All Forum Posts by: Shane Pearlman

This might be more landlording, but my biggest rookie mistake was after a successful remodel, thinking we had it in the bag. We picked a couple who had great income & top notch careers (with CDC) would we imagined would take as much care of our newly remodel B neighborhood unit as we personally would have. Instead they put in a huge battery bank, built a full exhaust system through the attic and roof and put a hydroponic marijuana farm into business. They always paid rent on time and were so polite, but when I did my first 6 months walkthrough, let's just say I was far from pleased. Thankfully, they were the nicest drug dealers I've ever dealt with. They even paid to have a contractor fix the roof and electrical. We caught it before the humidity got into the walls and were able to remediate much of the impact for under 10k. Still, OUCH.

ALWAYS HAVE SOMEONE WALK THROUGH YOUR PROPERTIES 2-3 TIMES A YEAR.

That is my 2c, or my 10k, as you will.

Two other quick points. 

I saw you mention 200k. The odds are good that on a 1M+ multi-family building, you may end up having to put 25 - 30% LTV down, if not more. Definitely start a conversation with a good banker / mortgage broker.

As for recourse, that is the state of the loan business (and in my personal opinion, not unreasonable). The key is to make sure that you buy sufficient insurance to cover you in case of disaster or misfortune, and then do your best to behave in a way appropriate to a business owner.

@Nick B. - Yup the 1.5% is really close. We bought a $1,020,000 building last October. The HUD-1 lists $26,570 in purchase fees. The thing to keep in mind is that a lot of these costs are actually factored into my cashflow analysis, just front-loaded and I don't consider them purchase fees, just an unfortunate reality to the way purchases happen.

Items covered from cashflow (~10k):

Taxes: 4.7k

Insurance: 3.2k (its a long story)

Loan Interest: 1.95k

Purchase Fees (~16k):

Origination charges: 11k

Title Fees: 4.7k

Regarding reserves - this is above and beyond any personal reserves. Buying a 1M property yourself is not for the cash poor, as far as the bank is going to be concerned. =)

How late do the meetups tend to run? I have to put the kids down to bed, but after that it would be awesome to come hang out.

@Kimberly H. I have all my policies with state farm at this time. My underlying landlord property insurance policies were not affected by this change, simply the umbrella policy.

Hi Andrew,

We took that approach for our first few properties. One was a duplex where we lived in one side and rented the other, the second was a major remodel. We live in Santa Cruz, Ca and it has a similar profile to San Diego. This question has a lot to do with your personal investment strategy. If you want cashflow, then I think you already know the answer to the question. If you are interested in equity and just want the property to cover itself while you wait for appreciation to take hold, then there are ways to make that work.

The key was: run the numbers on the spreadsheet. If they don't pencil, they just don't pencil. It could be a great place to live, but won't work cash wise. A lot of it depends on how much money you can afford to put into the deal. 

I would look for value add opportunities. Either a nice remodel or an underperforming small multi-res you would be stoked to live in.

@Joe Kim @Kimberly H. we had that happen to us last year and basically moved to a commercial umbrella policy. Same deal, just more money. =)

The cost of an LLC depends on the state your are located in (for example here in California it is a minimum of $800 annually) + the additional fees for filing taxes.

The interesting challenge we are running into with insurance is that an umbrella policy (while quite affordable) is considered personal insurance. As we have syndicated a couple deals now, every partner has to have their own, which can get expensive if you are not operating from an entity.  But if you are the only owner, this is hands down the way to go!

The other option we went with and are now openly exploring alternatives for is increased liability coverage through the property specific insurance. A 1m / 2M policy for our fourplex in Seattle is about 1,800/y. Increase the liability coverage to 2M / 4M and it hits 3,200/y. So it is a big jump.

@Orion Walker  Between the business, the kids (5.5 yrs & 3 mont), and the current 1031 I'm lucky to get into the water 3x a week (and I live a block from the waves). 

What made you pick Alabama?

Have you and the wife decided where you are going to do the year abroad? We have been eyeballing Puerto Rico since they passed the new tax laws last year (http://www.businessweek.com/articles/2014-06-26/pu...). We spent march in Barbados and loved it, but want somewhere where spanish is the primary language.