All Forum Posts by: Pete Harper

Investment Info:

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

Purchase price: $85,000
Cash invested: $100,000

Crazy cat lady duplex. This is a 1960's all brick single story Ranch; originally built with two identical 1200sqrft 2 Bedroom/1 Bath units. Original owner who had cats; reeks of cat urine.

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

We saw potential to add bedrooms and bath. With 1200sqrft to work with there is more potential in the property than just a 2BR/1BA. It has a half-assed carport conversion adding an unofficial 3rd bedroom. Our plan is to totally gut the house removing all the dated wood paneling, kitchen cabinets and bathrooms.

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

Found the deal on MLS. We were originally the 2nd place bidder. The first place bidder backed out after they discovered a gas leak on inspection. We didn't care because we were going to make the property all electric and capped gas lines.

How did you finance this deal?

All cash deal. Money for purchase and renovations came from previous BRRRR. We used cash out refinance to fund. BTW the cash for this property comes from a cash-out refinance of a 4-plex we purchased with 1031 exchange funds in September of 2019. The same capital has been cycled through two properties in a year. Gota love the BRRRR Strategy!

How did you add value to the deal?

We will rebuild as a 4 bedroom/ 2Bath with laundry. Since this is a bigger project than we have done before we plan on hiring a contractor to do the major work; demo, framing, electrical, plumbing, and sheet rock. My wife and I will do the finish work with new kitchen cabinets, new bath, flooring and paint. We have budgeted $60,000 and 6 months for the project.

What was the outcome?

We started off with a really bad contractor, the guy was literally a crook. From now on I run background checks on everyone I hire. We ended up firing him after he abandoned the job unfinished. Renovation took much longer than expected and cost more. I ended up doing a lot of the work myself to recover. In the end the deal turned out OK. We learned some valuable lessons and the place looks terrific. We have it all rented for more than I forecast.

Lessons learned? Challenges?

Painful lesson in dealing with contractors. Do a criminal background check before working with anyone.

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

Local agent Angela Kennedy

Investment Info:

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

Purchase price: $85,000
Cash invested: $100,000

Crazy cat lady duplex. This is going to be our most ambitious real estate project yet. This is a 1960's all brick duplex. It was originally build as a mother in law property with two identical 1200sqrft 2 Bedroom/1 Bath units. It was most recently occupied by the original owner who had cats. The place reeks of cat urine. She has moved to an assisted living facility and we purchased it from the family. With 1200sqrft to work with there is more potential in the property than just a 2BR/1BA. It has a half-assed carport conversion adding an unofficial 3rd bedroom. Our plan is to totally gut the house removing all the dated wood paneling, kitchen cabinets and bathrooms. We will rebuild as a 4 bedroom/ 2Bath with laundry. This will make the property family friendly in keeping with the residential neighborhood.

Since this is a bigger project than we have done before we plan on hiring a contractor to do the major work; demo, framing, electrical, plumbing, and sheet rock. My wife and I will do the finish work with new kitchen cabinets, new bath, flooring and paint. We have budgeted $60,000 and 6 months for the project.

All-in cost $145,000
ARV estimate $225,000
Rents $2200

After reno is complete and we have the property fully rented we plan on doing a cash-out refinance and go find another deal. BTW the cash for this property comes from a cash-out refinance of a 4-plex we purchased with 1031 exchange funds in September of 2019. The same capital has been cycled through two properties in a year. Gota love the BRRRR Strategy!

Update: We started off with a really bad contractor, the guy was literally a crook. From now on I run background checks on everyone I hire. We ended up firing him after he abandoned the job unfinished. Renovation took much longer than expected and cost more. I ended up doing a lot of the work myself to recover. In the end the deal turned out OK. We learned some valuable lessons and the place looks terrific. We have it all rented for more than I forecast so everything worked out in the end.

All-in cost $185,000
ARV estimate $250,000
Rents $2550

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

We saw the potential to add additional bedrooms and bath.

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

Found the deal on MLS. We were originally the 2nd place bidder. The first place bidder backed out after they discovered a gas leak on inspection. We didn't care because we were going to make the property all electric and capped gas lines.

How did you finance this deal?

All cash deal. Money for purchase and renovations came from previous BRRRR. We used cash out refinance to fund.

How did you add value to the deal?

Complete renovation from bare studs. We added a bedroom and bath, opened up wall between kitchen and living room.

What was the outcome?

Long term buy and hold.
ARV $250,000
Plan to cash out refinance and do another BRRRR.

Lessons learned? Challenges?

Painful lesson with dealing with contractors. Do a criminal background check before working with anyone.

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

Local agent Angela Kennedy

Never ask a fisherman where his favorite fishing hole is located.

Killeen is my second favorite. We purchased in 2019 and we are up over 65%; solid appreciation.  Rents are trending upwards we are sitting at 1.4% deal after cosmetic renovations; paint, flooring, and built in microwaves.  Everything has stayed rented and we are able to raise rents whenever they come open.  That being said Killeen is a strange market. You really need to watch neighborhoods.  A block or two makes a huge difference.  I highly recommend you drive around and get a feel for the area before purchasing.  Not long ago an out of state investor posted on BP he just complete a big reno and couldn't fill the unit at market rent.  He did a great job on reno with A-class upgrades.  The problem was he was in a bad area, nobody wanted to live there no matter how nice the place was.  

Some of the comments have been true of the past. Killeen was an overlooked market.  Sure it is a military town but none of our current tenants are military.  We are seeing some spill over from Austin market as people look for cheaper housing.  I haven't had any luck in Temple.  Everything I've looked at is older and needs a lot of work.  I looked at a 4-plex in Temple and the tenant complained about a leak from upstairs.  He had buckets set out to catch the water.  Looking at upstairs unit I thought we were going to fall through the floor.  Other properties were in old town, build in the '30s and '40s, way over priced.

I've been using Isbell in Killeen. Stay away from Armadillo in Killeen.

Yes

My long term strategy for exchange property is buy and hold. I will likely buy a a multifamily property and keep it for long term cash flow. If I ever sale I will do a second 1031 exchange. I can keep pushing out the CA and Federal tax liability indefinitely. 

I'll have to do more research on CA rules for taxing out of state LLC's. The vacant land will not earn any income. It will only carry expenses of CA property taxes and insurance. LLC files in TX and Federal.

Separate question. Does LLC transfer reset the clock for capital gains tax? Assuming the 1031 fall through for what ever reason I will have to do a conventional sale. Assuming I hold less than 2 years in LLC do I face short term capital gains?

Christopher, I shouldn't have to pay CA franchise tax on a TX LLC. I already file in TX. My strategy for long term taxes is 1031 exchange.

I have a tax question. I own vacant land in CA and would like to transfer title to my TX LLC. Would CA consider this a taxable event?

My long term plan is to sell the land in CA and do a 1031 exchange into property in TX. Doing the title transfer before the sale would make things easier on the purchasing end. I will likely need financing on TX end of the deal and it will be cleaner getting financing with everything in the LLC name.

Joe is spot on with his comments on redemption period. I purchased a property with a deceased owner. We still had to wait the 6 month redemption period. The house was occupied by renters so we were able collect rent during the redemption period. We also replaced the roof to protect the property. We made no interior improvements because they would be at risk should an heir decide to redeem. 

You should also check for liens. The tax sale only clears the tax lien. Other liens remain. We were hit with a 3yr weed abatement lien. 

Both my LLC and the Property are in the same state. I can't speak to legality of having them in separate states. That's a good question for a lawyer.