M

So this makes me wonder, do real estate investors use this when trying to determine fair value for multi-unit deals? I imagine that knowing this number can allow a REI to determine what price one should pay after taking into account vacancies, expenses, fixing up, etc.

Thoughts?

@Chadi D. that is odd. Most banks I have spoke with are the opposite - they will only lend to individuals. Out of curiosity, what bank is this?

A potential con would be if the neighborhood goes bad, then all of your properties might not perform as well as you would like. I think most people would agree it is best to diversify.

Thought I would let everyone know that it appears that a DP3 policy (as opposed to HO6) is the way to go, at least in my scenario where my properties are part of a HOA. Reason for this is because the HOA covers the dwelling-out (i.e. the exterior portion of the building, roof).

The DP3 policy doesn't offer any dwelling coverage, but that is (or appears) to be okay because the HOA has their insurance policy for dwelling coverage (what I did was contact the HOA for the certificates of master insurance policy). Essentially, the DP3 policy covers everything inside. My coverage is up to $25,000 which I think is sufficient should an unfortunate disaster occur.

One caveat, liability is not included. However, I have been advised by my insurance agent that a Master liability policy can cover multiple rental properties.

My properties are in an LLC, which I believe to be another reason why HO6 would not work.