All Forum Posts by: Sailesh Kumar

Hi Friends,

I live in Bay Area.  I work in tech company and my wife does RE investment (flip and rentals).  We have a few multi family in SF bay Area and are in the process of doing a few flips with few partners in SF Bay Area. I also have good W2 income and my wife is also planning on becoming a RE professional this year for tax benefits. I am looking for someone to discuss our financial planning with for maximizing short and long term tax benefits and also for filing taxes and bookkeeping.  Remote CPAs with good experience will also work for us just fine.  Will appreciate any recommendations.

Sailesh

I have 30+ rentals and they are all owned under my personal name because I know the risk of loss in a lawsuit is astronomically small.
@Nathan Gesner thanks for the reply but my attorney and CPA both claims that I must put every 2M worth of properties in a separate LLC. Perhaps they want to charge me more but they claim it's super important to minimize the cost. If you think the risk is astronomically small why are you creating the LLCs now?

The properties are in the Bay Area in CA. They are mostly 4plexes and an 8plex.  The rents are pretty good here.

Hi,

I have a few multi family properties and I manage them myself.  I have following questions around how to organize the properties and management.

1. To keep the accounts and tax simple should I start a property management company as LLC and use it for all my rental activities bills expenses etc.?

2. Also do you recommend to move one of the properties under the same LLC or keep them separate?

3. If keeping the properties separate from property management LL, should I start one or more LLCs and put the properties under them?

Really appreciate your advice and guidance.

@Kathy Utiss I checked all sales of such properties over last 3 years in SF. I didn’t find even a single deal that met your criteria in a good area of SF. Not one. 10x NOI is unheard of in SF. One is lucky to get 12 or 15 GRM.

Will appreciate if anyone can spot a better deal in SF.

 @Amit M. no such investment opportunities in SF in spite of pandemic and record vacancies and record rent drop.  If deals don’t come by in this time then it’ll never come by.  SF will eventually come back and RE will recover far earlier.

It shows the resiliency of SF RE. I think going forward good deals will be ever rarer. It is very confusing. This property has the best GRM I can find and as you can see from others responses it still doesn't cut it. It really makes me wonder if it takes heart of steel to invest in SF.

@Kathy Utiss thanks for the detailed reply. Sorry for the the mixup in numbers. But your analysis is spot on.  Unfortunately if one wants to play in SF there are no values or bargains. Most properties are not even cash flow positive for years. Even in this economy.

NOI of 10x is impossible. GRM is often 15x. You are lucky to be cash flow neutral. Sellers are not reducing prices in spite of record vacancies. Not sure what to do but one has to bite the bullet if wants to play in SF city. I'll be happy to be proven wrong and buy a better property. Desperately looking to buy in SF BA.

 @Michael C Williams: Thanks for the reply. Yes they seem very patient and have priced it very high. SF is a very difficult place to find good value even in this economy. 10x NOI is impossible to get.

@Johnson H. Thanks for the reply and detailed suggestions. We have reviewed all documents and everything seems to be done properly and contracts have no red flags. However their CAP rate etc. is all based on pre-pandemic rents and occupancy rates, which may take a very long time to come back. based on the current reduced rents the income level is actually 20% lower which reduces the cap rate to less than 3%. It is still not clear when SF will go back to pre-pandemic highs so not sure if this is a good investment even at 8M. What do you think?

@Brian Garlington This is perhaps the best we can find.  It depends on how you calculate the cap rate and hw much down payment you make.  If you down 40% and also assume full potential income which the property owners have done, the cap rate comes over 5%.  Based on current income the cap rate is of course lower due to vacancy and temp rent reductions.

+ Gross Potential Income $750,000 (this is pre-pandemic rent)

- Vacancy 2% (again pre-pandemic data)

- Expense $140,000

- Debt service cost $240,000

+ Principal reduction $85,000

NOI = $440,000

Cap rate = 5+%

I understand that assuming gross potential income at pre pandemic levels and vacancy rate of 2% when current vacancy is 33% (2 out of 6) is unreasonable and even insanity but everyone is SF does their math this way.