Looks like this could be my first deal:
3 duplexes (6 units total) 2BR, 1BA each
I will offer $250k…total rent = $2,750
Looks like I will need to put 5,000-8,000 in each building for carpet, paint, and an appliance or two.
I have 2 concerns. Would it be wise to pay cash for this deal if I could do so? I am selling my current residence and can use those proceeds to pay all cash for this deal saving enough for a 10% down payment on my next personal residence.
Also, how tough is it to evict problem tenants? There might be one in this deal. Any/All comments welcome!!
IMO, no, it would not be a good idea to pay all cash…the great thing about real estate is the ability to use “OPM” - other people’s money - to leverage your properties…keep your cash in reserves for unexpected problems, more investment properties, 20% down for your private residence (so as to avoid unnecessary PMI!), etc. Find a lender to work with you…
Evictions are normally a matter of state law. Each state has it’s own rules and peculiarities. As a landlord, it behhoves you to know the tenant/landlord laws (including evictions) before you need them. Some states’ eviction laws favor the landlord, some favor the tenant. It is very regional.
Keith
Thanks for the reply, Keith. I currently have a TH that I want to sell and 1031 into this deal. Total equity is about $65k. When I make the offer, can I make it contingent on interviewing the current tenants? I think the numbers look pretty good, but I am just leary of inheriting bad tenants.
<<I currently have a TH that I want to sell and 1031 into this deal. Total equity is about $65k. >>
I assume that the townhouse is an invstment property…? Make sure that you understand the 1031 rules and timelines – 45 days for this and 180 days for that…it’s not real hard but if it’s done wrone it can negate the tax deferral.
<<When I make the offer, can I make it contingent on interviewing the current tenants? >>
You can make a real estate contract contingent upon just about anything…if you do, make sure you follow the landlording guidelines…there are a lot of things that you can and cannot ask tenants and prospective tenants. Also, if you buy theproperty and the tenants have a lease, you MUST honor that lease until it expires. If it is month-to-month then you can give a month’s notice and they have to move.
Keith
you may want to talk to a CPA/and or Tax Advisor. By paying Cash for it you dont get to write off any interest and you will have to pay taxes on $33,000 as income, which you stilll making about $25k per year which is awsome for only 6 units…but i would talk to the CPA/Tax Advisor to find out which will benefit you the most…Also for bad tennants, you just need to screen them well and make sure they know your the boss and that your not going to tolerate bad tennants
What my original thought was to use my equity in my house (or most of it) so I would still have that tax deduction and since I have to borrow anyway, it might as well be on my principal residence since that money is cheaper to get. Does this make sense?
I agree, it is a great idea to talk to a good tax attorney and one that has also dealt a great deal with real estate transactions for others and/or himself personally. 1031 exchanges are a little tricky because you have so much time to pick out and make an offer on a property and so much time to exchange your funds and close the deal. I just looked into that when I sold a property and you cannot touch the money personally-you have to have a bank escrow the money for you (which will cost you each time you do a 1031) you will also have to pay your attoney his fee to draw up the paper work and file. My estimate was $500-$1500 for the bank fee and $500-$600 for attorney fees.