All Forum Posts by: Michael Hill

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $220,000
Cash invested: $55,000

This is my first investment property/primary residence. I bought this property off market from a local investor. It is a tri-plex that I live in and rent out the other units. A lot of the major components are brand new including roof, siding, furnaces, A/C, flooring. The gas is separate and the electric is combined, but I do split the electric bill between tenants. So far I am loving being a landlord!

What made you interested in investing in this type of deal?

I wanted a primary residence as well as an investment property, so why not have both?!

How did you find this deal and how did you negotiate it?

I found this deal through a local investor I met at my W2 job and I was able to save money because he was able to sell for less because we did not use a realtor.

How did you finance this deal?

I saved for over 2 years and had just enough money to put 25% down. I also borrowed the closing costs from my parents which I quickly repaid.

How did you add value to the deal?

I bought under appraisal! I paid 220K and the property appraised at 230K.

What was the outcome?

I am one step closer to achieving my dreams and having a great time on the journey there.

Lessons learned? Challenges?

Listen to the numbers and ignore the nay-sayers.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

My lender Mike Martin from Arcadia Lending made the process quick and easy. For insurance Hunter Gall from Whims Insurance Agency gave me the best rates.

@April Birdsong

As mentioned, material participation of $25k allowable deduction phases out between a modified AGI of $100k to $150k.

You might be able to deduct some of the upgrades if they were smaller chunks.. maybe?

The Real Estate Professional Status (REPS) is a little misleading from the name.  It has nothing to do with being a real estate agent.  Generally, most people do not qualify since it requires you to do be doing more than half your time as in real estate related activities.  So, if you have a full time job which is notionally 2000 hours a year, you'd have to being doing real estate for at least 2001 hours..

This is pretty normal.  Investors aren't always bring their Passive Allowed Losses (PAL) onto their 1040 to deduct against their regular income.  They are carried forward year over year.  Its a little often mentioned added benefit that when you sell, these "credits" help offset your gains.  So, many times you don't have to 1031.

So to your question about yearly basis, IN GENERAL, your tax liability should look like as if you just had to your salary.  Any actual/paper losses with your rentals will be carried over year after year as PAL.  If your rentals are positive, the PAL will be used to offset those gains so there won't be any tax liability until the PAL is used up.

Hope this helps.  Happy to chat.  good luck.

 I am :) 

@Michael Hill, I would agree with Robert.  Since you are unfamiliar with this part of the country, I would plan on spending several days down there with a rental car and get to know areas. 

Or think about the things you want to do: presumably you are moving with a job lined up, so where is the office.  Do you want a 10 minute commute or are you open to a 30 min/60 min, etc.  

Where are the grocery stores you will use, restaurants you generally like, do you want walkable or suburban.  A lot of times, these types of lifestyle choices will start limiting you down very quickly to specific areas, and since you are going to be living in the property, are likely to have a heavy weight on the neighborhoods.  

Another question to think about, that might be something an agent can help with is: where are the other people your age and life stage living? 

@Michael Hill, CrimeGrade.org. You're correct; for ethical reasons, realtors can't explicitly say if an area is "good or bad." Moreover, a general understanding of price guidance will help weed out the majority of markets. For instance, in my market: $200k-$250k C-class, $300k-$350k B-Class, and $400k+ generally A-class. Hop on Zillow and get an overall feel for price differentiation. Needless to say, higher quality schools = higher priced homes. Mess around Niche.com to find the best school systems in your market and work backward. At the end of the day, this all depends on your budget.