All Forum Posts by: Leon L.

@Benjamin Sykes Your numbers sound good if they're accurate and I like how you're thinking about the location and the trend, but you still want to know what it'll be like to operate right now.

The best advice you'll get on how it'll be to operate that property today as-is will come from calling a local property manager or two that work in that area. If PMs won't manage it, you'll get an idea of what you're in for.

Keep in mind: it's not just about income of the residents in the area. Most likely you want to provide a safe place for tenants and the people who maintain and repair the building. I just talked to a PM yesterday about two properties in one city here in Texas. One she was open to managing, and one she wasn't because she knew there was a lot of violent crime. The crime stats are terrible there and she herself had seen at least one shooting. For her, it was a liability issue keeping maintenance people safe. Hopefully this isn't the kind of neighborhood you're looking at, but if you're still not sure, you can also call the non-emergency number or visit the local police station. If it's a major problem area, the police will know the street and some of the buildings and tell you about them. 

One final thing: M2M is appropriate for very low-income, high-vacancy areas, but the churn of these tenants is a much bigger hassle than operating on longer leases in a more stable neighborhood. A lot of PMs won't be willing to do it. It's another reason to call the PMs.

Good luck.

This thread is amazing

@Andrew Postell That's what I'm looking for. I owe ~100k on an investment property worth ~300k and I want to cross-collateralize the equity to help buy another property instead of putting down 20-25% cash. (I could still put in some, but yes my goal would be to keep more cash for reserves.)

The interest rate on my existing loan is 3.5% so that would take a major bump and a refi would have costs too. I'm trying to get the benefits of a cash-out refi without the costs. Actually, I would have the cost/downside of locking up an interest in the existing property, but I'm ok with that.

I just came across this strategy and I'm not sure if it's actually possible. It's kind of like a HELOC, which I understand you can't get on an investment property in Texas. Are there any regulatory restrictions generally or in Texas? Otherwise, have you heard of a lender willing to cross-collateralize like this? The way you asked @Jean Mascary makes me think you're going to say no, but I am hoping for a yes!

The first bank I asked said they'd only cross-collateralize a free-and-clear property.

A little thought experiment here: for a buy-and-hold investor of a 1-4 family unit, who wants to optimize on mortgage terms and the legal protection of an LLC and doesn't mind some paperwork hassle and isn't worried about the risk of a loan being called due, would it make sense to buy in one's name (for better financing), deed over to an LLC for operation (for legal protection), and before any refinancing, put it back into the personal name (for better refinancing)? And then deed it back to the LLC after the refi (best legal protection)?

This is taking it to the extreme, but if there are no real issues with it, it seems pretty optimal. I haven't moved a property between personal and LLC (in either direction), so I don't know the mechanics of it and how annoying it would be. And I don't know whether it would be weird or bad for some other reason, like mucking up the deed records and title. And... I'm guessing maybe the biggest reason it wouldn't be ideal is the risk of piercing the veil. If there were a legal issue and that happened, the LLC and all the back and forth would have been a waste.

@Kresh Shehu

As @David Ferrette said, 6%, and even a little better, is not that hard to come by. But there could be good reasons to go with private lending: speed and simplicity. Banks require a lot of documentation and time. If the builder already owns the lots and is ready to go (particularly if it has plans and permits), private money could make more sense.

Also note that it's possible the builder isn't making a perfectly rational economic decision. I think a few of these guys think of themselves as builders making their money on building, not on the other factors like lot price and holding costs. Even though that makes no sense.

You should ask the builders their rationale. If you do it and you find a good lawyer to help with the contract, I'd like to know who it is.

Hi @Peter Shaw, I think your heart is in the right place, but I have a feeling you have more research to do if you're going to find cash-flowing rentals in Austin. If you haven't already, I'd also recommend reviewing the 50% rule.

Buying cash-flowing single-family rentals in Austin isn't impossible, but I would be surprised if new construction, in an up market, in Austin, paid off with immediate cash flow. There's nothing wrong with your general locations, but to pay the new-construction premium you'd need high rents. Rents just aren't keeping up with sales prices in Austin, particularly for new construction.

Also, I personally prefer to run my numbers assuming 100% financing.

@Amenity Applewhite Depending on the location in E. Austin, you should be able to make money building and selling the ADU since you already have the land. If my math is right on the McMansion FAR max, you can build up to an 1100 sq ft ADU as long as your main house is less than 2180 sq ft, assuming 8200 sq ft lot. Look at mx3homes.com for some examples of B units and what they go for -- ballpark 350-375/sq ft. depending on location. You probably want to add a little to your estimated construction cost but you should still have a good return if you sell the ADU. Assuming you're fine with condo regime-ing and selling the ADU, that'll be a better financial move than leasing out, given the high sales price.

Are you planning to stay in the house? I haven't dug into historic preservation, but I'd assume the trade-off to historic preservation tax savings would be limitations on demolition, which could restrict your buyer pool when you sell. If you do a nice rehab you should be alright and the tax savings could help you sell. And of course if it's a cool house it can just be a good thing to do to get the historical preservation.

$200k might be tight for both projects -- it depends on what you do for an addition. Have your architect put some rough designs together and you can take that to a couple builders.

Good luck!

What accountants do people in Austin like? I prefer someone who is active in real estate in Austin and who is a bit of a people person (I'll come back to say why). Through BP and meetups I have found numerous great attorneys, lenders, wholesalers, and of course investors in Austin, but for some reason that hasn't been the case for accountants. 

I have an accountant that I've used for a few years since my wife and I got wise and stopped doing our taxes ourselves. I have been happy with him and he's definitely more than paid for himself, but all our communication is by email (at his request from the beginning) and basically only during tax season. Email has its advantages and is definitely fine for many communications, but part of the value of working with someone local as opposed to my guy (or a big online tax company) is building relationships and coming across new people and opportunities. At least that's how I've been thinking about it.

Let me know! Oh, and if anyone has other criteria to consider when hiring an accountant, that would be great too! Thanks!

@Jonathan West try Steve Davis. I haven't worked with him myself but I've been to his weekly Wednesday meetup off Far West, and he's very high on using trusts. (I see that he's also a member on BP but it looks like pretty inactive.) 

I've reviewed this entire thread up to this point, bookmarking every solo 401k provider that seemed like a possibility for me. I haven't talked to or vetted any of these guys, and I also haven't scoured BP and the web to include all possible providers. This list is just based on this thread.