All Forum Posts by: Marc Izquierdo

Hi everyone, In the second half of the year I plan on finishing up my DIY rehab on my duplex that I closed on back in December. I’m starting to think of my next move and would like to try to tackle a 5-10 unit building next. My strategy for acquiring this building would be to find the deal and raise maybe another 50-100k through investors who may be interested in my network. I would ultimately want to refinance the property after rehabbing it and streamlining operations in order to buy out the investors. I would remain in ownership with another partner or two at the end of the day under an LLC. However, I have a few questions on the logistics of how that would work. What is the best way to legally accept money from investors to ensure both my LLC (and its members) and the investors are protected? I was thinking of just a promissory note with each investor to lend the money, but would that give the investor an unsecured loan? I’d like to pitch investors the deal and be able to say that their money is secured by the property. What is the best vehicle to do that? Can each investor have a lien on the property for the amount that they contributed? Any advice or experience anyone can share would be great! Thanks in advance

Hi everyone, Back in August of 2017, I found a HUD foreclosure on the MLS, contacted an agent, walked through it, and placed a bid. The property was listed at 55k. I put a bid in for approximately 65k. The next day, the agent called me and said I was outbid but could receive a call back if things fall through and I become the next highest bidder. I was monitoring the property over the last 7 months or so out of curiosity to see how much it sold for just to see how much I was outbid by. The property was pending all that time. Recently, I got a Zillow update telling me that the house sold for 56k. I looked at the price history and it looks like the property went on and off the market once or twice in those 7 months. Technically, should I have gotten a call? Is this a mistake on the realtors end? From comps in the area and my expected costs for a rehab, the property could have made me a pretty penny. However, I feel like I was stripped of that. What do you guys think? Thanks in advance!

@Kyle J. Good additional advice.  I have a hunch that we both read The Book on Managing Rental Properties?

Hey Justin,

No replies?  Weird.  

So the 70% rule is essentially just there so you can quickly screen a flip and not waste time analyzing properties that likely won't work. So after you find a property that passes the 70% rule (i.e. the property in question is selling for less than or equal to 70% of the ARV, minus repairs), you'll need to look at the property with more granularity.

In other words, you’re going to want to figure out the following:

How much do I want to make?

How much will it cost to rehab?

How long will it take?

How much will it cost me to hold onto during the rehab?

What will my closing costs (at purchase and at sale) be?

All of those questions will determine whether or not the deal will actually work.  The 70% rule tells you that there is a CHANCE that the answer to those questions will reveal a deal.  

You should go look at the property at this point.  If you’ve never rehabbed before, the answer to those questions may come from a contractor you ask to walk through the property with you.  Once you have those answers, you can put together an offer.  

For previous landlords, I would definitely ask the following questions: Did they (your applicant) pay rent on time? How long was their tenancy? Did they ever break or violate the lease? Did they stay for the entire term of the lease? Did they give proper notice before leaving? Who else lived with them? Did they have any pets? Did they receive any legal notices? How much of the security deposit did they get back? Would you rent to them again? For job supervisors: How long have they been employed there? What is their position? What is their hourly wage? How many hours per week do they work? Is their employment considered temporary?

Hi everyone, I recently consulted my attorney about forming an LLC to manage 2 rental units (duplex) that I own in my personal name. He said that it was a good idea as any business transaction should be done under an LLC as a homeowners policy likely doesn’t cover contractual liability. What else do I need to go along with the LLC? Business insurance, management agreement between myself and the LLC, etc? Also, I plan to set up business bank accounts for the property (being the only asset the LLC owns). Rent would be paid to the LLC and put into one of the accounts, expenses would be paid out of the LLC account, cash would be kept in the account for future expenses, then the remains would be transferred to my personal bank account. I would also transfer money from my personal accounts into the LLC accounts, if needed. Does this sound like I’d be “mixing expenses” which could essentially void the LLC? All of these questions will likely be passed along to the attorney and a CPA. I was just hoping for some free advice! Thanks in advance

@Ashish Acharya

Yup that makes sense to me.  Thanks again for all of your time and help.

@Ashish Acharya

Awesome.  I didn't know about the safe harbors.  That's great.  I appreciate you sharing all of that.  That led me to researching a bit more.  

In my case, it seems like I won't qualify, as the improvements I'm making are going to be greater than 2% of my unadjusted basis.  However, that is great to know for the future.  

So, when you qualify, you can deduct all of the improvements in that current tax year.  Therefore, there is no recapture, correct?  Once it's done, it's done.

This is probably obvious to people in the tax world but it seems to me that taking a deduction in the tax year is a lot more favorable than depreciating it, from not having to pay a recapture tax standpoint.

@Ashish Acharya  Great information.  Thanks for taking the time to respond.  The recapture piece that you mentioned is great.  Just from that aspect I can see why taking repairs is more beneficial.

This provoked me to do a little more research.  If you could double check my understanding, that would be great.  Like you said, improvements always have to be capitalized and depreciated regardless of when it is "placed in service".  So I could do that now.  They are also subject to recapture though, correct?

Repairs, are what depend on being "placed in service".

So ultimately, (you assume no liability here for tax advice) best practice is to itemize receipts so that at the end of the year, it's easy to determine what was a repair and what was an improvement.

Currently I have a lump sum figure, not itemized.  I should spend the time to do that.

Hi everyone! That new podcast got my tax juices flowing. One part that struck me was about capital improvements and placing your property in service. I purchased my first property (duplex - house hack) in mid December. Since then, I've been working on rehabbing the unit that I will rent out. I have all of my receipts so I know what I've spent. I'm not looking for "what should I do?" but I'd like to hear what other investors think or have done in the past. I was planning on waiting until the unit was done being rehabbed to "place it into service" and start advertising. After hearing the podcast, they mentioned placing it into service ASAP, to be able to write off the improvements. That makes sense. I was looking at it from a maximum depreciation standpoint. Wait until its in the best condition, the taxable amount of the structure would be the highest, thus depreciation would be the highest. Does that make any sense? My logic may be flawed. Just wanted other opinions. Thanks in advance!