All Forum Posts by: Robert Motch

@Nick Salemme - First of all, congrats on the purchase of your first property last year.

Everyone has a different strategy, different goals and different financial needs. Here are my thoughts:

1) Check with your accountant regarding the US Tax Code 121 capital gain exclusion. Once you move out of the property and it becomes a rental, I am not sure if the $250k/500k exclusion still applies.

2) Have you thought about purchasing multifamily properties (and house hacking) instead of single family properties at each step along the way? Each property would still be your primary residence so you should be able to get favorable financing. Plus you have tenants paying down your mortgage/rebuilding your cash reserves for the next purchase from day 1. Plus, you may be able to reach your goal of 4-5 rental units with 2-3 properties instead of 4-5.

3) Personally, unless the property makes no sense at all as a rental anymore, I am not a big fan of selling properties unless I have to. It costs 8-10% in closing costs between real estate commissions, NJ transfer taxes, legal fees, etc. Also, unless you are doing a 1031 exchange, there is likely a tax bill due (again check with your accountant). I prefer to pull 75-80% of the equity back out by either refinancing the mortgage or getting a line of credit against the property.

@Troy Forney - My recommendation is to keep it and get it rented right away. 

Here is the strategy I would use (and have used):

1) Keep the property and get it rented - The property cash flows and I am personally not a fan of flushing money down the drain by paying both the carrying costs while you wait to sell it and the closing costs at the closing table.

2) Call all of the local banks in your area until you find one that will get you a HELOC or business line of credit on the property - If you speak to both the residential mortgage department and the commercial loan department, you should be able to find a bank that will give you a line of credit equal to 80% of the appraised value.

3) Start looking for the next property/properties to purchase and use draws against your HELOC/business line of credit to fund down payments and rehabs

The upside of getting a HELOC/business line of credit is you aren't making payments/paying interest unless you draw against it. The down side is that you may have to renew the loan every year or two and the interest rate will likely be variable so you have some interest rate risk.

@Delmas Edwards - Call all of the small local banks in your area and speak to their commercial loan departments.

I had a property that I owned free and clear in SC and a couple months ago I called all of the local banks in the area until I found one that would give me a HELOC for 80% of the appraised market value. While the banks did not offer HELOCs on rental properties through their residential mortgage department, they offered programs through their commercial loan departments.

congrats @Alex Smith! Keep up the great work!

I agree with @Frank Chin.

I have a separate personal checking account as well for my rental properties. Do any rental property related transactions from this separate account and then you can easily track your income and expenses at tax time. I also have a specific personal credit card that I only use for my rentals and again pay the monthly bill from my separate bank account. Not the most advanced system in the world but it keeps me organized.

@Andrew Syrios - I couldn't agree more. 

Any buy and hold investor needs a reserve fund of some kind and you need it from day one. The damage in the story could happen in the first month of ownership of a property before an investor has had an opportunity to build up reserves. 

Another option is either getting a HELOC on your primary residence or a business line of credit on an investment property. Any repairs or mortgage payments during vacant months could be paid for out of the line of credit. Then your monthly vacancy and repair reserves out of the rents received each month could go towards paying the line of credit back down. In this case you don't have cash laying around in reserves doing nothing for you. Instead any excess cash once the line of credit is paid down to 0 can be used to purchase new properties.

Assuming that $1,100 is market rent, I am ok with options 1 and 2. You are charging the tenant a premium for the flexibility of being month to month.

I do not like option 3 as it is written in your example. What if rents increase by 10% in the next 12 months? Now you are charging a slightly below market rent for the first year and a significantly below market rent for the second year. Also, your cost of doing business (taxes, insurance, etc) is going to increase 2-4% for inflation so why lock yourself into a 0% increase in revenue.

The way I would do option 3 is charge $1,100 (market) for the first year and some higher rent for the second year. 

Where I invest in SC, the rents are increasing so rapidly that some tenants are asking for 2 year leases but the only way I would sign one is if it provided for a higher rent in year 2.

I have 4 properties and I spend 1-5 hours a month total on these properties. I have property management in place so most of my time is spent on paperwork, accounting, admin along with resolving occasional issues with PM.

I spend 10-15 hours per week researching new properties and markets.

thank you @Stephen Haynes

I am looking at the Dallas market as an out of state investor and I want to start building out my team by finding a good property manager who will work with me to find the desired sub markets/towns to invest in.

Which PMs do people recommend to use and/or stay away from in the Dallas market?

Thank you!