Part Time CA Investor - Looking to Buy 3 Properties - Class A

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Part Time CA Investor - Looking to Buy 3 Properties - Class A

Jersey City, NJ · Member since 2017 · 124 posts · 13 votes

Hello, I am an IT Entrepreneur, IT Consultant and a part-time real estate investor, just signed up with BP, bought a brand-new condo property in Irvine CA 2 years ago in zip 92618 (educated myself on everything by talking to folks - google - some forums) as an investment, but the numbers aren't working in my favor and I have negative cash flow (2 mo initial vacancy and high HOA + special city taxes) = Negative 11k (1st year) to Negative 3k (2nd year). I may start breaking even in my 5th year and still not have ++ cash flow. So, the only thing I am backing on is appreciation.

The property has appreciated 8% over 2 years and I can break-even if I sell it now. It is tenant occupied (who are excellent - have a great credit score - good jobs etc. & want to renew their lease for the 3rd time). Rent goes up 3.5% every year.

Currently, I am getting close to buying a second rental investment property in North Atlanta region. Once I am done with the closing on the 2nd investment rental property - I will be seeking out to do a 1031 exchange with a budget of $550-$650K.

I am looking for Class A properties (preferably SFR) that are in good school districts, with zero to minimum HOA & in developing neighborhoods with considerable chances of appreciation. I am open to diversifying my portfolio across different states or follow the traditional approach of buying 2-3 units in one state/city (this is where expert analysis from seniors/experienced members will help).

I do plan to get my CA real estate license sometime in future but for now, my next 6-9-month focus is to grab this second investment property and then work on selling the Irvine property by doing a 1031 exchange to generate ++ cash flow.

Long-term (5 years) focus is to establish a portfolio of 5 condos, 5 SFR's = a total of 10 Class A properties in prime areas.

I look forward to learning in this great community about rental investments, foreclosures, networking, getting the best loans etc.

Thanks ALL !

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Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes

8y

@Varun Parkash This isn't a "bad thing" but it appears that you're probably focused a little too much on the past. If someone bought in 2013 Austin, TX or 2012 Irvine, CA. If you want to buy in the next 12 months it doesn't really matter what's happened in the last 5 years. If you go back to 2012 you end up with even more skewed numbers because interest rates dropped so buyers got properties a.) cheaper, b.) were able to refinance to lower rates and c.) it never hurts to have Prop 13.

That said, if you believe that "Austin is the next San Francisco!" then it's still probably a great time to get in that market. I don't but maybe people do believe that. All that really matters is what your opinion(s) are of the different area. Austin could just be 5 years into a 20 year growth cycle. Who knows. Certainly not me. You just have to make your educated bet.

And, not for nothing, but some of these does come down to priorities around cash-flow vs. appreciation and timelines. If you have a 5 year timeframe it's different than a 50 year timeframe. And someone buying a property to support them in retirement has different priorities that someone looking to replace their W2.

I know this is all general "stuff" but that's why it's hard to give people advice. Well meaningful advice anyway...

See this reply in the discussion

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
8y
@Varun Parkash
Just wanting to make sure I understand. You'll actively looking for a property now. But in 6-8 months you will be looking to sell your current investment and 1031 to purchase a different property right?
It almost sounded like you were wanting to 1031 into this property you're looking at now and that won't work since the statutory order is that you sell first and then buy.
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
8y
I can not imagine any scenario where a 600K class A property will conceivably ever have positive cash flow. In High appreciation areas this is virtually impossible due to the fact that it is very rare that you can charge high enough rents to cover the expenses, debt repayment and cover opportunity value of dead equity. Keeping rents in step with equity growth is impossible. With 4% annual appreciation and cost of living increases you are looking at 7.5% annual rent increases with rents in the range of 6K per month.
You are looking at purely speculative buys, forget about positive cash flow ever.
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Varun Parkash
OP
Jersey City, NJ · Member since 2017 · 124 posts · 13 votes
8y
Originally posted by @Dave Foster:

@Varun Parkash
Just wanting to make sure I understand. You'll actively looking for a property now. But in 6-8 months you will be looking to sell your current investment and 1031 to purchase a different property right?
It almost sounded like you were wanting to 1031 into this property you're looking at now and that won't work since the statutory order is that you sell first and then buy.
Hi Dave, yes, at the moment I have selected a couple of properties (have pre-approval letter) out of which I will be putting in my earnest deposit on one of them - this will be my second rental investment.
Once this is done, then I will be focusing on how much I can get the 1st Irvine property sold for (with tenants already in them) and have it advertised as a 1031 exchange. As far as my understanding, I will get 45-day window by IRS to do the closing on the new property(ies) that must be EQUAL or GREATER than the sold price of the Irvine property to get capital-gains-tax deferred.
As a safe measure, i will actively work to secure my new top 4-5 buying selections before I officially begin the escrow process of selling the Irvine one, that ways I will get more time if anything went wrong within the 45 day closing window as I will get (which begins from the day of sale being closed of Irvine property) more time and have couple of options to pick from.
In case i opt for two properties (each 300K), then i will have to be extra-diligent and pro-active.
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Varun Parkash
OP
Jersey City, NJ · Member since 2017 · 124 posts · 13 votes
8y
Originally posted by @Thomas S.:

I can not imagine any scenario where a 600K class A property will conceivably ever have positive cash flow. In High appreciation areas this is virtually impossible due to the fact that it is very rare that you can charge high enough rents to cover the expenses, debt repayment and cover opportunity value of dead equity. Keeping rents in step with equity growth is impossible. With 4% annual appreciation and cost of living increases you are looking at 7.5% annual rent increases with rents in the range of 6K per month.
You are looking at purely speculative buys, forget about positive cash flow ever.
8% appreciation has been just luck, i am not expecting an attached condo to sky-rocket by any means, hence i am planning to sell it. Rents cannot be increased 7.5%, tenants will simply move out. Rent is barely going to touch 3k/month and that's it. My big mistake is i am paying high HOA, special city taxes, CA taxes and not able to enjoy any of the amenities as an investor. I played safe since it was my first purchase, but now have to sell and invest it in better properties - which as you rightly pointed out - cannot be at a selling price of 600k.
I am most probably looking at buying 3 or 2 properties with this 600k money as 1031 exchange.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
8y
@Account Closed, The CODE!, ain't gonna help him if he's taking title to his new property now anyway.
the statutory order of a 1031 exchange is that the relinquished property must be sold before the client can take title to the property. That also happens in a reverse exchange which is why it too would be inappropriate for him.
I agree with you that there may be not much profit - yet another reason why a more expensive reverse exchange is a non starter.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
8y
@Varun Parkash, Solid plan. The 1031 will take care of the depreciation recapture as well and the additional time may bring some additional appreciation.
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Dawn BrenengenBusiness Member
Moderator
Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes
8y
@Varun Parkash Have you considered the Raleigh market? You can get better cash flow in other areas, but we are likely an appreciating market.
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Varun Parkash
OP
Jersey City, NJ · Member since 2017 · 124 posts · 13 votes
8y
Originally posted by @Dawn Brenengen:

@Varun Parkash Have you considered the Raleigh market? You can get better cash flow in other areas, but we are likely an appreciating market.
Hi Dawn, i did think about it but did not do an in-depth market research on what's available out there and how much appreciation potential is there?
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Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
8y
@Varun Parkash I guess just some general thoughts:
1.) $600K won't get you "Class A" in Irvine. Maybe a small condo but not an SFR and if you're in a condo you'll get killed on the dues. If you increase the budget and buy a "Class A" home in Irvine you'd have to what, double the budget? And you won't be able to get the rents to support that debt service. In either scenario, you lose money.
2.) Most of the time the only way to get cash-flow out of true Class A-ish properties is to fudge your numbers. Put 50% down instead of 25% down, etc. You can force cash-flow out of anything if you do that at the expense of metrics like cash-on-cash returns.
3.) My advice would be to stick with an area that you like. If it's North Atlanta, great, go for it. You could even buy in ATL and suburbs like Alpharetta that friends tell me are nice. Just stick with the same metro area. You don't really want to deal with 10 units in 10 different cities with 10 different PMs and 10 plane tickets/hotel reservations/rental cars/etc. to pay for when you check up on them.
So if I were in your shoes I wouldn't buy anything at the moment. You seem to have ideas and an endpoint but not a lot of clarity around the strategy or path to take to get there. The last thing you want to do is to buy another property that may (or may not) fit with your vision.
1 Reply
Varun Parkash
OP
Jersey City, NJ · Member since 2017 · 124 posts · 13 votes
8y
Originally posted by @Andrew Johnson:

@Varun Parkash I guess just some general thoughts:
1.) $600K won't get you "Class A" in Irvine. Maybe a small condo but not an SFR and if you're in a condo you'll get killed on the dues. If you increase the budget and buy a "Class A" home in Irvine you'd have to what, double the budget? And you won't be able to get the rents to support that debt service. In either scenario, you lose money.
2.) Most of the time the only way to get cash-flow out of true Class A-ish properties is to fudge your numbers. Put 50% down instead of 25% down, etc. You can force cash-flow out of anything if you do that at the expense of metrics like cash-on-cash returns.
3.) My advice would be to stick with an area that you like. If it's North Atlanta, great, go for it. You could even buy in ATL and suburbs like Alpharetta that friends tell me are nice. Just stick with the same metro area. You don't really want to deal with 10 units in 10 different cities with 10 different PMs and 10 plane tickets/hotel reservations/rental cars/etc. to pay for when you check up on them.
So if I were in your shoes I wouldn't buy anything at the moment. You seem to have ideas and an endpoint but not a lot of clarity around the strategy or path to take to get there. The last thing you want to do is to buy another property that may (or may not) fit with your vision.
Thanks @Andrew Johnson for your responses.
1. I bought the condo property in Irvine, CA for 545K with 20% down and in my neighborhood, same property got sold last month for 585K. Under current circumstances, I cannot positive cash flow in Irvine. People who bought in 2011-2012 are easily +++ in cash flow
2. I cannot go beyond 20% down at the moment - for the second rental property - I am doing same 20% down.
3. My future home/residence where I will live for good is going to be in Southern California (no questions there) - most probably an SFR in Irvine (in 1.5M-2M range). I was thinking the same as you suggested to pool a group of properties in one area rather than multiple in different spots - especially I guess if the appreciation potential is close to same amongst them. Example - for someone who bought in Austin, TX in 2013-2014 now enjoys a 30% appreciation. I don't know if GA state cities -Alpharetta - john creeks etc. had a similar hike. But in the longer run, it will be a hassle to deal with multiple property management firms etc. if I did diversify too much.
Anyone in here who is a part-time investor and have successfully managed 3-5 properties in 2 or different cities - please chime in.
Right now, I have narrowed in on a newly built SFR in GA - 1/5th the HOA of Irvine, less property tax, good schools and rentability - so considering these factors - I am making the move to grab this second one - with vacancy and repairs + property management company fee etc., I may only make $100/month in a worst-case scenario. In the best case, I might be in 200-300$/month in positive cash flow after PITI. Considering how active investors here or people who bought in the 2011-2013 era are making lots of equity and positive cash flows, it is not the best bet, but I am open to hearing more suggestions.
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Dawn BrenengenBusiness Member
Moderator
Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes
8y
@Varun Parkash In the Raleigh area, I would stick to SFH if you are hoping to gain some appreciation. It's hard to measure what appreciation might look like since it's so speculative, but we have been growing at a steady pace, and I don't see that changing anytime soon. It's been 4-5%/year and has always been a very slow and steady market. However, we have excellent job growth in diverse industries, affordable housing compared to incomes and the COL of other areas, an educated workforce, and a business friendly environment.
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Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
8y
@Varun Parkash This isn't a "bad thing" but it appears that you're probably focused a little too much on the past. If someone bought in 2013 Austin, TX or 2012 Irvine, CA. If you want to buy in the next 12 months it doesn't really matter what's happened in the last 5 years. If you go back to 2012 you end up with even more skewed numbers because interest rates dropped so buyers got properties a.) cheaper, b.) were able to refinance to lower rates and c.) it never hurts to have Prop 13.
That said, if you believe that "Austin is the next San Francisco!" then it's still probably a great time to get in that market. I don't but maybe people do believe that. All that really matters is what your opinion(s) are of the different area. Austin could just be 5 years into a 20 year growth cycle. Who knows. Certainly not me. You just have to make your educated bet.
And, not for nothing, but some of these does come down to priorities around cash-flow vs. appreciation and timelines. If you have a 5 year timeframe it's different than a 50 year timeframe. And someone buying a property to support them in retirement has different priorities that someone looking to replace their W2.
I know this is all general "stuff" but that's why it's hard to give people advice. Well meaningful advice anyway...
2 Reply
Varun Parkash
OP
Jersey City, NJ · Member since 2017 · 124 posts · 13 votes
8y
Originally posted by @Andrew Johnson:

@Varun Parkash This isn't a "bad thing" but it appears that you're probably focused a little too much on the past. If someone bought in 2013 Austin, TX or 2012 Irvine, CA. If you want to buy in the next 12 months it doesn't really matter what's happened in the last 5 years. If you go back to 2012 you end up with even more skewed numbers because interest rates dropped so buyers got properties a.) cheaper, b.) were able to refinance to lower rates and c.) it never hurts to have Prop 13.
That said, if you believe that "Austin is the next San Francisco!" then it's still probably a great time to get in that market. I don't but maybe people do believe that. All that really matters is what your opinion(s) are of the different area. Austin could just be 5 years into a 20 year growth cycle. Who knows. Certainly not me. You just have to make your educated bet.
And, not for nothing, but some of these does come down to priorities around cash-flow vs. appreciation and timelines. If you have a 5 year timeframe it's different than a 50 year timeframe. And someone buying a property to support them in retirement has different priorities that someone looking to replace their W2.
I know this is all general "stuff" but that's why it's hard to give people advice. Well meaningful advice anyway...
Appreciate your insights, @Andrew Johnson, I have no qualms about the past anymore as I was not into US Real Estate Market back then. Typically based on my research and readings, the market goes through a 7-year bull and 7-year bear cycles.
Link: LA TIMES
However, with that being said, things have been very different with everything at record-high levels now, I have been hearing folks saying since 2015 that market is going to crash/collapse/tank and here we are an inch away from 2018 with no signs of tanking (although SF rental market is now claimed to have reached bubble popping stage).
In my research on Austin, TX: I am landing on a similar issue like CA, where I will negatively cash flow around 5-7k initially and I want to avoid it. With zip 30028 in GA, I will positive cash flow but then the key lies in whether Forsyth County, GA can ever grow and appreciate as fast as Austin, TX (with the likes of Metro-train to downtown Austin), Samsung, Apple, all IT firms in there.
Decisions ..Decisions..Decisions !
At this point or in next 2-3 years, I don't see myself completely full-time into rental-estate. But any property I purchase, I am trying to keep it for 5-10 years timeframe, before either paying it off or sell it (1031 exchange) with equity and profit into something bigger.
0 Reply
Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
8y
@Varun Parkash You're not wrong in the least and it's not far fetched to say that the bull run has been (in part) propped up by low interest rates. But I just don't think about timing the market. I think it's a fool's errand. It could go up for another two years, plateau for two years, and then "crash" all of the way back to the 2015 level. But what if interest rates have gone up and now debt is at 7% instead of 5%? How will that impact your cash-flow? Will it be the same in ATL as it is in Irvine? Will there be a new tax code that eliminates the state income tax deduction and make Texas (and Austin) even more popular? There are just simply too many variables for my little brain the process.
That said, my timeframe is longer than yours so I don't really mess around with those variables. When I buy the plan is always to keep it in perpetuity. And the longer you hold the property the more valuable a 30-year fixed-rate becomes. Not to mention, since I believe I'll go through a multitude of cycles the whole idea of "ups" and "downs" becomes less impactful.
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Varun Parkash
OP
Jersey City, NJ · Member since 2017 · 124 posts · 13 votes
8y
Originally posted by @Andrew Johnson:

@Varun Parkash You're not wrong in the least and it's not far fetched to say that the bull run has been (in part) propped up by low interest rates. But I just don't think about timing the market. I think it's a fool's errand. It could go up for another two years, plateau for two years, and then "crash" all of the way back to the 2015 level. But what if interest rates have gone up and now debt is at 7% instead of 5%? How will that impact your cash-flow? Will it be the same in ATL as it is in Irvine? Will there be a new tax code that eliminates the state income tax deduction and make Texas (and Austin) even more popular? There are just simply too many variables for my little brain the process.
That said, my timeframe is longer than yours so I don't really mess around with those variables. When I buy the plan is always to keep it in perpetuity. And the longer you hold the property the more valuable a 30-year fixed-rate becomes. Not to mention, since I believe I'll go through a multitude of cycles the whole idea of "ups" and "downs" becomes less impactful.
@Andrew Johnson: Agreed! Interest rates definitely play a major role too. New tax code possibilities with the current administration is a tough future we all face and certainly any mortgage interest rate deductions will impact CA/NY landlords more than anyone else. Initially, I also thought of sticking around with a property for longer than 10 years, but I will have to evaluate priorities going forward before just selling-buying-selling etc.
0 Reply
Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
8y
Suggest a reverse 1031 tax deferred exchange. You can buy down by paying less income tax.
Expect steep appreciation six years after an economic recovery is questionable. It will be flat to decline the next 18-24 months. Perhaps you want to ascertain the area has ample jobs.
0 Reply
Andrey Y.
Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
8y
Originally posted by @Varun Parkash:

Hello, I am an IT Entrepreneur, IT Consultant and a part-time real estate investor, just signed up with BP, bought a brand-new condo property in Irvine CA 2 years ago in zip 92618 (educated myself on everything by talking to folks - google - some forums) as an investment, but the numbers aren't working in my favor and I have negative cash flow (2 mo initial vacancy and high HOA + special city taxes) = Negative 11k (1st year) to Negative 3k (2nd year). I may start breaking even in my 5th year and still not have ++ cash flow. So, the only thing I am backing on is appreciation.
The property has appreciated 8% over 2 years and I can break-even if I sell it now. It is tenant occupied (who are excellent - have a great credit score - good jobs etc. & want to renew their lease for the 3rd time). Rent goes up 3.5% every year.
Currently, I am getting close to buying a second rental investment property in North Atlanta region. Once I am done with the closing on the 2nd investment rental property - I will be seeking out to do a 1031 exchange with a budget of $550-$650K.
I am looking for Class A properties (preferably SFR) that are in good school districts, with zero to minimum HOA & in developing neighborhoods with considerable chances of appreciation. I am open to diversifying my portfolio across different states or follow the traditional approach of buying 2-3 units in one state/city (this is where expert analysis from seniors/experienced members will help).
I do plan to get my CA real estate license sometime in future but for now, my next 6-9-month focus is to grab this second investment property and then work on selling the Irvine property by doing a 1031 exchange to generate ++ cash flow.
Long-term (5 years) focus is to establish a portfolio of 5 condos, 5 SFR's = a total of 10 Class A properties in prime areas.
I look forward to learning in this great community about rental investments, foreclosures, networking, getting the best loans etc.
Thanks ALL !
The very DEFINITION of Class A is that there in a negative initial cash flow. Then because of rent growth and appreciation, Class A properties are the most profitable for investors. If you buy a property (that wasn't a complete gut remodel, and even then its suspect) that cash flows on Day 1, it is not Class A (by definition). Even my Honolulu properties that now cash flow $500-1000 per month, are Class B now and Class B when I bought them.
0 Reply
Varun Parkash
OP
Jersey City, NJ · Member since 2017 · 124 posts · 13 votes
8y
Originally posted by @Sam Shueh:

Suggest a reverse 1031 tax deferred exchange. You can buy down by paying less income tax.
Expect steep appreciation six years after an economic recovery is questionable. It will be flat to decline the next 18-24 months. Perhaps you want to ascertain the area has ample jobs.
Thanks @Sam Shueh: for your insights. Reverse 1031 has some info. Steep appreciation in the current market seems harder than before. Buying in 2020 makes more sense if there is a possibility of a decline in prices making the deepest decline around 2023 (i am just assuming w/o any magic crystal ball). Area - Irvine, CA has plenty of jobs all around it and is always in high demand. Same goes for Austin, TX now with the firms.
If anyone here can chime in and explain how strong is the White Collar Job Market of downtown Atlanta versus Austin will be helpful.
0 Reply
Varun Parkash
OP
Jersey City, NJ · Member since 2017 · 124 posts · 13 votes
8y
Originally posted by @Andrey Y.:

Originally posted by @Varun Parkash:
Hello, I am an IT Entrepreneur, IT Consultant and a part-time real estate investor, just signed up with BP, bought a brand-new condo property in Irvine CA 2 years ago in zip 92618 (educated myself on everything by talking to folks - google - some forums) as an investment, but the numbers aren't working in my favor and I have negative cash flow (2 mo initial vacancy and high HOA + special city taxes) = Negative 11k (1st year) to Negative 3k (2nd year). I may start breaking even in my 5th year and still not have ++ cash flow. So, the only thing I am backing on is appreciation.
The property has appreciated 8% over 2 years and I can break-even if I sell it now. It is tenant occupied (who are excellent - have a great credit score - good jobs etc. & want to renew their lease for the 3rd time). Rent goes up 3.5% every year.
Currently, I am getting close to buying a second rental investment property in North Atlanta region. Once I am done with the closing on the 2nd investment rental property - I will be seeking out to do a 1031 exchange with a budget of $550-$650K.
I am looking for Class A properties (preferably SFR) that are in good school districts, with zero to minimum HOA & in developing neighborhoods with considerable chances of appreciation. I am open to diversifying my portfolio across different states or follow the traditional approach of buying 2-3 units in one state/city (this is where expert analysis from seniors/experienced members will help).
I do plan to get my CA real estate license sometime in future but for now, my next 6-9-month focus is to grab this second investment property and then work on selling the Irvine property by doing a 1031 exchange to generate ++ cash flow.
Long-term (5 years) focus is to establish a portfolio of 5 condos, 5 SFR's = a total of 10 Class A properties in prime areas.
I look forward to learning in this great community about rental investments, foreclosures, networking, getting the best loans etc.
Thanks ALL !
The very DEFINITION of Class A is that there in a negative initial cash flow. Then because of rent growth and appreciation, Class A properties are the most profitable for investors. If you buy a property (that wasn't a complete gut remodel, and even then its suspect) that cash flows on Day 1, it is not Class A (by definition). Even my Honolulu properties that now cash flow $500-1000 per month, are Class B now and Class B when I bought them.
Even though what I bought is only an attached condo - but it was bought brand new & may classify as Class A because it had no maintenance issues - in a good location. In order to avoid the headache of digging through the damages incurred in an older property and possibilities of dealing with contractors to get stuff fixed, I went the minimum hassle route to buy brand new.
The definition states:
Class A: These properties represent the highest quality buildings in their market and area. They are generally newer properties built within the last 15 years with top amenities, high-income earning tenants and low vacancy rates. Class A buildings are well located in the market and are typically professionally managed. Additionally, they typically demand the highest rent with little or no deferred maintenance issues.
0 Reply
Christine Kankowski
Real Estate Broker · Temecula, CA · Member since 2014 · 992 posts · 782 votes
8y
I commend you for seeing that if you condo is not or no longer a good investment, to sell and find something that works better for you. I have done the same thing over the years.
If you like Class A, you may enjoy the relatively close by area of Temecula, CAlif. You can get a decent house for $350K, low taxes, built 1990-2002, newer area, great schools, low crime, excellent tenants and low vacancy. Appreciating area steady.
Just a question- if you are breaking even on the property, why do a 1031 exchange? If there is no gain on sale, there are no taxes due, no? No point in locking this money into 1031 if there is no gain anyway.
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Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
8y
Perhaps wait for Amzn headquarter#2.
Googl downtown SJ office center was announced a few months ago here. In 95126 there is all kinds of speculation. TH I sold for $500K 4 years ago sold again for 825K 20 months ago is 1.15M.....
0 Reply
Varun Parkash
OP
Jersey City, NJ · Member since 2017 · 124 posts · 13 votes
8y
Originally posted by @Christine Kankowski:

I commend you for seeing that if you condo is not or no longer a good investment, to sell and find something that works better for you. I have done the same thing over the years.
If you like Class A, you may enjoy the relatively close by area of Temecula, CAlif. You can get a decent house for $350K, low taxes, built 1990-2002, newer area, great schools, low crime, excellent tenants and low vacancy. Appreciating area steady.
Just a question- if you are breaking even on the property, why do a 1031 exchange? If there is no gain on sale, there are no taxes due, no? No point in locking this money into 1031 if there is no gain anyway.
Thanks, Christine. Older houses scare me as I am not local to take care of them and to trust contractors (out-of-state) without knowing them can get tricky unless I get a reliable property management firm. On Irvine property, I can get +$40K, but I have to consider a conservative 6% sales costs and also look at the money I lost in 2 years to call it break-even or close to it.
In the eyes of IRS, that 40k will be a capital gain profit, but in reality, it's not. So to avoid myself getting taxed on 40K is the reason I was thinking 1031 exchange, I, however, might be wrong and look forward to your advice.
0 Reply
Varun Parkash
OP
Jersey City, NJ · Member since 2017 · 124 posts · 13 votes
8y
Originally posted by @Sam Shueh:

Perhaps wait for Amzn headquarter#2.
Googl downtown SJ office center was announced a few months ago here. In 95126 there is all kinds of speculation. TH I sold for $500K 4 years ago sold again for 825K 20 months ago is 1.15M.....
Every major city in the US is eyeing Amazon with Newark, NJ offering $7B in tax-incentives for next 20 years to Austin, TX, Denver etc. everyone doing their best to lure them in. I was in SJ last year many time and no wonder - the way - some areas of N Cal or S Cal appreciates is breathtakingly amazing. The original owner missed 1.15M opportunity but if he didn't see it coming, then so be it.
Before I do anything with Irvine property, I will wait for the Amzn dust to settle.
0 Reply
Andrey Y.
Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
8y
Originally posted by @Varun Parkash:

Originally posted by @Andrey Y.:
Originally posted by @Varun Parkash:

Hello, I am an IT Entrepreneur, IT Consultant and a part-time real estate investor, just signed up with BP, bought a brand-new condo property in Irvine CA 2 years ago in zip 92618 (educated myself on everything by talking to folks - google - some forums) as an investment, but the numbers aren't working in my favor and I have negative cash flow (2 mo initial vacancy and high HOA + special city taxes) = Negative 11k (1st year) to Negative 3k (2nd year). I may start breaking even in my 5th year and still not have ++ cash flow. So, the only thing I am backing on is appreciation.
The property has appreciated 8% over 2 years and I can break-even if I sell it now. It is tenant occupied (who are excellent - have a great credit score - good jobs etc. & want to renew their lease for the 3rd time). Rent goes up 3.5% every year.
Currently, I am getting close to buying a second rental investment property in North Atlanta region. Once I am done with the closing on the 2nd investment rental property - I will be seeking out to do a 1031 exchange with a budget of $550-$650K.
I am looking for Class A properties (preferably SFR) that are in good school districts, with zero to minimum HOA & in developing neighborhoods with considerable chances of appreciation. I am open to diversifying my portfolio across different states or follow the traditional approach of buying 2-3 units in one state/city (this is where expert analysis from seniors/experienced members will help).
I do plan to get my CA real estate license sometime in future but for now, my next 6-9-month focus is to grab this second investment property and then work on selling the Irvine property by doing a 1031 exchange to generate ++ cash flow.
Long-term (5 years) focus is to establish a portfolio of 5 condos, 5 SFR's = a total of 10 Class A properties in prime areas.
I look forward to learning in this great community about rental investments, foreclosures, networking, getting the best loans etc.
Thanks ALL !
The very DEFINITION of Class A is that there in a negative initial cash flow. Then because of rent growth and appreciation, Class A properties are the most profitable for investors. If you buy a property (that wasn't a complete gut remodel, and even then its suspect) that cash flows on Day 1, it is not Class A (by definition). Even my Honolulu properties that now cash flow $500-1000 per month, are Class B now and Class B when I bought them.
Even though what I bought is only an attached condo - but it was bought brand new & may classify as Class A because it had no maintenance issues - in a good location. In order to avoid the headache of digging through the damages incurred in an older property and possibilities of dealing with contractors to get stuff fixed, I went the minimum hassle route to buy brand new.
The definition states:
Class A: These properties represent the highest quality buildings in their market and area. They are generally newer properties built within the last 15 years with top amenities, high-income earning tenants and low vacancy rates. Class A buildings are well located in the market and are typically professionally managed. Additionally, they typically demand the highest rent with little or no deferred maintenance issues.
That above is an excellent definition. A property in Beverly Hills or on the water in San Diego WILL NOT cash flow from Day 1/initially. If it does, it is not Class A or you ripped off a grandma with Alzheimers. Being Class A has to satisfy several things as it states above - excellent location, white collar tenants, new build, high-end finishes.
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Liz C.
Property Manager · New York, NY · Member since 2016 · 388 posts · 90 votes
8y
Dawn Brenengen can you send me a PM pls ? I have try to contact you for local advice but cant do it on the phone for some reason
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