All Forum Posts by: Aaron Knoll

 Thanks for this and sorry if my rant was a bit harsh. 

What others are saying is very true: living below your means is key to escaping the rat race.   While living on a boat and vowing to never have kids might be a bit extreme, having to support a family of four on one salary and put kids through college is going to end dreams of financial independence pretty quickly, unless you've built up your empire first. Starting from ground zero, personal finance is very important. I've heard rules of thumb recommending you save one third to half your take-home pay, but this varies a lot with where your live, what your job is, and the RE market(s) you're investing in. For your first properties, the important thing is to stay cash-flow positive, and to buy according to the 80% rule (at least 20% under market value). 

I'm still fairly new to RE investing -- my experience is as an accidental landlord for 5 years, during which I still managed to make 6% ROI on my rented-out house. I think it is absolutely possible to play it safe in RE, buy and hold properties and gradually build a nest egg. In fact, as long as you don't over-leverage yourself or do dumb things (i.e. sell when the market is down) RE seems quite a bit less volatile than the alternatives -- I say this as someone who weathered the 2007 crisis.

To quit your day job, you really want around $3--6k/mo in after-tax take home pay, depending on your goals and needs. Based solely on hanging out on BP, this means larger multi-units, apartment buildings that cash flow massively, or a portfolio of 5--10 SFR's or duplexes, all cash-flowing. I'm not there yet, but at least I have a game plan, two properties, about $160k in equity I can leverage for the right deal, and the beginnings of a team.

It's really amazing how unpleasant it is to be an employee this day and age, even if you have a solid 9-5 job and a growing "career". The fact that employers require you to check your cell phone at all times, and vacation is considered a quaint relic of the past. And this is the reality pretty much at every rung of the ladder, in corporate america, academia, or in  government. Data Scientist? Product Manager? Senior Vice President? Distinguished named Professor? I say "Wage Slave."

If I could re-live the last 15 years of my live (i.e. from age 20 onward), tThe best advice I could give is:

- never have kids

- buy a $3,000 used boat and live on it

- put all your savings into RE, maybe the Vanguard S&P 500 index fund just to diversify a bit. 

If I'd done all that, I have retired by now. Instead I was a dumb f%$#, got married, had kids, and am solely responsible for supporting my family while my wife complains she has to take the kids to the beach. 

That said, it is not too late. I do not plan on sitting quietly and assuming everything will all work out, the way my parents did. 

I'm still relatively new to this, but from what I understand the main reason you would sell a property is if you see a bigger and better one that will generate more cash flow, and you want to increase your leverage.

Or, if you're pretty sure property values are about to take a dive (either in the short or long term), and know of a way to protect yourself. 

But yes, otherwise I think it is hard to go wrong with buy and hold. 

Because of a part-time job in Chicago (housing reimbursed by employer)  I'm considering an investment property in the area -- if for no other reason than to write off expenses, and because there are still deals to be had here. 

This may sound like an emotional call, but I've always wanted a high-rise condo with a view of the lake and the city. Honestly there aren't a lot of other good reasons to live in Chicago ;)

I've been underwhelmed by the cap rate on standard rentals, but noticed this analysis of airbnb rentals:

https://smartasset.com/mortgage/where-do-airbnb-ho...

In short, Chicago is the 3rd best market in the country, with a 71% occupancy rate. Looking at comp rentals, it looks like I could get cap rates of 10-12% at least. 

What makes me hesitant is:

- I hate HOA's.

- The market for non-HOA properties (including dilapidated multi-family shacks that look terrible but must cash-flow like mad) has skyrocketed in the past 4 years, whereas the market for mid/high-end condos with HOA's is still pretty bad.

Questions for people doing this:

- how much work is it, relative to a regular rental? What sort of property management / cleaning services do you use?

- would this at all be feasible for a mostly absentee landlord (albeit, one with family in the area)

- for properties with HOA's (i.e., most of the ones in high rises with great views), are you cash-flow-positive?

- is there a sweet spot that minimizes vacancy? Downtown/streeterville? South loop? Lakeview, Edgewater?
- I've noticed people listing their units on airbnb in buildings that officially prohibit it. Is this a gray area? What are the repercussions if you're caught?

Thanks for your perspectives.

 Thanks William for this perspective. Metro SLC is not the same as Utah overall. Also, it may be a sellers market but I agree the conditions are not all there for a repeat of 2008. That said, I'm interested in putting money in properties that will appreciate in the long term (15 years), and wondering where that will be in the best and worst-case scenarios for the state.   

@Blair Poelman that seems like a pretty accurate assessment. However -- there are some places where there are literally *no* properties on the market that are priced correctly (particularly the east bench: Sugarhouse, Holladay, increasingly Cottonwood Heights). I recently seized on the closest thing I could find to a deal -- which is would have been a pretty good deal even back in 2003 but is nothing close to what I could have done in 2010 with the right cash at the right time. 

I'd like a discussion on what will happen to Utah real estate in the long term. We have really big houses, some of which need a lot of work, and an aging population that is cashing out. Many of these properties (B+ -- A) can be had for what seems like a good "deal", but are not exactly great rental investments. 

In the short term, millennials want small homes and apartments close to downtown, and are still largely renting. The ones who have families go way out to the exurbs to buy new. Naturally these are the most overpriced properties (both for investment and purchase) right now. A lot of institutional investors and REITs (but also mom & pop investors), snapped up entry-level properties in the last 4 years, and a lot of the B/C housing that would otherwise be on the market is now rental. A lot of those properties are poorly maintained, have high turnover, and are causing whole neighborhoods to stagnate even as prices go up. What will the effect of that be on the rest of the market, in the long term?

My feel is it could go either way: the millenials could have a few good years, build families, and start to buy the larger suburban mansions which have dropped in value. Or, we could have another recession, everyone forecloses, and low-end rentals continue to dominate, high end continues to stagnate, until we look like the Rust Belt and no one wants to invest in the city. I even see a bit of that happening today, during a sellers' market and a "recovery".  

The big wildcards I could see changing things are major economic windfalls, like One Wasatch, or Google or Intel building a large campus. Better schools and state incentives for industry would go a long way.

Utah real estate seems a bit frothy at the moment; deals can be had at the low end and high end but prices for typical B-C properties seem way out of whack. Does anyone else have that feeling?

Can I really write that into the P&S and have the IRS refer to that, as opposed to tax valuation by the county? That seems dubious...

 Thanks for this. What would happen if we moved into the new purchase, rented out our current home, and wanted to deduct interest from the loans? Would we have to refinance?

For the new property the home value is probably ~$600k, but I'd get it for around $470k (it needs updates, but has enormous square footage and great fundamentals). Land value is $223k according to tax records. 

How would I go about stating the value of the land in my P&S contract?

Thanks!

@Che Chiu Wong Thanks for this. Right now we have 100% equity in our house, which is very safe but horrible ROI. We would turn that into two low-rate mortgages (with roughly 50% equity in each property) and rent out at least one property. The worst-case scenario is that rent goes down, or we have to deal with vacancy for several months. The main disadvantage of this plan is I might have to get at least one 30-year fixed mortgage to cover PITI+25% -- I hate 30-year mortgages. The new property (probably a B+/ A- by Salt Lake standards, 5800 sq ft with views in a great neighborhood) needs a bit of work and I'd be getting it for about $180k under current value -- but it is already rented out and we'd have no intention of selling anytime soon.

I think my challenge will be ensuring a constant stream of rental income from at least one property; but if that works out then this seems both a sound investment and a good way to "buy into" a neighborhood. This seems plausible -- if anything, there is higher demand for rental in Salt Lake than ever. 

The only thing holding me back is: perhaps I should wait 2 years and maybe there will be a huge crash, with REITs unloading tons of properties onto the MLS for cheap? Or, is that unlikely?