All Forum Posts by: Todd Magin

@Brian Eastman, @Justin Windham, @Carl Fischer  Thank you all for setting me straight!  

In general, are appraisals conservative or do they pretty much align with the advertised expected IRR (which can represent a best-case scenario for marketing purposes)? What type of fee would I expect for such a service?

How do I determine the value for tax purposes of an equity investment when transferring ownership from a Solo401K to a Roth account?  If I invest $100K in an equity deal (syndicated or crowdfunded) using my Solo401K and later (ie in year 4 of a 5 year investment) decide to transfer that investment into a Roth account, do I simply use the "face value" of the investment ($100K) or do I need to apply interest to the account (even though returns are not guaranteed).  If so, how is that interest rate determined, since there is no way of knowing what the actual return will be?

Welcome to BP, Monica! I just got back from the BWI meetup. It's one of the largest REI meetups in the area and one you should check out. Their main meeting is on the second Wednesday of every month and they also have a more informal happy hour meet and greet on the first Monday of every month (limited to about 30 people).

Brandon has created a great list of books at:

https://biggerpockets.com/books

This looks like a good deal, but you probably already know you will need to get a partner to come up with the cash.  Did you get your loan numbers from a commercial lender?  Commercial lenders will probably want more down (typically 25-30% for commercial) and also would want to also see reserves for about 6 months payments.

Hopefully you have a rich relative that can pony up the funds. Another possible option is partnering with a local investor that you meet at a local REI meetup/REIA.

One thing missing from the above is capital expenditures which should be 10% of rents.

Don't let the above discourage you as a good deal will always find money.

Keep us informed of how the deal works out!

@Kevin Velarde

Yes, this scenario is usually what hard money lenders are used for. However, they will probably only lend 60-65% of ARV (145-150K), so you'll need to come up with the remainder plus the repair costs. There will probably be some hard money lenders (or more experienced investors) chime in here to confirm. I think you'll be able to refinance as soon as the repairs are complete, as there is no "seasoning" involved in small multi-families (duplex, triplex, quads) as they use conventional loans.

When you refi, you will likely be able to get all your money back for the next deal.  However, be careful not to bite off more of a mortgage than the property can support.  With only $1900/month coming in, that has to cover ALL your expenses, not just the mortgage.  You can use the BP rental calculator to help you determine all the expenses involved (taxes, insurance, maintenance, capex, prop mgt, utilities, etc) and the maximum loan amount that the property can support.

@Benjamin West

I'm certainly not an expert, but you should look into smaller entities such as partnerships, LLCs, etc. The partners funds can come from anywhere, whether in a partnership or an LLC, and they don't need to be equal shares either. Everything can be captured in the articles of incorporation. You should definitely get a lawyer to write up the agreement.

Upen Patel may be able to help here. He can provide guidance from the lenders perspective and may even be a resource for you to get a loan

Matthew Burns I'm not sure what 16% of mortgage means with respect to cash flow, but it appears your main motivation may be to avoid capital gains taxes IF the property has appreciated a lot. If appreciation is low, then selling a cash-flowing property is a tougher call that you will need to consider with input from a tax consultant. One other option if you need cash for the next property is to refinance if you have equity in the property. Be careful with this because it would likely result in a higher mortgage payment and a negative cash flow or razor thin margins so that you can't afford even modest repairs.

@Matthew Burns

I agree with Nick that it ends up being a personal decision.  However, I have a few questions:

What is your motivation for selling?  Is the property cash flowing nicely? Will there be deferred maintenance expenses in the near future (roof, HVAC, etc)?  If you sell, can you take advantage of tax advantages (no capital gains if you lived there 2 out of past 5 years)?

I just learned that the Elementary school across the street from a prospective 24 unit property is closing. The area is B- or C+ now and the deal is good but not stellar. I'm afraid that with a vacant school and the inevitable vandalism, the area will only get worse. My gut tells me to walk away and wait for the next deal, but I'm worried that I'm exhibiting the typical newbie analysis paralysis.