All Forum Posts by: Marc Izquierdo

It looks like the percentage of gross rent received to purchase price is pretty low (about 0.7%). It's preferred to get between 1-2%. Nevertheless, you should evaluate it further too see the numbers. I would find the NOI of the property (gross rents-vacancy and operating expenses). Use the NOI and the purchase price to find the cap rate (NOI/Price or Value). Compare that cap rate to the area's cap rate (a realtor should know that - or maybe even the other landlords in your area). This will tell you where you stand. If your cap rate is too low and the rents are at market price, that's justification to offer something lower to increase the cap rate on your property. If that's the case, those numbers can be presented to the seller and that's your basis for a lower price offer. If they don't accept it, or the numbers show you losing money (or not making enough), move on, it's probably not a deal.

As a non-owner occupant, if I put myself in your shoes, I'd try to get conventional bank financing to buy the property. This route wouldn't cover rehab costs. You could look to your other assets to pull cash from (i.e. HELOC). There are also hard money lenders that will give loans that include rehab costs. That may be something to look into if you can't get (or don't want) bank financing. You can try to get seller financing also. Again, you still have the rehab cost you'd have to find financing for.

That's right. You have to occupy the property for at least one year I believe.

Thank you @Taylor Brugna

@Jeff B. Thanks for the critique.  This spreadsheet started off as a financial statement but started to transition to a projection tool to analyze deals (hence the Cap Ex, Vacancy, Debt Service, etc).  I've made some major changes including incorporating what you have suggested.

Thanks again!

@Account Closed @Taylor Brugna

Sorry it took a couple of days to respond.  I want to thank you for your responses.  Between both posts it makes sense to me now. 

This seems fairly complex to try to estimate.  For example, trying to figure out how much cash flow I'll generate after taxes to decide on a deal.  Do investors typically estimate down to this post-tax detail? 

How are the general expenses, say in a 4 unit multiplex (owner-occupied), allocated?  I can't image it's as easy as dividing by 4. 

I was starting to build, edit, and run a few deals through a spreadsheet I developed. Below is an example of the financial statement portion of the spreadsheet. I was wondering which number the IRS uses to determine your taxes at the end of the year. As you can see, at the bottom I just estimated 30% for taxes on my cash flow. However, is what I'm calling "pre-tax cash flow" (NOI - Debt Service + Cap Ex) the amount that I am taxed on? Or is it the GPI or EGI?

I was thinking about this while trying to analyze an owner-occupied triplex deal.  With three tenants, it produces positive cash flow (as shown below).  When there are two tenants (myself occupying one unit), it produces negative cash flow (about $300 a month - which I would pay).  In that case, my "pre-tax cash flow" is negative. 

This got me thinking about where the IRS takes their share.  If it is my "pre-tax cash flow" and if I live in a unit, then I show a loss for tax purposes, which would benefit me (doesn't seem right though).  Or does the IRS view me as a tenant and therefore my own money is "income" and I'm taxed on that?

Any input would be great.  Also, please feel free to critique my spreadsheet!

Thanks in advance!

FYI: This spreadsheet is based on annual income and expenses

@Frank Chin those are good points about not having your own home under an LLC. It makes sense. Thanks for the great advice. I appreciate your time.

Thanks for your responses everyone.  I appreciate it.  There is some good information here. 

For my own understanding, if the building is owner-occupied (which in my case, it will be, I forgot to mention that in the first post), a normal homeowners policy would suffice (via @Frank Chin).  The policy will include liability to a certain extent (if it doesn't I will inquire about that).  However, an umbrella policy should be added to pick up liability outside of the original policy's coverage including my personal assets.

The next question I think of is, how much liability coverage do you need?  Is there a rule of thumb for this?  How do I know that my homeowners liability policy isn't enough and should get an umbrella (besides using the umbrella to extend to personal assets).  I'm assuming that is based on property value and even personal asset value?

If I end up taking the LLC route, I can choose a Dwelling/Fire or BOP (@John Mocker) .  How does that work with the property being "owner occupied"?  Is the reason that I can get Dwelling/Fire because the property isn't really owner occupied? (LLC owns it, not me - I pay rent to LLC).  The benefit would be because its cheaper like John said. However, I sacrifice the higher limits of a BOP.  That's a decision I have to make.

Out of curiosity, can you not get a normal homeowners policy with an LLC because it is not owner occupied? (which explains @Mike McCarthy's last line saying landlord/property insurance plus umbrella and not homeowners plus umbrella)

Hello everyone! I am starting to look at and analyze some deals in hopes to buy in a year or so. Specifically multi-family (3-4 units). During the analysis process, I started to think more about insurance and had some questions. I know most every property is going to need your basic homeowners insurance. However, what about liability insurance? I've been flirting with the idea of purchasing this property under an LLC to have the liability portion covered. For the sake of argument, what if I didn't? If I decided to take title as a sole proprietorship, what other insurance would I need/how would it be structured? For example, would I get homeowners insurance w/liability coverage included? Homeowners and liability separate? How about landlord insurance (rental dwelling policy - if I recall that name correctly)? Also, when analyzing a property, how do you estimate a policy price? I've read $300 per year per $100k of property value. That seems solid to me but I want to see what others think. Any help would be great. Thanks in advance!

This is what I'm getting:

A 26% down payment on $82,725 would be $21,508.50 (~$21,509)

+$400 (appraisal)

+$450 (inspection)

+$2,000 (Title and Loan Costs)

So I'm getting $24,359 (Cash to Close)

Therefore, CCR = $4,440/$24,359 = 18.2%

It's not a huge difference.  Maybe I'm missing something, which is why I got something different.  I'm interested to see what others think.  I'm new myself.  Good luck!