All Forum Posts by: Gregg C.

Tax time again...

I had a deal on a commercial property in 2014 that never closed. I lost half of my earnest money as a result. Trying to figure out how to do taxes. The LLC for this deal was only set up for this deal and didn't do anything else.

I read a post on "just answer" tax section saying to use a form 4797. Anybody know if this is correct? Is there some other method that is more appropriate? I am trying to avoid having to pay a CPA to do taxes on this LLC since the only thing this LLC did in 2014 was loss earnest on this one deal.

Thanks, Gregg

Hello BP community,

I am venturing out right now on my first commercial real estate deal and need to get my bank loan package together. I own a handful of residential properties already but never done anything in the commercial world but learning real quick all of the moving parts. I have talked to a few banks already to get high level terms. Wondering if anybody can provide a template loan package that encompasses all of the pieces I should be presenting to a bank when I do apply for the loan.

I didn't see anything on the BP blogs for this. Can anybody share some online resources? Links to articles or templates? Or even an outline from your own template?

As a starting point I have an outline put together based on some brainstorming and what I have come across from searching online.

Thanks, Gregg

Thanks for the advice Chris. Every time I walk away something pulls me back to this place. It is in a great location and ready to rent without any work (except for the windows).

Some clarifications to your comments.

1. The rate is fixed for 7 years at 4.125% which is nice. After that I can lock in for another term of years and amortize at 20 years.

2. Yep...not good. Decent risk there as you point out

3. It is a small building so everybody is on their own for windows. They just need to look similar. The current windows are single pane metal frame. None of them are operational. Every crank are is broken. I can spend $500 to get them fixed and probably have to repair them each year so I am opting to spend the money now and not have that headache. Half the units in the building have replaced windows, half don't.

4. Agree on HOA fees but this building has cheap HOAs relative to other places I have seen and some I own, and a decent reserve. The building is only 11 units so it is self-managed.

5. I like cheap condos ;-)

6. CAP rate is 9% not factoring into the NOI that there will be a payment on the expense side to pay for the HELOC payments.

7. Good point.

On the fence still but you have me leaning to one side.

G

Hi All,

I am under contract on 2bdrm condo in the Park Hill neighborhood of Denver for $94,300. Having a difficult time finding financing since it is an investment property in a condo with the own-occ rate at 35% (non-warrantable number per FHA). I found a lender who will do a 7yr ARM (30 yr amortization), 25% down, 1.5% origination (unfortunately) at 4.125%. This is the best deal I have found of a handful of lenders who even offer a product in this situation. I don't want to bring more than 20% down and tie up more cash so I am using a HELOC from another property to get the extra 5%. I plan to pay the HELOC off in 3 years and have backed in a half a point annual increase in my analysis. The unit needs new windows ($2900 estimate) which I intend to use the HELOC for as well.

Factoring in the HELOC payments I still cash flow ~$800 per year (yes, not much). Once the HELOC drops away the cash flow is about $4200 per year. I would like to hold onto the property for a long time so in my modeling I am getting an average before tax cash on cash of 18% when looking out 20 years, which in Denver in this neighborhood right now I think is solid. But for the first 3 years cash-on-cash is 4% because of the HELOC payments. The cap rate without using the HELOC is 9% (again I think is solid in central Denver right now).

What scares me is what rates will be in 7 years. I can always sell the place of course and I think I am getting a good buy so even in 7 years think there will be some decent price appreciation. And the ARM adjustable rate caps out at a level that still cash flows.

Should I walk away from this deal? Too many moving parts? If I am paying a HELOC for three years and potentially need to sell after 7 years is this not even worth it?

Thanks for any advice, Gregg.

@Will B - Do you own the first rental free and clear? If not wondering how the bank got comfortable with using the first rental as collateral if there is already a senior loan on the home. I have a couple of rental properties but they have mortgages against them so never considered the option that a local bank would loan against them.

@Chad C - I recently used a HELOC from a rental unit to obtain the funds for a flip I recently completed. Assuming you own your primary residence or another property with equity this might be an option for you. Very cheap money.

@Joel Owens - Would the lender actually take the the gap loan into consideration for CLTV? Or would they only look at it for debt-to-income qualification?

@Jackie Lange - Sounds like I have some research to do on seller financing. I appreciate the point about underwriting. This is something I have never done for an individual credit but do all the time at work assessing credit for potential commercial and industrial offtakers for solar energy purchase agreements. But different animal.

@Jon Holdman - I didn't go to the level of finding out if the comps were warrantable or non-warrantable but appreciate that point. The unit is in Congress Park. But I am looking for new projects in Globeville, Elyria, Swansea

@Bill Gulley - Again sounds like I have some reading to do. Of the 10 agents who provided feedback via an auto-feedback form after a showing, 9 out of 10 said the unit was priced right and one saying overpriced. So I feel it is priced right but I take your point. The biggest issues raised have been the building needs updating and financing (which boggles my mind since there are local lenders who will take a loan on their own portfolio with 20% down despite it being non-warrantable). yesterday I decided to stage the unit so we will see if that helps. Next step is a price reduction.

I am in the sale phase of a flip. I’ve had 17 showings but zero offers after seven weeks on the MLS. I have a potential offer but the buyer wants an FHA loan with only 3.5% down. Problem with that is the property is a condo in a non-warrantable building (own/occ rate is 47%). I knew this going in but spoke to a handful of portfolio lending banks that said they would lend in these situations for qualified borrowers. I have done this myself as a buyer for my primary residence with a local credit union. However, the banks require 20% down.

I was considering seller financing in the form of a loan to gap the 16.5% balance needed to reach 20% down. Definitely a risk but it allows me to get 83.5% of the purchase price now instead of continuing to wait which still gives me decent profit on its own. I would of course want to encumber the property even if I am in second position to the bank and make sure this isn't a personal loan without having an interest in the property. My thought on the loan is short term (< 2 years) and an interest rate of 10%-12%.

Is this a viable option? Can I encumber the property in this structure? Should I leave this to the professional lending sources out there? Admittedly I would need the assistance of a lawyer to draft the agreement if I did this.

For background the unit is a studio apt (part of the difficulty in selling) in a great neighborhood in Central Denver. I paid $40,000 for the unit, put in $15,000 to renovate, listed at $87,900 (in line with comps for recent sales).

Worth the risk to offer the gap financing or better to just sit tight and wait for a buyer that can bring 20% down?

Thanks, GGG