All Forum Posts by: Matt Devincenzo

I do condo plans as part of my W2, and these SF calculations can vary based on the coord with the attorney and owner as far as how the association is originally set up in its budgeting for dues. I recently worked on an amendment to some condo plans we did 15+ years ago and I had to re-calculate how we got to what was in the plans and the values changed over two or three iterations as the attorney represented what to include and exclude. 

The unit SF is one component of its size, but then we will sometimes add exclusive use common areas  as well as a pro-rated allocation of the common area. So your additional ~240 SF could be the foyer, hallway and bathroom spaces that are allocated by percentage to the unit. Sometimes if there are large structural components like columns running through a unit space, they could be excluded from the unit area itself like a donut hole in the middle, making the outside to outside measurement larger than what is in the condo plan. You can also not include those extra spaces, and then you simply have some association spaces that are excluded from calculating the percentage.

In my admittedly limited involvement with the leasing exhibits etc, my experience has been that again it depends. If you represent the leasable space as what's in the condo plan and they accept then that's the space they're paying for, I'm not aware of a legal obligation one way or another. If they think it should or should not include certain SF then they need to adjust the lease rate they're willing to pay, or revise the leasing exhibit/description to match their expectation of leasable SF.

On Wed this week I did an industrial outdoor lease exhibit for 3 Ac gross on a larger 20+ acre site. My client (the LL) directed to include the onsite frontage screening landscape outside the fence as part of the leasable SF even though it's not useable by the tenant. They acknowledged that if the tenant wants it adjusted to exclude that area then we'll revise, but they want to charge for the entire space...to them it is an integral component to leasing the yard since the City mandates screening landscape. To not charge for it is to cover a cost that any tenant for the entire yard would need to address themselves...from the tenant side they can say that including it reduces their useable area below their 3 Ac gross...neither is right or wrong, it's just differing perspectives on what is best for them. 

 I'll give you a great local example...I go to church with the bank president. The bank is here in San Diego and is Endeavor Bank. He and his partner have been in the SoCal business bank world for 40+ years, and entered it at a time when local banking was what businesses did. They both were up in the Glendale area for 15-20 years or more, and were very involved with the local business community. After living through the GFC and the shrinking market for local banks, they saw an opening in the market for what they call "consultative banking" like they had years before and decided to start a bank. This 'consultative' approach means their business clients come in talk through problems and they try to provide a bit of outside business 'coaching' if you will, or connect you with another client who can assist. They want to help your business grow so that their bank will grow with you. 

The other component here is understanding the bank's business as well. Collin mentioned a local bank that is keen on having Dr.s as clients, Endeavor is a local SoCal business bank, others could be agricultural or manufacturing oriented...some in the news recently for failing were VC and crypto centric. The point is if you're a consumer banking customer you don't offer what their business model is designed for. So consider your banking offerings and then search for local banks that cater to that.

I'm not familiar with the area, so could you share what your value expectation is on this? I didn't see anywhere that you posted what they said ARV was, or what you think it is based on comps...the County assessment has no bearing whatsoever on value. It could be 50% high, 50% low or right on the money but no matter which of those three it is makes no difference. The comps are all that matter.

Lots of different areas of RE are available here. If you look back at posts from 15ish years ago it was a lot of sales, marketing and wholesaling because that's what many were doing through the crash. Then it shifted to more flips and rentals, with a lot of discussions on how to capitalize since the credit markets were frozen. And eventually it shifted to more straight rentals as the market for capital got easier again. And most recently the last 3-4 years there were a lot of syndication discussions. Through all of those there were still posts on the other subjects it just morphed as far as the percentage of content. 

One thing I will say, and do with it what you will, if you are digging out of a bad financial position I'd suggest RE is not for you now. It takes capital to do this business and if you don't have it I wouldn't suggest throwing it into a marketing machine for wholesale deals. Of course your individual experience may vary and maybe you have a marketing and sales background so it is a good fit. But truly wholesaling is a hard business and takes a lot of up front cash to get going before you get deal flow. 

Your scenario is possible but not probable...admittedly I have never done what you suggest I've been the seller financing sales in my IRA, but I have read several BP contributors that have substituted collateral. One who is active still and recently did a case study write up like this is Don Konipol, the other pops on every now and again and did a BP episode many years ago Aaron Mazzrillo so search those two names and read some threads.

A more likely scenario is not what you mentioned as the ever growing note/value deal, at least not as outlined. What I recall from Aaron's deals was it wasn't about finding ever larger seller financed deals, but keeping the old seller as essentially a PML....keeping you from constantly looking for new funding when you already have someone that agreed to fund you essentially. 

It is not typical that you will find SF deal after deal, and if you are actively marketing for distressed sellers many...most...will want cash sales. The substitute of collateral was more of a scenario where you sold for $155K, and instead of paying off the $88K loan in your scenario, those funds stayed at the title company and were used on a cash purchase happening nearby in date. 

Using your example, you sell Mon for your $155K and have a contract on a new home for $100K two weeks after this one sold. So the first seller agrees to direct title to holds the funds and when you close on that purchase you record a new note for the first seller on the second home. Seller number two walks away with all their cash, and seller 1 who already agreed to SF has now become a PML without the challenge of negotiating each deal with them. To you there was little change, you just keep paying your note but now own 123 Main St instead of 345 Side Way, and you have your equity as cash in your pocket from sale 1. 

Something is missing...if there isn't a Board and the HOA (or I assume more likely a COA) is newly formed then why isn't the developer still in control of the HOA? The manager doesn't determine what they do and don't like, they 'manage' the HOA to comply with the law and guidance from the Board. So no Board, nothing to manage except State law...the organization docs for the HOA should have identified when the developer maintained control, the terms for it to be turned over and at turnover you would establish a legislative body which would be the Board...

To go a bit further into what Dmitriy mentioned, since your IRA earns the income the tax treatment is specific to your IRA. Assuming you purchased in your IRA for cash as most do, then there's nothing to deduct or depreciate because the income is non-taxable inside the IRA already. If you did finance some of the purchase using a non-recourse loan, then you need to read up on UBTI/UDFI and there are some taxation benefits that the IRA can achieve since it now owes taxes in that scenario.

It sounds like you've gotten some solid direction above, but a few flags stood out to me in the above discussions and I wanted to point them out to help make your decision.

- You mentioned this sale is tax free 121 exclusion, which is great, and seems like a solid start to your goal.

- The townhouse you're moving into is currently a rental, but you plan to live there two years for the 121 exclusion. Just a heads up this will not be tax free, it will be a pro-rated exclusion. You have to pay depreciation recapture and gains on the pro-rated time it was a rental.

-Depending on your gain above, you could get a partial 121 exclusion and a 1031 on the townhouse. Maybe it isn't worth it, but you should consider the numbers and decide...that could push you towards purchasing another rental. 

- You mentioned paying down/off a rental and needing to consider the tax implication. I'd suggest that there is essentially no tax implication for this as compared to your alternatives. If you pay down $100K in loan saving you $1K in monthly costs against rental income, or you invest that $100K in something that generates $1K in net income the result is similar. In both you are now paying taxes on an additional $1K/mo.

-The mention of syndication being less risky than HML...I'd suggest it is more risk, possibly much much more since you don't know whether you are good or bad at vetting the operator right now. With HML at least you in theory can vet the property and keep a low LTV to ensure you can be made whole. With syndications many operators are using finance magic to juice returns, but that can result in full wipeout on the investors. Definitely do a search here for some recent stories on capital calls and risks with syndications...even on some that have been operating many years...

For $10K and a lower rate I'd be willing to consider delaying...but only if I knew that lender two was solid on closing in a relatively short timeframe. This is why I use a loan broker...I want his experience with who can do what they say and who is a delay. 

Final thought is to make sure switching lenders doesn't blow a contingency and sink the closing that way. 

$10K savings to you or higher cost to you? And what timeline can lender #2 close in? One day, one week one month? 

Lender #1, what do they need for clear to close? Can it be wrapped up by the end of the week?