All Forum Posts by: Milton Rivera

@Iqbal Ahmed if you have held the stocks for over one you may only be liable for capital gain taxes.   @ Duane Alexander confirmed the rough rehab costs.  

You may want to see if they pulled any permits from the city/county. If permits were pulled, you may need to work with a specific sub to complete the work that they pulled a permit for.  The seller may have discovered something after tearing down walls or he could have underestimated the size and cost of rehab.   

Good luck

@Hunter L.

In this scenario, you are both correct.  You can certainly push value by updating (cosmetic) finishes but only to a point.  Example, if you upgrade the kitchen counter from laminate to granite or if you update the flooring from carpet to hardwoods.  However, the appraiser will not account for updating paint or if you are simply replacing an old carpet with a new carpet.  

If the floorplan allows you can certainly make changes that either add square footage or re-designate space (Example, convert a den to a bedroom).  I recommend contacting a local appraiser and see what he thinks.  If you actually purchase the property, you can even try to meet with that appraiser on-site and pick his brain about what could increase the property's value. 

@Brennan Stephenson

There are quite a few moving parts on the deal.  You mentioned leaving the building code/authorities out for now but unfortunately, they will be a big factor and could be the driving force on the deal.  A few random thoughts:

1. I am assuming the smaller rectangle to the 3 car garage is the driveway. 
2. I would start off by looking at the existing survey to understand where the utilities are and what other easements you may have.
3. The fire department will most likely require a driveway all the way to the back to the second building.  The garage would need to be adjusted to allow egress and potentially demo on the south section and re-added to the north end. 
4. You will also need to understand typical lot size requirements for the given dwelling. A single-family house (SFH) may require 0.25 acres vs. a townhouse or duplex may need something different.
5. You will also need to understand what the standard setbacks are.  That is the minimum distance allowed between buildings.  
6. Answers to all these items will begin narrowing down the size and exact location of where the building pad will be and also help determine the overall size of the second building.  You can get most of these answer by speaking to a local surveyor or civil engineer (the surveyor will be much cheaper).   
7. If you are allowed multi-family homes I would consider two townhomes or duplex (depending on what is typical in your local market) since those construction costs will be about the same or lower than erecting an SFH. That could increase your overall cash flow and RIO.
8. Good luck,

@Jeremy Holcomb

This is one of those long term debates.  This boils down to a few items:

1. Your risk tolerance. 
2. If you leverage, yes you will pay the interest/underwriting fees but you can run multiple projects at the same time and hence accelerating your returns. 
3. Not everyone will have the cash reserves to purchase and rehab a given property. 
4. Putting all the money into a single deal is not necessarily less risky, is like putting your chips all in one hand.  What happens if you discover unforeseen conditions and you no longer have the cash reserves to address.  What type of delays will that cause and at what cost? 

Certain investors use a combination.  They acquire a certain number of properties.  They analyze which ones perform better over time and then sell the worse performing ones.  They use those funds to pay off the top-performing ones and hence increase overall cash flow.  The great thing about real estate is that there is no one size fits all solution and it is truly about your individual situation and goals. 

Good luck

@Jonathan Puerta

The benefits of refinancing include:  

1. You can cash out and re-use those funds to acquire additional property.  

1. The BRRR strategy assumes you either used hard money or cash to initially acquire and repair the property. Hard money loans tend to have much higher interest rates and by refinancing it via a more traditional lender those rates would be significantly lower, therefore, lowering your monthly mortgage payment. If you paid cash, you would, in theory, get all or most of your cashback accelerating your money return.

Hopefully, that clarifies it for you. 

Good luck, 

@Krishnasai Koneru

The bank is correct in that the HOA is considered an expense, however, you will most likely not get a refund check from the IRS. When you own rental property you will have to report the rental income using Tax Form 1040 - Schedule E. You can do a quick internet search and see the typical expense categories (advertising, insurance, management, etc.). In general, you get to carry this paper "lost" until you sell the property and reconcile all of the income and expenses while you held the property and estimate any tax liability.
The expenses show on Schedule E are not necessarily the expenses you would incur, you would need to complete your analysis using your own tools (BP has several calculators that can help).  In the end, if you are purchasing the condo to get some cashflow you want the rental income to be greater then all of your expenses in order to have a viable deal.  Otherwise, you will have to come out of pocket every month to cover the difference.  Example,

Income = Rent = 1,000

Expenses = HOA = 330

Mortage = Assume 20% down payment at 5% = $429

Taxes = Assume $100/month

Insurance = Assume $100/month

Property Management = 8% of rent = $80

Repairs Assume 10% = $100/month

Capital Expenditures = 5% = $50/month

Cash Flow = Income - Expenses

Cash Flow = 1,000-(330+429+100+100+80+100+50)= (189) in this case, you have to come out approximately $200/month to cover the property.   

Good luck,

@Mike Burr

You should be able to refinance as an LLC. You will have to most likely go to a non-traditional lender (think credit unions, local banks or even some hard money lenders provide long term financing). The interest rates may be a little higher as an LLC than it would be for an individual but it should be achievable.

@Jaysen Medhurst

The issue is with acquisition funding sources.  Traditional banks and apparently hard money lenders (I spoken to four diffferent ones) do not like two dwellings on a single lot because they can not get an appraissal so that they can actually lend money on the deal.  I will have skin in the game but I am looking for lender to provide 70-80% of the funds.

@Jaysen Medhurst

The play is for a long term hold, cash flowing property.  We are looking at about 1.2-1.3% in rents.  The improvements will also reduce our maintenance/cap ex expeditures in the short to mid term.   

We are also being conservative and assuming worse case scenario where there ARV is equal to the purchase price + rehab costs. It will most likely appraise above that in the 320-330k range.

@Nathalie Chew

Your contract should include a clause the states the seller is responsible for having all utilties turned on prior to inspection.  If the inspector has to return at a later time, he will most likely charge you a return to site fee.  If they do not turn the utilities on you have two options:

1. Assume all of the critial items will need to be replace (HVAC, water heater, etc.) and adjust the purchase price accordingly.  
2. Include a cause in the contract that if you discover faults once utilities are turned on, you will request an equitable adjustment to the purchase price. 

Good luck,