All Forum Posts by: MATT WARDEN

Thank you, Mike G, for your insightful reply.

Charles, my reasoning for using all cash is pretty simple. Yes, I am hoping to get a reduced price. But also I do not see a reason to essentially borrow money in the form of a mortgage in order to invest in stocks. About 15% of the money is currently in the form of cash, and the remainder is in stocks in a taxable investment account (i.e., not a sheltered retirement account).

This is to purchase my own home to occupy it. I have no plans to invest in rental property down the road.

Hi,

I know this forum is mostly about real estate investing, but I also know that this is the best place to ask about the details of a cash deal. I am about to purchase my first house (I will occupy). Up until now I have been renting. I am beginning the process, plan to purchase 3-4 months from now, and I just want to make sure I understand the things I should be thinking about.

First, most likely this will be a 100% cash deal. How do I research the relevant laws/regulations around this (I live in Texas); should I expect there to be any? I seem to recall there being a minimum waiting period. Also, at what point in the negotiation process do you think I should mention that I can do an all cash deal / fast close?

How do I perform a title search, given that there will be no lender involved who will be coordinating that and just sending me the bill? What other due diligence do I need to do in this regard?

I'll hire a home inspector. Do I need a separate effort to survey and verify the property boundaries? If so, what is this person/service called.

Any other tips or considerations would be extremely helpful.

When someone posts "bump", it is usually because there is a pending question that did not get answered, but this person is interested in the answer. Usually person A will ask the question to person B, and if the question isn't answered but person C is also interested in the response, person C will post "bump". This often happens if person C has found the thread by doing a search.

This really only happens on forums, where there are features that will bring attention to unread content, like bolding the subject or ordering by last post date or emailing individuals that there is a new post.

By the way, if you were posting "bump" just to get in the loop, you didn't need to. You can subscribe to any thread without responding to it. Click on "Watch this topic for replies" near the bottom of the screen.

This seems to be a common decision that people make. They have a primary residence, wish to move on to better things, and then someone gives them the bright idea to carry both mortgages and use the first property as a rental.

But the questions are almost exactly the same. Did you buy that first property right for a rental? I doubt it if you were living in it. Will you lose money on improvements you made that are too much for a rental property? I bet you will since you were improving your personal residence.

Run the numbers as if you were purchasing this property today and had no equity in it. Will it cash flow? I doubt it.

Sell it and take the win on appreciation. Use the money to buy right on a rental property if you are truly interested in being a land lord. You'll might have some dough left over, too.

24%

I think I can make this work, but I must admit that 5 bedrooms is a little out of my comfort zone and I fear I might not understand the dynamics well enough to analyze the deal. Specifically, I am worried that it would be difficult to rent, although I have heard that in some markets where 5bd units are scarce, they are very easy to rent. Here's the situation:

10 year old lender-owned 5 bedroom 2 bath SFH near a popular university branch campus (although it is largely a commuter branch campus). Here's what I'm thinking:

List: $53.9k
Buy: $48k
Debt service (48k@7%,30yr): $320/mo
Expected gross rent: $800-1000/mo (this is what I'm having trouble with)
NOI: $400-500/mo
Expected avg cash flow: $80-180/mo

The problem is that I am having trouble coming up with what I expect to be able to rent it out as. This is mainly because there are no real comparables. The only approach I can come up with is to ignore one of the bedrooms and comping as if it were a 4 bedroom. This might even be appropriate if 5 bedrooms turn out to be difficult to rent; I would have the option to market it as a 4 bedroom.

Any ideas on how to determine the expected rent? The $800 and $1k numbers was based on thinking if I rented it to a group of college students, which I would think would be easy to do for $200/person/mo (4 or 5 persons, respectively)...

I am trying to be extra conservative with my numbers since I'm slightly out of my element, but I wanted to run this by you guys in case I am completely not thinking of something.

Thanks,

Yes, as long as:
1) The tax savings is greater than the service fees
2) The risk with regard to timelines is acceptable

You are not avoiding tax. You are deferring it. You still have to pay it! In addition, having someone facilitate the exchange for you is not free.

And if you screw up on the timeline, you could pay for the exchange facilitation and then still have to pay the gains tax.

It is not a blind decision. If you are not considering the cost-benefit, you are probably throwing away money.

I strongly suggest you shell out the money and consult a lawyer to form your first LLC. Many people will tell you you don't need to do it, but these people also haven't had to their LLC tested in court. It should cost you about $500 to have a lawyer draft up the documents, plus the filing fee ($100ish). After (s)he drafts up the documents, you can just change the name of the LLC for any similar-purposed LLC you create in the future (if you are creating an LLC for every x properties, for example).

Do you see rents increasing on larger# bedroom properties, then?