All Forum Posts by: Scott Crowley

Hey Thomas!

I can see the hard spot you feel like you're in right now. I know it may seem like there aren't many solutions, but honestly, this is where creativity comes into play in this industry!

Glad you took action, but zero down at 7.5% is rough and making your hack a little tighter than it could be, but you know that better than I do. What I would do from here is focus on how to "creatively" purchase your next primary residence(you basically want a live n flip it sounds like but it can be another house hack that pencils better too!). 

Basically, I'd ditch the whole conventional financing system and make a deal on creative terms. You'll create more possibilities and opportunities that way without question. You'll also have the ability to put little to no money down as well.

Private money is literally everywhere. Put yourself out there BEFORE you need the funds so you have someone in your pocket when a deal presents itself. 

Reach out of you want to chat. I hope this is helpful!

My take on this is pretty simple in nature: Creative Financing. This was likely going to become a greater part of my playbook around this time regardless, but it became the clear method once rates started accelerating north through 2022. This has lead to a seller-finance deal I started working on 5 months ago that took a lot of additional effort(and expense) because of the circumstances. I also just had someone mention they wanted to sell their house, I told them I was interested, and now we're discussing sub-to/assumable options, with that sub 4% rate.

I technically am investing in new markets as my current deals are local, which I have not bought anything besides my current primary in my market yet. It's not a particularly strong LTR market which is why I have stayed away until this point. With my current deal(s) I've been working, I decided I am going to implement STR's for anything local I plan to keep, simply because the numbers say this is the stronger play that at least gives me the best chance to generate a profit.

I also have plans to start doing some rehabs either in my market or another area within driving distance that would be new to me, but I am being extra conservative on how I approach my first property in this space. It's obviously an uncertain time to be considering this type of risk. However, my goal is to keep it simple and not overthink: Find good people to surround myself with, know the numbers, know them again, know them one more time, buy deep, and don't miss the ARV.

As far as my current markets for my LTR's, I am not worried about the future at all. I bought where I did for my own reasons and goals. Therefore, it's a matter of letting the cycle run it's course. 

Could all of this blow up and crash? You betcha. But I'm so motivated to hit my primary goal this year that it's time I was uncomfortable and a little scared with my growth goals.

It is definitely a question of the numbers as @Jaron Walling stated. I also completely agree with him on not being in a hurry. I had this same exact scenario to tackle with my primary(excluding your level of appreciation in a short time and going to Guam, that is) and I simply made my decision based on what the numbers told me and what my GOALS are.

For me, as long as you've truly ran a thorough analysis on what your expenses would be if it were a rental(STR, MTR, LTR, you've got multiple options within to evaluate if you're interested) it all comes down to what generates the greater return and works well with your goals. If you can rent it, generate a COC that is acceptable for you, perfect. If you could sell it for "X" with "X" being a conservative number for your underwriting, and then buy 1 or more properties that generate a strong return, you may find selling to acquire more real estate makes sense, giving you more control over more assets. Which if leveraged, gives you stronger long-term wealth potential than if you had just the one residence.

Nonetheless, determine what the math tells you, then, convert that into what decision fits your specifc goals, and take action.

@Tristan Romero First, congrats on your first investment property house hack! That's exciting!

Second, I wouldn't recommend starting an LLC until a split-second before you actually even need it...Especially in CA of all places. As already stated by @Ranjit Sandhu you are on the hook for $800 annually in CA regardless of whether it earns income. Also, if you're maintaining your entity appropriately for asset protection, your actual costs are likely even higher when you factor in annual minutes, tax prep, attorney, etc. 

Third, as it relates to your banking question: I personally prefer regional/smaller banks for my entities. Not only is it easier to just see someone in-person when you need it, but they do typically have a wider net of options for small businesses, which is what you are/will be(in their eyes when you have an LLC).

With all that being said, since you're just starting out, I would focus supercharging your portfolio by a mixture of repeating the house hacking strategy regularly, using creative financing, and maintaining discipline with whatever your financial situation may be. I wouldn't even look at things like business lines of credit this early on. 

Best of luck to you!

This is definitely a situation where speaking with a CPA is crucial to insure all aspects of one scenario or another is carefully considered. I would even recommend an attorney consult is money well spent in regards to the estate planning side of things.

Previous comments are correct about the gift tax trigger if they transferred title over to you(which would be low cost to do), and that is something to discuss with the CPA.

I personally like the option of setting up a revocable living trust(probably $2-3k) and inherit the property upon their passing, free of probate, and that would also come with a step up in basis regarding any prior table gains the property would've had. If the title transfers to your name, whether by yourself or as an addition deeded owner, it is a carryover in basis.

I know your question is centered around using the property to leverage, but this is just an example of why good legal and tax advice from professionals can help guide your decision making process. 

Everything that was already stated by @Eliott Elias and @Nathan Gesner regarding using Realtors/PM's is spot-on. These people know their market better than any internet search can tell you and are valuable resources to rely on for out-of-state investing. This is exactly how I approached buying my properties at a distance starting out.

I will say, if you are looking to be at $100k for a SFH in the Birmingham market right now, there is a high chance that it will be in a "okay" area anyways. That term is subjective, but I would say anywhere from B- at the absolute best, to what is moreso a C/C+ in that market. Assuming you are looking for rent-ready/turn-key, based on the conventional financing your post indicates you will be using.

If your goal is cash flow right now, that is why you are having a tough time at that price point and only really low-priced deals is what appears to actually work. Be cautious of hyper-focusing on just cash flow and take a step back to see the greater picture of what you are trying to accomplish long-term.

Based on this context, I would absolutely HELOC or Cash out refi(at an LTV that made the numbers make sense for the rental), rent out your ND home, and start your investment journey in IA by house hacking. I don't have anything to work with in understanding your goals, but I do understand if your goal was to pay off your current primary and just want access to capital on-demand, so maybe that is why you only have the HELOC listed as an option. Either way, unless your property tax is absurdly high in that area of ND, the net CF you'll be clearing is superb so make your first investment an existing one.

If you're wanting a HELOC because you don't have any reserves or much capital in general to purchase a new home, I would be careful in your next move. With that type of access to capital, I wouldn't want to use it for anything long-term, as opposed to the refi, unless you had a solid business plan on repayment of the HELOC.

Again though, house hack(1-4 units) your new primary in IA, with 3.5-5% down. Put in your 12 months of residency, then do it again. If there was anything I could go back in time and do before I bought my first house, it would be to do this very thing. It is such a powerful way to build an investment portfolio starting out, while also greatly reducing one of the largest expenses we all face in our lives, which is housing costs.

@Justin R. My initial thought when going through all of this information you laid out was "this guy is just like I was not long ago." By that I mean, as recent as last year I would catch myself being immensely unproductive drawing up business plans and forecasted goals, etc. All just to never get the wheel turning in the first place. You're not alone, but it is time to roll!

I have 3 things:

1) I love to study real estate in any way I can, network, and set goals...However, action is the best teacher. I've learned more by just stepping over the edge of my comfort level in the last year than I had in any book or podcast beforehand. Part of growing is pushing yourself to that edge, especially when you have big goals.

2) I think your target price point is way way way too low, and for the wrong reasons. There is nothing 'safer' or easier about getting out of lower income properties if the worse case happens. I know they may seem like they provide you with a sense of being risk-averse, but don't let the lower capital investment deceive you. Even if everything goes smooth after acquisition, a buy & hold in these areas could be a headache and turn you off from wanting to invest again.

3) Not saying it couldn't be done, but BRRRR deals and conventional financing aren't exactly a match made in heaven. Most conventional lenders won't give you the time of day for the kind of properties that it may take to complete a successful BRRRR. Since you mentioned this type of financing is your primary choice(only because it is the only type you have ever dealt with so it is within your comfort zone I'm assuming), I would step out of the comfort box and explore other ways to pursue this.

It seems apparent you have the intelligence to make something for yourself in the industry, especially with a solid day job to catapult your financial resources with. You can do this...TAKE ACTION!

Hey Lesley, the only way that I am aware of where you would have the option to cover things considered as "preventative" is to add-on other supplementary coverages that would fit this category. Even then, the insurance coverage options available are more so positioned for when a loss has occured, so, I'm not sure there's another option to be had here.

As already stated by others, I would be taking swift action in removing the tree ASAP. Not sure how small/large your property is and I know the cost of removal isn't cheap. However, if the tree is an obvious liability and you've been made aware on top of that, it needs to go...even if that means it's a cash flow killer for the year. Be prompt in getting a few bids to remove it(unless you have PM that can accomplish for you), get it gone, write-off the expense as your consolation, and it is done forever.

@Frederick Hawkins This is a good question, but the way you worded your first sentence could mean completely different things.

What I am confident you are asking in this question(correct me if I am wrong) is that you are wanting to know if you will have to pay SE taxes on PASSIVE income for investment properties HELD in an LLC. If that's the case, you will NOT be subject to SE taxes as investment property, whether held in your personal name or in an LLC, is recognized by the IRS as passive income, which is not subject to this tax.

You are only subject to SE tax for any type of business in which you are actively participating/operating to generate revenue. Basically, think of it as two sides: The 'Active' side is the business/operational side(things like flipping, contractor business, window washing business, etc). Then, think of the other side as the 'Passive' activities/investments, in which is solely for HOLDING ASSETS, that ideally are generating a return(buy & hold real estate, IRA's, 401K's, investment accounts, etc).

Hope this helps!