All Forum Posts by: Mark Nielsen

Hi,

I'm looking at purchasing a single family home in a market outside my home market. I'm looking to get in touch with a good property management company to see what market rent is in the area and eventually manage the property for me.

The area is just outside Battle Creek Michigan.

I have 5 properties I have deeded to an LLC (bank ok'd it), but debt in my name, I want to refinance to commercial loans to get the debt out of my name. My DTI appears high based on last year's tax returns because of a lot of expenses and lower rent amounts last year. To decrease this amount and allow me to take out a higher mortgage for a new primary residence I want to refinance to commercial 30 year mortgages for all properties. This will also allow me to pull cash out of a property I'm in the process of BRRRR'ing.

My banker I use for mortgages in my name is telling me they will still ask for a mortgage statement since my tax return shows I claimed mortgage interest deductions even if I have commerical loans, so even though the mortgage doesn't show on a credit report they will find the mortgages and it'll affect my DTI ratio.

The way around this seems to be file a separate tax return for the LLC. My tax accountant is telling me to claim the LLC as an S Corp. They tell me I'll have to pay myself a salary if it's an S Corp.

Does this sound like the right way to handle the situation? If I file my tax return for 2020 as I did last year it'll show my income going up due to higher rents, but expenses are still going to be high due to the BRRRR.

@Matthew Laws

I'll see you at the REIA meeting 👍

@Luke G.

Great looking property!

I always look for a hot tub when I go to an Airbnb, but I understand that's a lot of maintenance.

I'm in the process of screening prospective tennants for a new SFH. I have an applicant that came back clean on background and credit check, but when I look at state court records there are many civil cases against them for non-payments and tax issues. I understand the reason they are renting is because they have issues on their record (which they were up front about), but would this be a red flag for you as a landlord?

Brian,

I invest mostly in Neenah, but have a few properties outside of there. I live in Oshkosh; originally bought the house to be close to work and to do STR for the large events in the city. Like stated in here already - the city of Oshkosh taxes are CRAZY and the city is a pain to work with for any kind of work (they want you to pull a permit to change a light fixture).

I've looked at some LTR investment properties in Oshkosh, but it just doesn't make sense with the hoops you have to jump thru. I personally like Neenah because if you stick to the nicer sides of town properties cashflow very well. My first SFH in Neenah (address only, technically Village of Fox Crossing) has cashflow of around $700/month. Other investors in the area only expect $200-300 per door on SFH houses. My worst property has cashflow of $300/month, but will be going up next year.

Hit me up if you need help in the area or just want to chat.

My wife and I have been working on pursuing FI by increasing our buy and hold portfolio over a planned five year timeframe. Friends and family were aware of our side hustle and because of that a friend told us their mom had a house she would like us to look at purchasing since they would soon be looking to sell it and they'd rather sell it to someone they know and save realtor fees. 

We walked the property and saw a house in generally good condition with many updates and good maintenance, but based on the history of the property we thought it would be out of our price range. The house had been listed for sale a few years prior for $185k and they had a realtor friend run comps which came back at around $185k and our max purchase price was around $175k since we figured we could get around $1800/month rent and we try to stick to the 1% rule in our market. 

We told them we were going to have to pass on the opportunity because we didn't want to offend them with a low offer since houses in the current market were going for $10-15k over asking price and we figured they'd want around $200k. They asked us to give them an offer and they wouldn't be offended, so we said our max offer would be $177k. They immediately accepted and said they probably would have taken less!

Now, the part that I don't think I've ever heard anyone mention during any of the podcasts of blog posts I've read that was unique to our purchase offer was that we required the sellers enter into a one year lease of the property starting at the closing date. The reason for this was so that our financing could use the income from the lease in the calculations of DTI. We priced the rent of the property so that our DTI was fairly neutral after considering maintenance and mortgage payment to make the deal more attractive for the sellers. The sellers were happy to agree to that deal because it effectively meant they got the money they wanted for their property and were able to continue living in the house as if nothing had changed and allowed them more time to shop for their next home. In our lease agreement we allowed them to break the lease when we were able to get new tenants into the property if they were under their one year lease term.

The only odd thing that came up in the deal was that during the appraisal the appraising agent reviewed the purchase contract and said that it wasn't an arms length transaction because "the seller and buyer are friends" and because we required them to enter into a lease. Because of this our financing bank required us to sign an affidavit stating that it was an arms length transaction. After talking to our lender they were worried that there could be money switching hands that wasn't part of the official transaction because the purchase price of the house was under the appraised value (appraisal came back at $190k). 

Has anyone on here ever purchased a house like this requiring the seller to enter into a lease so they had an easier time securing financing?

I've had good luck working with Fortifi Bank out of Berlin. I'm pretty small (4 properties), but they've been good to deal with and answering questions about hypothetical scenarios.

Does the cash flow in your report assume you occupying one unit? If so, what do you pay for whatever/wherever you're living now?

I'd plan on having more cash flow to cover expenses at a minimum. The way you're looking right now the only upside to the property would be a long term equity play. 

Cash flow seems very low for the cost. You're only putting down 3% on a almost half a million dollars and are banking on on your expenses not going up over the year eating up that small amount of cash flow. Unless the units are going to be remodeled and rent upped or if the units are brand new I'd look for a better deal. No money to be made here and you're just asking for a negative cash flow eating up your savings.