All Forum Posts by: Walt Waters

The only thing I wasn't happy about was the fact that the guy tried to play me by asking for $75 a pice instead of $50. I immediately said no because 50 was more than fair. He agreed and that was the end of that. 

If you want to do this consistently many times over you need professionals in each category. There is simply not enough time to do everything all the time. You oversee things with a watchful eye instead.  

When you do your taxes, you don't include the principle portion of your payments as an expense, you only include the total interest paid, as your tax return is calculating Taxable Income, not Cash Flow.

Oh I see now. What I described and the analyzer are both correct. 

The money you spend in paying down principal is not a deductible expense. However in calculating cash flow in the analyzer, principal payments are included. Since you don't get to deduct those principal payments they have to be added back in to the "Cash Flow" to get your taxable income.

here is how I think about it

The rent payments made by the tenants are used to pay the entire mortgage payment. But remember that the total mortgage payment includes both the interest portion as well as the principal reduction portion.  So the tenant's payment is paying down the mortgage each month by the amount of the principal portion. That principal portion paid by the tenants is essentially an increase in your equity in the property therefore you add it back. 

  Hope this numeric example helps.  Assume you bought the prop for $100 and  borrowed $80 from the bank to buy it. Your total equity is $20 (100-80) in the first month.  The next month you have to make a payment of $6 which is split between interest of $5 and principal reduction of $1.  So at the end of that month your equity increased  from $20 to $21.  

That said I personally wouldn't buy a property that has financials which say I only make money due to the principal reduction. Too much uncertainty with expenses and it wouldn't take much in the way of surprises to have me lose money.  

The principal add back is not taxable, but it does add to your net worth. 

If you paid $1000 in principal payments on a $100,000 mortgage you only owe $99,000. You have theoretically made $1,000. That is not spendable income it is equity.

Sorry I missed the note on your flexibility - being open to smaller unit counts would certainly help with your search.  Not sure why the link didn't work - I double checked it and it worked for me but perhaps it has something to do with cookies.  Here's an alternative link, let me know if this one works:  http://www.realtor.com/realestateandhomes-detail/615-W-Saint-Catherine-St_Louisville_KY_40203_M30498-88981.

I'm with you on not living in or investing in rough parts of town which is why I never even look at anything in the west end.  Everybody has their own definitions for "safe" but for the most part, the "safer" an area is the less you'll find multifamily rentals (or the more costly they will be).

Hey Walt, welcome to BP and best of luck with your investing in Louisville!  It's a great place to invest in rental property (unless you refer to the BP headline study on best/worst cities to invest in).

If you are looking to get owner occupied, 30 year financing then 4-units is as high as you can go.  I have to disagree with your statement "there are no 4-plex buildings for sale in the entire city of Louisville!".  This just simply isn't true - there are almost always quads for sale...a very very brief search revealed this one for example.  They are out there, you just need to do some digging.

Unfortunately, your search criteria doesn't really line up with the reality of the city so it will be difficult to find what you're looking for. Most 4-plexes that come up for sale are located around the Hikes Point area and constructed in the 60's to 70's or are around UofL and are turn of the century SFR's converted to multis. Multifamily in or near the Highlands will most commonly be 2 units because that's how the style of property in that area is easiest to split up. The 4-plexes tend to be park-side where there are larger turn of the century SFRs that have been converted to quads. Good luck waiting for one of those to pop up...people just don't sell stuff in that area!

These are just generalities, but what you're looking for is an apple in a field of orange trees.  You might be better served to search for apples in a field of apple trees (look for 4-plex properties where they are much more common) or look for oranges in the field of orange trees (look for duplex or triplex in the Highlands).

To add to the challenge, you're trying to buy multifamily property in a very competitive environment.  Good properties that are reasonably priced are not on the market for long which helps fuel your sentiment that "there's just not many options now."

If your goal is to find the perfect 4-plex in the perfect location then you should be prepared to wait a long time.  If you can be more flexible in your parameters (open up to duplex/triplex and/or other areas of town) then you should be able to find something that fits what you're looking for much more quickly.