All Forum Posts by: Milton Rivera

@Jon A.

1. You should determine your criteria.  Example, looking for 10% cash on cash return, plus $150+ cash flow/month per door. 
2. Have you completed your overall analysis of each property?  This will allow you to normalize the deals and compare apples to apples.  What does the analysis reveal?  Which one has the higher overall return potential and/or meets your criteria more closely.  
3. Consider also completing a risk analysis.  This will take into account the what if's, on the duplex, if there is a long-term tenant is he/she paying market rent, is the lease current?  On the Quad, do you have a team in place (property manager, contractor, etc.), how comfortable are you with managing contractors?  Overall which deal do you stand to make/lose more money?  What is your overall risk tolerance? Just because the duplex may appear to be the "safe" option is does not mean it is until you complete this type of analysis and your due-diligence. 

It sounds like a lot of analysis but this helps you keep the emotions at bay and make educated decisions based on numbers.  

Hope this helps, good luck.

@Chris L.

In general, developers make money by buying by the acre and selling by the square foot. There is great profit potential in developing but that is because there is a large risk.  A few things to consider in your scenario:

• Why did the owner buy the adjacent lot?  Did he want the privacy or wanted to do something else?
• What is your time horizon?  Holding the lot maybe profitable but there is no revenue coming in. If you decide and are able to build, you are looking at 12-24 months to get a final product ready for sale. 
• I recommend calling the city/county, they may be able to share some information like:
  • Did the original builder ever pull a permit on the lot?
  • Did they complete a phase one environmental study?  Any red flags?
  • Did they complete a soils report?  If so, did it reveal any red flags?
  • Public works should be able to tell you sewer and water availability.  Depending on where these are located it could impact the cost to connect and in the case of sewer, you may have to go with a septic system.
  • All this due diligence could have revealed red flags that the builder did not want to deal with.  
• Lastly, constructions costs vary by region, but let's assume you can build something for about $100/SF and can build a 2,900 SF home = $290k.  You have to add site works (prepping the site, connect utilities, permits, etc) most of these costs are really unique to the site but assume 10-20% of the construction cost (30-60k) plus the cost of the land, architects, engineers and financing costs.  This is going to put you in the mid to high $300k.  If the upper range is in the $420k it may not be worth it for 12-24 months of a lot of hard work (although it would be a valuable experience). 

Good luck,

@Nick S.

A couple of the things to consider:

1. Consolidate and/or refinance your student loans.  This should reduce your monthly obligations as interest rates are still very low. 
2. Use a portion of the funds to purchase a single or multi-family home (house hacking). You may qualify for an FHA loan with a 3.5% down payment. On the $175k home about $6k. This would allow you to keep the balance of the funds as a reserve. Something will go wrong and you want to be prepared.

@Brandon Guite

I am in the Columbia, SC area about 2 hours away from Greenville.  A few nuggets that may help:

1- Beware of taxes.  In SC, investment property taxes are high (you may want to budget about 3% of property cost).

2 - In general, appreciation trends tend to be lower in South Carolina so you should focus mostly on cash flow play.  

3- Obviously, multi-family appreciation is calculated differently and hence I would focus on the higher end of your unit count to stabilize and add value that will impact your cap rate. 

Good luck!

@Kyle Fedewa

Looking at a very quick calculation ($585-$50)=$535x9= $4,815 potential revenue/month which in essence makes this a little bit above a 2% deal ($229k*0.02)=$4,580.  A 2% deal has a high probability of being successful and generating positive cash flow.  

Regarding your cap ex-expenditures, depending on the current condition you may be able to address some of those (say the roof) during the acquisition and roll the costs into the loan (to limit your initial out of pocket expenses).  If the roof has five (5) years left on its life expectancy than I would increase my cap ex-reserves for that period (say from 10% to 15% or 20%) to get prepared for that upcoming bill.    

Hola, 

1 - Me imagino que esto es para una propriedad de inversion y no tu casa personal. 

2 -Es una casa individual y no un "multi-family", duplex o varias propriedades juntas.

3- En ese caso, una opcion es:

- comprar la casa bajo tu nombre (99% de los bancos no dan prestamos para casas individuales a companias limitadas)

-una vez que cierras, espera 30-90 dias para hacer un "grant" o "quick" deed claim en el condado donde esta la propriedad. Esto basicamente cambia el titulo de la casa a otro persona o entidad.  Tendras que tener la compania establecia andes de hacer el cambio.  El riesgo con esto es que el banco puede cobrar la cuenta completa de immediato y decir que le devez el balance completo.  La probabilidad de que ellos manden a cobrar la cuenta en completo es muy baja (1%).  Con tal que ellos esten recibiendo los pagos a tiempo, en general no se preocupan.  

Piensa por que quieres establecer la compania. Una de las estrategias es por proteccion de que alguien te demande y quieran la casa. Al comienzo esa proteccion la puedes combrar atravez de seguros (seguro sobre la propriedad y despues una "umbrella" policy). Establecer y maneter un LLC te costara menos de $1,000 al ano y si esta es tu primera propriedad eso seria un gran porcentaje de tus ganiancias.

Buena suerta.

Based on the information you shared, the most important issue is that if this is your primary residence (2 out of the last 5 years) you can keep all your gains up to about $500k (not sure if this changed with the new tax law) and avoid having to go through the 1031 process just like @ Michael Swan mentioned.  

The math gets a little complicated because you have to take into account:  The cost basis of the property (what you paid), the depreciation you took, the cost of repairs/improvements, the sale price, your tax bracket (state and local).  You can do a search for 1031 calculators to give you a ballpark but again it appears that in your case you can just avoid it all together. 

@Mark Cios

I am not an expert but I am going through my first 1031 exchange.  

1- Going from a single family to a six-unit family should meet the in like exchange.

2- You can divide how the funds will be transferred.  You can put all of the money into the new deal and/or you can take a kickback of the remaining funds. 

3 - I am not quite following your capital gains question but in general all of the proceeds from the sale should go to the purchase of the exchange property otherwise you may have a tax event. 

4 - Is this a living in flip?  If this property has been your primary residence then you don't really need to go the 1031 route.  You just have to have lived in the property for two out of the last five years, so if that is the case you are better off living there until the two-year anniversary and then complete the transaction.  

I would contact your accountant and have him review it.  Every case is different and it sounds like you could avoid the 1031 exchange.  

Good luck. 

Your processes should be standardized including your due diligence.  There are a number of reasons you should get this particular inspection including:

There might be things the seller is simply not aware of. 

If he is a carpenter, then he is not an electrician or HVAC expert. How do you know that work was done correctly?  Remember to trust but verify. 

If you forego the inspection, have you included a large enough allowance and/or a contingency to address the unknown issues?

I would refer to your overall tenant screening scorecard.  

If there are other potential tenants that have a "cleaner" application that will help you stay consistent and have grounds to reject a tenant.

If you are going to consider them as a tenant then who pays for the additional research/due diligence to understand the circumstances?