All Forum Posts by: Tyler Munroe

From what I'm seeing, it seems to be fine to own/run the management company as long I have contracts in place and corporate veil in tact.

That's my whole reason for doing it, actually, since they are all my rentals I'll be managing.

Am I wrong about this?

Hi BP - 

I wanted to ask the community if any investors use management companies as a form of liability protection? I self manage 14 units and am considering starting a separate property management company as an additional liability shield from tenant lawsuits. It seems as long as I follow corporate guidelines in terms of banking and not piercing the veil, the property management company can provide an extra layer of protection since it's a separate LLC with it's own liability insurance. I've researched the rules to put this into action, but wanted to reach out to the community and see if other investors are employing this strategy? If so, what are the pros/cons to this approach?

Thanks!

Tyler

Hey BP Community,

Adding another deal to my thread here - I recently analyzed a 2-family in Wakefield, MA (28 Lake St) for a client and saw a potential 51% ROI through a condo conversion strategy. Unfortunately, someone else got to it before we could move forward, but I wanted to break down the numbers and approach for anyone interested in similar deals.

This property had a unique setup—originally a single-family home in the front with a townhouse-style addition built in 1990. It was an ideal condo conversion candidate since there was only one shared wall, and parking and yard space could be split evenly. The back unit, built in 1990, was in great shape with AC, a new foundation, hardwood floors, and a solid layout. It only needed cosmetic updates. The front unit, which was the original SFH, needed some structural repairs due to settling near a stream, but a structural report was already completed by the seller.

The strategy was a hybrid condo conversion approach. First, renovate and sell the back condo since it needed the least work and was most appealing to buyers. Then, use the proceeds to clear the loan, leaving the front unit owned outright. From there, we would complete the front unit renovations and either keep it as a rental or sell it as a second condo.

Here’s how the numbers looked:

• Purchase Price: $805,000
• Down Payment (20%): $160,000
• Back Unit Renovation Costs: $118,000
• Front Unit Renovation Costs: $140,000
• Total Cash in Deal: $412,000

Projected sale of the back unit was $650,000, which would have paid off the loan, leaving the front unit free and clear. With the front unit valued at $625,000, that would leave $213,000 in equity. Divide that by the total cash invested, and you get an ROI of 51%. However, these numbers could vary depending on loan rates for the invested capital.

This deal required a strong capital position, but it highlights how lucrative condo conversions can be in the Boston area. These types of opportunities still exist, though competition is high.

This is a bit of a high-level analysis so I understand there's some nuances I'm leaving out, but would love to hear thoughts on this and if anyone is finding similar value.

 Sent!

Hi @Jocelyn Coo - welcome to BP! I'm very much involved in the Boston market and can tell you that flipping has gotten extremely competitive. Unless you find a deal off market directly, you're often up against seasoned investors with distinct advantages in funding and experience.

For newer investors, the live in flip may be the best way to gain an edge over pure flippers, as you can usually offer a bit more since you're looking at it from a longer term perspective (2+ years as opposed to flipping it ASAP).

I'd also recommend house hacking a 3-4 unit property and fixing up the units as they turn over. Properties in this range provide enough rental income to potentially cover your entire mortgage, and you can work towards a BRRR as you slowly renovate the units on your own time.

Happy to connect and talk about all your options!

Hi @Benjamin Hernandez! Boston is a challenging area for buy and hold in the current market, but we're starting to see some value in 4 unit properties. If you're looking for cashflow, you may have to consider 3+ unit properties, as traditional 2 families don't seem to fit the bill anymore.

Happy to connect and chat a bit more about your goals.

@Brian J Allen Thanks for posting this, great to hear different perspectives on this issue! Funny, I was advising a friend heading into retirement on your exact same question and we came up with a solution that hasn't been discussed yet. They've lived outside of San Francisco in an extremely HCOL area for the past 30 years. I would estimate they're looking at cap gains in the range of 2-2.5M when they sell, and this is just a traditional SF home. What we decided is to have them rent the space for at least two years (there's no mortgage so this is nice income for them) and then after that make the decision to sell OR 1031 since it's technically an investment property and they've lived in it for 2 out of the last 5 years. It looks like there may be ways to utilize both the primary residence exclusion and a 1031, but we'll talk to a CPA down the road about that (or if anyone here has insight on that please let me know).

 Don't think any value will be destroyed, but rather created. This is a high priced, highly desirable area with a dire need for additional housing. Allowing multi-unit buildings on SF lots only increases the value of that land since it's now the best-and-highest use. There is a question of how much this will change character, though, so that's something we'll have to wait and see about.

 Thanks for clarifying this! I had heard that anecdotally, so it's nice to get some insight from someone directly involved in the process. I hope we see more pro-housing initiatives pick up after Cambridge led the way.