All Forum Posts by: Sam Alomari

 The best thing you can do to accelerate your real estatejourney is to work with a qualified mentor.

Hi @Nicole Bryan I'm not a CPA but I did a quick research.

f your insurer paid out because your main home was destroyed, you may be able to exclude the gain from taxes. Provided you lived there for two of the previous five years, you can exclude $250,000 in gain or $500,000 if you file a joint return, just as you could if you sold it. Suppose you bought the home for $200,000 but it was worth $230,000 when it burned down. If your insurer cuts you a $230,000 check, you have no tax liability, despite the $30,000 gain.

Reference: https://finance.zacks.com/homeowners-insurance-los...

I'm not sure that you can treat your rental the same way you treat your main home. I believe that the excess amount is considered taxable. 

It's better if you confirm that with your CPA. He/She might find a way to defer or eliminate your taxes. You might qualify for 1031 exchange!

@Daniel Pichardo Welcome to the our of state investors club :)

As others explained, if you are after passive income, you better go out of state. I personally don't like turnkey companies, so i created my own team in a great market to buy, fix, and manage rentals.

The best advice I can think of right now, find a mentor in a good cashflow market. Find that person who is willing to help you grow a portfolio. I can't tell you how much that helped me.

Hi @David Casas

I'm not in your market, but I'm in a similar one except that my state has better landlord/tenant laws that is in favor of landlords. I heard horror stories about rentals in NJ. Did you check your state laws? Is it true that evictions can take anywhere from 6 to 24 months?

Imagine you have a mortgage and can't collect rent for 6 months, is the 7% COC or the $100 per door is an enough reward to justify the risk?

in my personal experience, in such states, it's better to stick with wholesaling. I might be wrong, but I can't justify the huge risk for that small reward. 

You always have the option to invest out of state, it sounds scary, but actually it isn't at all.

Hi @Michael Tempel

Why do you care if the assessed value is more or less? That affects you only if the tax is too high and your numbers won't work. I look at cashflow and if numbers are good after deducting all expenses including taxes, usually I don't care about assessed value.

However, the assessed value in some markets gives a clue on the neighborhood. If the assessed value is incredibly lower than what you are paying for the property, then it's a red flag.

In Northern Virginia, I sensed that assessed values are usually 10%-20% less that market value. In other markets such as Indianapolis, sometimes you can buy below assessed value.

Hi @Account Closed

I am not a CPA or a Lawyer, but I've done the research hundreds of times and here is my personal opinion based on my research:

From accounting perspective:

If you plan to flip, use an S-Corp or an LLC taxed as an S-Corp for (better flexibility).

For buy & hold, if you are making too much money and if you hold many properties under the same entity, You need S-Corp or an LLC taxed as an S-Corp. If you are loosing money "on paper), or if the income is not significant, stick with the LLC.

If you form a single member LLC, IRS will treat you as a disregarded entity and you will be taxed as a sole proprietor. If you form an S-Corp, the IRS expects that you receive a minimum reasonable salary (pay payroll tax), and whatever profit left you can take as a distribution (no payroll tax).

From Liability perspective:

It is never enough protection to hold a property inside an entity aka "Outside protection". You also need to protect your assets from the inside as well. When you hold a property in an entity, your personal assets might be protected from your tenants or any liability litigation you might face for owning that property, but if you, your kids or your wife get in personal liability litigation for something such as a car accident, or a fight,, there is a chance that you'll never see your personal assets again including your property that you hold in an LLC.

Umbrella policy is never enough. I strongly recommend working with a good asset protection lawyer in your area.

Business VS Personal

What you heard about strictly keeping personal and business funds separate is true. No matter what entity do you form or even if you decide to go as a sole, you need to separate your business funds/expenses/etc from personal. It will make your life easier and you will have better chance surviving an audit.

When I buy a property, usually i fund my LLC (wire money from personal account to business account) and record it as either a loan to my business or a contribution. Any generated income or accrued expenses as a result of owning that property should go through my business checking account or business credit card. Your accountant will be able to easily link your business credit card and checking accounts to your accounting software such as Quickbooks and easily maintain your books.

If I don't separate personal from business, it will be a huge mess and I will never be able to get my books right. Also remember that many real estate buy & hold investors prefer to form an entity per each property. How else would you know if your property is profiting or losing money?

 @Michael Mourey, Vacancy depends on your investment market, location, property grade, neighborhood class, your rent amount, etc. In my market, I like to account for 8%.

Your assumption to the 5k repairs also varies based on your property location, age, sqft, grade, finish, labor cost, terget tenants, etc. I suggest that you check with a contractor in your area and let them estimate the average cost for such minor repairs.

Hi @Michael M.

You missed a very important expense especially for a duplex which is (Vacancy)! It is my number one reason to avoid multifamily rentals. SFH has a lower vacancy rate but for a duplex, I would account for at least 10%. Now your monthly net is $610 and COC is 12.48%

I noticed that you estimated $5k repairs but for some reason you don't believe that the $5k is going to increase ARV. If that's the case, then you should buy for $180k or less. Why would you pay $185k when you know the property worth $180k? Again ARV is "after repair value", so your ARV should at least equals your (purchase price + Repair Cost).

Usually your ARV should exceed (cost+repair) because you are taking on the risk of a repair/rehab project as well as investing your own time, so I would pay $175k at most (Usually I go lower) so that you get some upfront equity. Remember, you make money when you buy :)

Cap Rate and GRM are generally used on commercial buildings and are irrelevant when you talk about residential real estate below 5 units. 

GRM is a rough estimate only, so don't worry about it. Even if we consider the Cap Rate, how do you like your 5.13% Cap Rate? I know you are probably looking at the COC, but if you want to sell your investment, and if the Cap Rate is a valid measure, then it's too low and that's what an investor would use (again, if it's valid) to figure out how good is this deal.

Residential real estate is affected by the location and crime, so if your duplex is 10% Cap Rate and in a high crime area, good luck selling or even attracting good tenants. My point is, don't look at Cap Rate, just look at cashflow, crime rate, location, potential appreciation, etc.

Finally, I suggest that you dispatch a good inspector to give you a full report about the condition. You can submit an offer with inspection contingency. 

Hi @John Park

Here is what I do with my cashflow. In order for this to work, you need to have an interest only heloc or some sort of a credit line. 

It doesn't matter what's the interest rate of your credit line, of course the lower the better but it works with almost any interest rate being offered in the market nowadays. 

Also make sure to park your monthly cashflow and any earned income checks in your credit line for maximum benefits and interest saving.

Your are netting $700/month ($8,400/year) so you can take $8,400 from your heloc or credit line and pay that chunk of money towards your mortgage balance. When you apply a lump sum payment towards your mortgage balance, you shave off tens of thousands in interest and you accelerate paying off your mortgage.

Don't worry if your heloc interest rate is higher than your mortgage interest rate. Your heloc is simple interest which is calculated daily. When you park all your checks and income in your heloc, the interest you pay on your heloc is nothing compared to how much INTEREST and TIME you save on your mortgage.

This doesn't work with everyone. but it makes total sense for people with good money management skills.

@David Campbell I don't know what @Account Closed is thinking! Maybe he's just agreeing with me so he used the creative copy/paste method! LOL