All Forum Posts by: Steve Christensen

@Greg Downey regardless of MO LL / Tenant law, call the municipality regarding their occupancy load.
In all my PM days since 2009, I don't see how any municipality is going to allow 8 people in a 3 bedroom home, if I understood the occupancy correctly. Many municipalities simply only allowed 2 per bedroom.

@Luis Fernandez I don't know any lender who is going to loan you on a 10-20k property. Most lenders don't want to do under 50. 

I've never personally purchased or assisted in a transaction as a Realtor for anything commercial (greater than 4 family). I can tell you this, to the average unit, whether SFR, duplex, or quad, is roughly 10k a unit, turnkey / fixed up is roughly 15k a unit.

So, are there 5+ complexes that equate to a 10-15 p/unit, where you might be able to buy an 8-plex, as in the case of your friend? Maybe, but I haven't been in that market. I could set you up on a search though so we can see. Please message me if that is the case. I'm not trying to circumvent BP, and don't know if that is in violation of their postings.

I feel very adamant in reiterating though, with every other sentiment, that not only is investing outside of your market tough, but combing it with D class is a recipe for disaster. I have managed over 1,000 properties, and I have never managed D class and would not.

@Luis Fernandez I am from St. Louis, born and raised, a licensed Real Estate agent, and work with a client who invests in north city St. Louis, the most dangerous part of St. Louis. My client personally manages his properties, and he has to personally pick up rent, there is high turnover, and high crime. We just wrote an offer on a property, and he called our preferred plumber to camera the sewer line. They are no longer going to the zip code, due to having a bullet whiz by them on the job. 

With that being said, there are some great streets and pockets. Our latest transaction is a duplex he's picking up at 30k, rents are $600 each section 8 / $1,200 a month, 100% turn key as in no work needed to be done. I think this is one his best pick ups yet. 

With that said, not only will you be managing from afar / out of state, but you mentioned this is your first one. While you could be successful, you may not want your first to be C or D class. You're going to need a phenomenal PM, to which I am not aware of any managing where my client is buying. 

You don't have to go as you put "in the ghetto" to get the cash flow you're speaking of. There is less inventory, and appreciation has occurred, so you are correct in that there are not as many deals and price points we were seeing a few years ago, but I believe that is nationwide due to recovery, appreciation, and not enough sellers for how many buyers are out there.

@Justin Peters the closest REI meeting for you would probably be SSIC (South Side Investment Club). There is also a meetup called Dinner with a Mentor that is in South County that @Peter MacKercher runs. There are also a lot local Facebook groups for investors you can join. There is even one for Jefferson County.

Lead generation is the lifeline of your business - you can go free or paid. Both have advantages and disadvantages. Free is driving for dollars and knocking on doors, then skip tracing and mailing the owner. Networking and telling everyone what you do can go a long way. If you have the budget, and you want to, you can mail.

When doing a Contract for Deed, how do you protect yourself, as well as anyone you place in the home?

How do you prevent the Do On Sale clause from being exercised?

I see many people promote doing deals in a creative way, but it seems like unless you are the owner of the home and you are financing someone, or if you want to get a Contract for Deed, the best way is if the home is owned Free and Clear.

I would love to hear about deals you have completed, how you structured them, how you protected yourself, what your exit strategy was, and how you protected your end buyer. 

How do you use Contract for Deed? 

I appreciate the feedback @Brent Coombs. 

I have done and continue to do both assignments and double close. It depends on the deal, buyer, etc.

My suspicion arose from what you mentioned - with a double close, you take ownership, sell, and have short-term capital gains. With an assignment, I am selling a contract, and never took ownership of the house.

There must be a difference in how they are looked at and taxed.

If you assign a contract, never taking ownership vs double closing, is there a difference in the way you will be taxed? If so, what are those differences.

@Sylvia B. From my understanding and past experience of renting 140+ homes throughout the St. Louis area, it is at your discretion + what is stated in your lease. For instance, with homes, we really didn't want to take back/evict, if we could avoid it. The eviction process, occupancy, loss of rent, finding a tenant, etc. were all too long and costly. So we would give a grace period of 5 days, then $5/day in late fees ran after that. If you weren't paid up by the 20th, we sent a 3 day Pay or Quit - if no payment, then we filed eviction. 

However, I found that many large apartment complexes, conversely, usually had a lease in some form or fashion that was rent due on the first, on the 2nd or, maybe 3rd, you're late, you got hit with one large late fee, say $75 or $100, then eviction filing would start on the 4th or 5th. Reason being, with large complexes, they can absorb evictions a lot easier, and the turn around is a lot faster.

I think after reading the NOLO site, that it would really come down to asking a very competent attorney who specializes and deals with real estate and evictions, not just in Missouri, but in your county/area.

The fact that you haven't had to evict in 4 years is awesome! Those that know how to "play the game" can drag things out for 2-3 months before you get your property back! I once had one show up with an attorney and he got a continuance!

Thank you all for the input, and I apologize for following up so late. Honestly, the information on taxes is endless, and with each input, it lead me to new articles and information. I also wanted to meet with a few professionals in the tax field, as well as an attorney. 

@Steve VaughanThank you for the reply. General question - if you purchased your SFR properties in the LLC originally, would you have an issue with DOS? I have a friend who is in the same situation as you - has a few rentals, doesn't want to transfer to an LLC to prevent DOS, has good tenants, and a decent umbrella policy.

@Samuel R. HardenI think I will be sticking to a regular LLC. For perspective, one tax professional I talked to replied with "they now have series LLC's in MO?" From an attorney and tax professional, the response I received is that they are too new, and I may not want to be the guinea pig until they are more defined. Thank you for the link to that article. That, along with others, really helped me realize why you would not want long-term rentals taxed as a c-corp or s-corp.

@Chris DawsonThanks for the advice. I am seeing the same, as in you talk to 4 different people, you get 4 different answers. However, between these responses, your experiences, more articles, etc., I have simplified that right now I don't have rentals, and won't have one in the immediate future, so there's no point in worrying about that entity setup. And, when I do get to that point, I now have a pretty good idea of what to do/not do. I am still undecided on the series LLC at this point.

@Brandon HallThanks for the feedback. I'll bring these points up with the tax professional I am meeting with.

@Maggie L.Thanks for your input. Reading through this tax stuff is, well, tough! I think I'd rather be doing anything except this, but know the importance of being set up correctly, not over paying in taxes, getting the correct write-offs, and being protected.

Thanks again everyone!

Hello BP community!

I have been in R.E. since 2009, but commercial is out of my realm. My family's auto body shop closed down roughly 1.5 years ago. We've been trying to sell on our own the last 6 months. We have a Lease-Option buyer lined up. We will be meeting with an attorney who specializes in R.E., but I wanted to see if there was any feedback on here as well.

The old business, property, and new business:

Formerly an auto frame/body shop, 7,800 sq/ft, 17 bay/door openings, office with bathroom, locker room, storage above office, and lot is on 3/4 of an acre, paved asphalt. 

The new business will eventually be an auto body shop, but will start as window tinting. 

The new interested party has a 2-3 car/bay shop, not big enough to take on all the business they are getting. They will also get more business once they have more room.

The negative to our shop and why we couldn't find buyers is because it is not in an industrial area, nor right off of a highway. This did not affect our business, as it was not contingent upon street traffic or walk-in business.

The great thing about the interested party is that neither is their business! We are really excited about this opportunity, as finding a buyer has been very difficult.

I apologize for the back story, but it is needed regarding my questions.

We really wanted to sell the shop outright. The interested party does not want to get a commercial loan until his business grows. They are currently paying $1,500 / mo. We told them we would charge $2,000 a month.

The shop is owned free and clear. Insurance costs us roughly $4,000 / yr, and taxes are $15,000 / yr - yes, I WILL be appealing these July 2016 - my family did not know you could do this, and I already talked to someone who does this, and they are confident they can be reduced to 7-8k per year. To be conservative, if taxes are 10k + 4k in insurance, at 2k a mo rent, we would be positive 10k. While we must keep our insurance, the potential tenant will carry their own as well.

The sales price is $295,000. 

How much should we ask down? I already asked how much the interested party had saved up, and it was not much (7k). This worries me, a little. 

I have managed 150 single family rental properties, and was never a big fan of Lease-Options, as many did not convert. While I believe in being a stern and strict landlord, I have a lot of confidence in this buyer's intent, as well as ability to purchase. They are essentially employed by car dealerships. Only 3% of their business is walk-in / referral , they are currently paying a rental amount that will not drastically change, and their business will only grow once they get to a bigger facility.

Would you incentivize, or use negatives for purchase in the future? I.e., incentivize by saying the purchase price will be $285,000 if they exercise their option on or before 2 years, or negative reinforcement by having set rental increases if they do not exercise the option by x date? I'm all about doing whatever it takes, that works for both parties, to get to the finish line. The interested buyer is excited, likes the place, it works, and wants to be in it as in yesterday. They also have an established business that will increase in revenue once they get to a larger location. I don't want to kill a deal being a miser or having strict penalties that do not make sense, even though they may make sense on paper or what you might read in an investment book.

One last thing - the shop has old radiated heat in the floor. The interested buyer has talked about putting in a forced heating system, which would cost roughly 10-15k. This could be structured into the deal, as it would definitely put "skin into the game".

While it really wouldn't help to sell the shop per se, as it doesn't add value to the detriment of the area and lack of foot traffic, it is a better and efficient system than the radiated heat.

Any thoughts, even anything outside of what I said, is GREATLY appreciated!