All Forum Posts by: Andrew Kniffin

I agree with Wilson.  No need to overthink it.  Where within Seattle are the townhomes?

Imagine 2 investors wish to buy 50-50 a large multifamily:

1. Investor A is in the 39.6% marginal income tax bracket. 
2. Investor B is in the 15% marginal income tax bracket.

Each dollar of depreciation is thus more valuable to Investor A than to Investor B. 

Is there a way to creatively structure this investment so that the two parties equitably maximize their tax savings and cashflow? 

Example: "A" gets all of the depreciation, and "B" gets a higher % of the cashflow.  (Possible) Result: each person gets a higher net cashflow from the property than they would under a conventional 50-50 split of depreciation and cashflow.

Is your question "how do I determine if a market can provide cashflowing multifamily properties?" 

If so, the answer is simple:

Step 1: See if rents achieve the 1% rule.  In Seattle, MFs (dups, tris, and Quads) do NOT.

Step 2: Model cashflow after using the 50% rule and then your financing structure.  Answer this question: can you achieve $100 CF per door with 20% down or less?

In Seattle, the properties tend to be priced so high that it does not cashflow, and thus buyers are banking on increased value to make up for lack of CF.  That's not my game, and I'd encourage you to consider whether you want it to be yours. 

Jason - congrats on the purchase.  I hope it works for you!  Just a quick one on Cap Rate: the purpose of cap rate is to give you a sense of the financial performance of the asset *regardless of its financing structure*.  In other words, Cap Rate is the return on investment as if you'd purchased it with 100% cash.  So saying that you threw in the debt service to determine cap rate does not make sense.  Once you throw in debt service, you are now calculating Return on Investment, which DOES take into account the financing structure. 

Again, congrats on the purchase.  Hope it's a home run for you!

This is not correct. A CAP rate is the ratio of the operating cashflow (money leftover after you pay for everything other than principal and interest) over the purchase price.

Your ROI can be quite different than your Cap Rate, based on how you have financed the property, and how much money you've put down into the property.

Welcome, @Grant Taylor 

Yes, the income/appreciation #s are very skewed here.  You definitely don't want to go negative CF in exchange for appreciation. 

I agree with @Zach Schwarzmiller .  As someone who just moved to Seattle from Minnesota, I'm amazed at the difficulty in getting reasonable rental rates (versus purchase price).  Outside the Seattle area the numbers are more reasonable. 

Brandon Turner often is able to achieve the 2% rule, but he is ~2 hours SE of Seattle metro. 

Hi Ken-

I'm also in Seattle and am looking for the same thing.  Thanks for posting; I will follow this forum.

-Drew

@Dion DePaoli 

@Account Closed 

The home purchase price is $850K.  I'm getting a 90% loan. 

I appreciate everyone's input. Unfortunately, I received this information "late in the game" and so, to close on time, am not able to make any changes to the HUD, even if I wanted to.

But this is an interesting discussion b/c there is so much confusion on it.  My RE agent had a different answer than the Title Company, and there are other angles on it here. 

In general, this feels like a "racket" to me -- perhaps it's something that ought to be discussed further in the forums, or in a BP podcast.  Has a Closing Agent/Title Co ever been interviewed in a podcast before?

@Wayne Brooks See my comment above.  Thanks!