All Forum Posts by: Rich Gabrio

I am currently looking at new construction SFR as an investment north of Seattle area, in a development with one remaining home where framing has just been completed, electrical work to begin soon. This home is the last home in this plat. These homes range from 3000sf to 3600sf and each have finished walkout daylight basements and these sold homes have recently and consistently sold at $220/sf. Typically this builder prefers not to list the homes until carpet is in. Conversely, most homes in this specific area/town are selling at closer to $300/SF. I assume that the price $/per sf is lower on these homes, due to the daylight basement, as ramblers built by the same builder across the street are currently at the $300/sf range.

1.) Is my assumption regarding price difference due to basement correct?

2.) My agent and I have been discussing a scenario where we approach or submit an unsolicited offer to the builder for a lower price with the basement unfinished (Ie; insulation installed phase). This would potentially bring the price point into my acceptable range. I am wondering if any builders can help with some insight as to how best to estimate a fair price for this type of scenario? Would builders generally be open to this type of scenario? I am hopeful that the builder might be open to something more flexible, as it's the last house, and he does not have to worry about setting a new precedence in this plat. How best would you advise to handle this discussion?

My initial inclination is to calculate a price using the $220/sf for the top two floors, and a discounted price /sf for the unfinished basement. I am not concerned about the cost to finish the basement after the fact. My initial research seems to indicate that the price /sf could be as low as $35/sf and as high as $70/sf. I suspect the markup would not be very high, given the roughed-in status, but I want to present something that is fair, but also not leave $ on the table.

Thanks in advance for any guidance.

I am currently looking at new construction SFR as an investment north of Seattle area, in a development with one remaining home where framing has just been completed, electrical work to begin soon. This home is the last home in this plat. These homes range from 3000sf to 3600sf and each have finished walkout daylight basements and these sold homes have recently and consistently sold at $220/sf. Typically this builder prefers not to list the homes until carpet is in. Conversely, most homes in this specific area/town are selling at closer to $300/SF. I assume that the price $/per sf is lower on these homes, due to the daylight basement, as ramblers built by the same builder across the street are currently at the $300/sf range.

   1.) Is my assumption regarding price difference due to basement correct?

  2.) My agent and I have been discussing a scenario where we approach or submit an unsolicited offer to the builder for a lower price with the basement unfinished (Ie; insulation installed phase).  This would potentially bring the price point into my acceptable range.  I am wondering if any builders can help with some insight as to how best to estimate a fair price for this type of scenario?  Would builders generally be open to this type of scenario?  I am hopeful that the builder might be open to something more flexible, as it's the last house, and he does not have to worry about setting a new precedence in this plat. How best would you advise to handle this discussion?

My initial inclination is to calculate a price using the $220/sf for the top two floors, and a discounted price /sf for the unfinished basement. I am not concerned about the cost to finish the basement after the fact. My initial research seems to indicate that the price /sf could be as low as $35/sf and as high as $70/sf.  I suspect the markup would not be very high, given the roughed-in status, but I want to present something that is fair, but also not leave $ on the table.

Thanks in advance for any guidance.

Hi Dave, and thanks for your reply.  I should have clarified, my intent would be to still use an intermediary in this process, if possible, whereas the intermediary would receive and hold the funds from my relinquished property, and disperse funds to the builder until the funds are spent, thereby completing the exchange, and then I would then fund any remaining development. My agreement with the builder would be entered into prior to the sale of my property, and not include any ownership interest to myself.   Once my relinquished property sells, the proceeds held by the intermediary would fund additional improvements until all funds are spent, at which time the exchange is completed, and the remainder of the construction would then be funded outside the exchange. This all assuming that as part of my agreement with the builder, they agree to have my intermediary through an EAT, purchase the partially developed property from them on my behalf and subject to the sale of my relinquished property.  I am not sure if am thinking about this procedurally in the correct way, but feel like this would not be an uncommon approach and would, if done correctly meet safe harbor guidelines.

I am planning to 1031 Exchange a small retail commercial building here in Western Washington this year, and am interested in exploring a construction exchange on the back end to build a new SFR or Duplex rental with the idea of gaining instant equity upon completion. Although the residential market here in the Seattle area is very strong, my concern is that the timing of sale for my commercial building will be less predictable, thereby creating a risk of not being able to meet exchange deadlines given the additional complexities of new development, including permitting which can take some time here. Therefore, it appears through my research that the best structure for me would be to locate a builder who will act as a front end "straw man" and acquire land or a building to be renovated and perform the construction or improvements to what will be the replacement property prior to my building selling. This means that the exchange process, and 180-day exchange period has not started. When the project is permitted, and construction is underway, my relinquished property is listed and the exchange can be completed upon sale and within the 180 days, with all relinquished property funds being dispersed to the builder. I expect to also be contributing cash to the project outside of the exchange.

I would welcome any guidance from anyone in the community that has experience executing a similar scenario in the Western Washington area.

Thanks in advance to the community. ~Rich

As an investor, I've completed a number of 1031 exchanges over the last several years, and as such have become familiar and very comfortable with the process. I also find them be a great tool to creatively structure deals if done correctly. 

With this being said, my real estate agent and I have been discussing a possible partnership where we would acquire vacant land, and have a home built. We would then put the improved property in service as a short term (vacation) rental. Where he would bring cash into the deal, I would bring funds via an intermediary as a result of 1031 exchange relinquished property. Thus far my research indicates that we can establish a TIC where we would each hold individual title share in the real property commensurate with our established and agreed upon percentage of ownership. My understanding is that a TIC percentage would be allowed by the IRS as a replacement property for the back end of my 1031 exchange as it would be considered real property.

My questions are as follows: What would be the best way to structure this given our desire is to build, and my desire to use exchange funds? In one scenario, It would be relatively simple, I assume for us to establish a TIC on the front end, and then acquire the land as a TIC, however in this scenario I assume I can't really exchange into property I already own or own a percentage of unless Utilizing a long term ground lease scenario?. Assuming there is a way to accomplish this with the ground lease or lease hold scenario, can I execute in improvement exchange to fund construction on only a partially owned piece of land?

Alternatively, in another scenario, I've thought of executing a deferred exchange by acquiring 100% of the vacant land with a portion of the relinquished property funds held at the intermediary where the EAT holds title to property, then initiating the construction by also funding an improvement exchange on that land with the remaining balance of the relinquished property funds held at the intermediary. In this scenario, once the held funds have been fully dispersed by the intermediary or EAT to fund the construction, the exchange would then be complete and the property conveyed to me. This would all be standard stuff. However, once the exchange has been completed, is it then possible to immediately establish a TIC with my partner, where I then convey a percentage of ownership to him at no cost, at which time my partner than funds the completion of the construction or would the IRS consider this conveyance as premature sale of a portion of the property by me, thereby demonstrating an intent in their eyes that counters my intent to hold the property for investment?

What other options might we have to complete this type of project, and accomplish this type of arrangement?

Of course, given the potential complexity of this scenario, these are conversations I do plan to have with my intermediary, CPA and TIC attorney, but I thought I would ping the experts in the community here in an attempt better frame my conversation with them after the holidays.

Thanks so much,

Rich

I did not end up purchasing Jonathan's Wolter's book as I was unable to establish any contact with anyone at his company regarding that product. Looking at their site today, it appears that the site is exactly as it was in 2016 with the most recent info published in 2013.   I was also satisficed with what I was able to accomplish using "The Landlords Bookkeeper" as I noted in my previous post above (in 2016).  Regarding QB 2020, I have purchased the update to 2019, but have yet to install it.  QBooks confirmed to me on the phone prior to buying the upgrade that my company files created in the 2016 version should work just fine in the 2019 version.  I will try to remember to post a confirmation of this once I do complete the upgrade. 

I have a small 1000 sf retail duplex.  The building can accommodate a single tenant for the entire building, or individual tenants for two units.  Currently, I have two tenants occupying the building, and both units are served by a single gas hot water tank which is located in a common area which only serves a hot water faucet in each unit.  Electrical service is individually metered (two meters), water and gas both have one meter for the entire building, and my tenants pay based on percentage of square feet.  One unit has electrical heating, the other has gas. In the case of gas billing, one tenant has the gas service in their name (the unit with gas heating), and the other tenant reimburses for their consumption (which is exclusively hot water consumption).  The tenant with gas heating would like to suspend gas service, and use space heaters to save the cost however, I do not want to drain the tank, and have it sit idle over the winter if she were to do this.

I would like to, if there is a relatively cost effective way, convert or replace the existing hot water tank to an electric tank, and therefore have the hot water energy consumption routed to each tenant's electrical meter. Is this possible without introducing an additional water source to the building?

I do not plan on holding the building long term therefore I have no desire to  move to multiple gas and water meters.  

Thanks for any information.

Thank you, Natalie.

I will give them a call. BTW, bought my first commercial bldg in downtown Snohomish 2 years ago....on 1st Street. If you like tea or wine, you will like my tenants. 😉

Hi, Pinging the Seattle area flipping community for suggestions.  A little background:  I am undertaking a flip of my late mother's estate property as personal representative of her estate.  My background as an investor is on multifamily and commercial buy and hold investments.  That being said, I am acutely aware of the housing market in the greater Seattle area.   I am undertaking this project as I am confident that I will increase the value of the estate assets by renovating this house, and selling it, and therefore increasing the net value of the estate as a result for her heirs, given the current market conditions.  Given that this sale is an estate sale, form 17 will not be a requirement.   I am therefore focused on primarily cosmetic improvements.  

Need:   The Kitchen cabinets (1967 originals), in my opinion are in need of replacement or refacing.  At a minimum, new doors and drawers would be needed.  Based on my inquiries, feedback thus far has been that refacing or replacement of doors and drawers would not be cost effective, and it is better to replace as there are providers that offer modular or prefab options at very reasonable prices for flipping projects.   I do not want to spend more than 2K on cabinets to stay within budget, and I am more concerned with appearance than quality.  I have been referred to one local company that I am told can accommodate this type of project (replacement), Pius Kitchen and Bath (Seattle), and they have told me that I would be surprised at the low cost, but my concern is how quickly they can respond with pricing and delivery.  So I am looking for any suggestions of alternative providers.  Thanks for any guidance.  Rich

HI Ray,

I purchased "The Landlord's Bookkeeper", and used that as a guide to initially set up QB2016 for my business and self managed property.  You can find information on her book here:

https://www.biggerpockets.com/co/landlord-quickboo...

I did have direct dialog with Nancy, the author, and she is very clear and specific to say that her guide is not intended as a guide for setting up professionally managed properties (Ie; third party management for property owners).   I do not have an accounting background however, in using her guide, I was able to accomplish what I needed to with respect to setting up my self managed property, and it also gave me a baseline understanding for using QuickBooks for my business.  So, although a little difficult to follow sometimes, it met my initial needs.

I had also sent an email to Jonathan Wolter directly regarding his book in September of '16....."The most recent information I can find on your web site posted by anyone from your company is from 2013. Is this book updated for the QuickBooks Pro 2016 version?"  and received the following response: "We don't have 2016 updated yet, but all the core concepts still apply"   I will likely now buy his book, as he does provide information and guidance to track in QuickBooks properties that I own, but have a management company operate.   $99 appears to be the current price on his website, and with a money back guarantee, a small and worthwhile investment, for my purposes.

Hope this helps!

Rich