All Forum Posts by: Michael Gilman

You should form an LLC in the state you are acquiring and purchase the property through the LLC. Your operating agreement will be the crucial document that defines the members rights and remedies.

Open up a bank account in the name of the LLC and collect the rental income and pay expenses (or if you have a property management LLC transfer at least some income into the property owning KKC). Never co-mingle income or expenses with any other account. Note that some trusts, such as land trusts, are a better vehicle for owning real estate but it really depends on the state since different states support different types of trusts.

Born and raised in NYC. My advise would be to buy your own place first so you can get the deductions and build equity. In a few years you could do a cash out refi or get a HELOC to help with your initial down payment on your investment property (note: most major commercial lenders won't care where you get the downpayment from as long as the numbers on the property work). I invest out of state for 25%+ cash on cash returns but this is only after I bought my own place in the city.

The one caveat is the market cycle.  We are long in the bull market and when the fed starts raising rates real estate assets will take a hit or if there is a large financial/economic shock (we are due).  However,  nobody has accurately predicted when rate hikes would start and it keeps getting kicked down the road (who knows, we might be like Japan, which has kept low rates for well over a decade). Everyone always says top markets like NYC  withstand recessions and financial shocks but people who bought in 06' - 08' took a bath just like everyone else in the aftermath (sure it wasn't 50% but 20% is a big hit if its your primary asset)

P.S. - Buy in the neighborhood you want to live in! Quality of life for you and your family matters above almost all else.  Fact is, the good neighborhoods might not appreciate as much as the fringe speculation plays in the short term but they will retain their value much better in down markets. 

HI Steven, thanks for sharing.  The conventional wisdom seems to be that you should not expect positive cash with a vacation rental and look at it having another property at reduced upkeep cost. Were you able to maintain positive cash flow on your vacation rental on a monthly basis? How often was it rented?  Thanks. 

I am in contract on a multifamily property that was marketed and priced as a property without deferred maintenance. The inspection discovered some significant deferred maintenance items and some safety issues. While the seller will be repairing some of the deferred maintenance items and taking care of the most of the safety issues we are at loggerheads over how to treat the boiler and electrical panel issues outlined below and any advise would be greatly appreciated (the inspector recommended immediate replacement of both items). 

Boiler Issue - The property uses oil fired water baseboard heating for all units (fuel paid by owner). The boiler was found to be at the end of its useful life, in poor condition and in need of immediate replacement (it is actually a safety hazard in its current state). Replacing the boiler will be about $30,000 and will add fuel savings of 15% as well as reduced maintenance and service costs, The replacement would increases the value of the property by about $60,000 using the income approach (cap rate applied on this property is roughly 9%). The replacement would be done in the summer (presumably when property is my possession) and seller argues he should not be on the hook for the full amount of the repair since I will benefit with a 15% increase in NOI. Any suggestions on an equitable way to apportion the cost of this item in renegotiating with respect to the adjustment of the purchase price?

Electrical Panels -  The inspection uncovered that the electric panels were made by Federal Pacific Electric and have a design defect where the breaker does not timely trip and the thus increase the risk of electrical fire. My understanding is that there are millions of homes with this type of panel and these panels have functioned without issue historically in this multifamily (here is a good video describing the issue - https://www.youtube.com/watch?v=-bFf9dSvqxo) .  The state code does not require these panels be replaced though online literature suggests these panels should be replaced in all circumstances. Electrician quoted a replacement cost of $20,000. Seller argues panels have worked fine without issue so he should not be on the hook for the cost. If this was the only inspection item then it would be easier for to push for the seller to bear the cost but seller has worked with me amicably on some of the other issues outlined in the inspection report (not detailed in this post).  Any thoughts on how to treat this item? I feel like I am obligated to replace these panels form a liability perspective but should I be the one eating the cost? 

 Thank you for taking the time to read this and I look forward to any feedback. 

This is around Chester Vermont (Windsor County). 

I should add that this is for Southern Vermont. 

Can anyone recommend a property manager in Vermont for a multifamily (12+ units)? Thank you. 

I am in a similar position, having trouble finding a bank that will give good rates on home equity line/loan on an investment property. Are you getting a home equity line a loan or a cash out mortgage when you employ your strategy? Can I ask what the typical terms and rates are? Debating between getting a commercial purchase mortgage or a heloc/loan against a current rental property.

Regards,

Michael