All Forum Posts by: Arlen Chou

@Leslie Pappas "the lady doth protest too much, methinks". You imply that my comment was down playing the entire DST industry. Let us be clear, I never said that. I was very specific that I do not think it makes sense for somebody with a free and clear property in a hot market should go down the DST road. I merely pointed out that following your advice, others would eat into his money. I apologize if you believe that this is not a civil comment, but it is true.

The OP got this building for free... his cash flow and appreciation is essentially infinite!  To overlook or minimize that fact is doing @James Woods a disservice.  

Personally, I am a buy and hold investor in the Bay Area. I own several doors in Oakland. So my comments are based upon my experience in the geography and a refi/HELOC strategy. I have applauded and supported people, both on BP and offline, who do out of state investing or other types of strategies. If your strategy made sense for this particular situation, I would every much support it. However, in his case I do not believe DST is the strategy to use.

Let me be clear, "I have no dog in this hunt";  I am not an investment advisor, I am not a real estate agent, I am not a money lender, I don't sell any course or books, I have no potential for personal gain in any of my advice.  I believe that BP has grown around the comments of people who give advice freely without ulterior motives and it should remain that way.  

@Leslie Pappas thanks for the advice on grammar, you are actually right about something.  But I still stand by my point that selling off a money making machine that is owned free and clear for DSTs will only benefit 3rd party interests and not @James Woods

Hey @Account Closed I use Daniel Bornstein.  He has offices in Oakland and SF.  I am not sure about the asset management side, but I know he handles liability and landlord/tenant issues.

Really @Leslie Pappas your pitching again? Who uses CAP rates on a SFR? The property should be valued through comps...

@James Woods, it sounds like you have a great little property right now. Your basically getting $20k to $30k per year on zero initial investment! What part of Oakland is your property? With all of that cash flow I would assume you could use those funds to get into some good units near your home. If you really wanted a large lump of cash in one shot, I would go for a cash out refi and leverage the existing property. By leveraging the unit you will not be hit with any taxes nor will you be under the pressure of a 1031 exchange. If you can pull a HELOC on the property that would give you the most amount of "time" freedom to find another deal.

DI would not kill the goose that is laying golden eggs each and every month...

@Jason Hsiao, double dagger is what it looks like to me too.  I have been trying to figure this piece out for a long time now.  It just looks like Texas does not make sense for CA investors.  I was just hoping you had found a solution that I did not see.

@Jason Hsiao I have wondered about the tax issues of living in CA and owning in Texas.  Don't you get hammered with both CA State tax and Texas property tax?  How much of a cash flow hit is that and do you do anything to try and offset those taxes?

Thanks,

Arlen

@Lenore C. in my humble opinion, I don't think you are giving enough information to the community to get an answer of any real value.  It would be extremely helpful to know what you paid for the unit, where in DT SJ the unit is located and the condition/amenities of your unit.  I personally feel $4000 a month is a GIANT nut for a 2/2 condo in a crappy old complex.  It is a completely different story if you are on a top floor unit with great views.  The fact that you think you only have $150k of equity and your reply to @Nathan Gesner that you think the property value increased by $300k in 5 years, throws more confusion into the mix.  

Was the refi that you did a large cash out refi?  It sounds like it was... If that is the case, did you buy another asset with that money or did you blow the money on liabilities?  Sorry if this sounds harsh, I don't mean it to be a smack down, I am just trying to better understand your situation before addressing your question.

On another note, before you commit to the idea that weird and strange are not good traits, just keep in mind places like: The Mission District in SF, SoHo in NY, and countless other places around the globe.  Even though they were once thought to be weird and strange the values in those areas have blown up over time.  I personally think looking for "weird and strange" before it becomes "hip and cool" is not a bad use of time...  But the idea of SJ being weird and strange moving to hip and cool is a totally different topic as is the topic of condos as good investment properties or not.

@Mitzmichael Sumilang the process that @Albert Bui is talking about is a great strategy. I did a very similar strategy through Everbank in 2016 to purchase a 6 plex in Oakland. I say similar because I super-charged my HELOC by wrapping the value of an existing investment property into the value of my primary. I used this jumbo HELOC to pay off my existing 30 year fixed on my home AND to purchase the additional rental. Therefore, the HELOC is first position on my primary. There is some risk in this, but the LTV of this HELOC on my primary is still about 30%, so the danger is limited. The investment property that was used in the calculation still holds a 30 year fixed rate of 4.25%, so none of the HELOC was applied to that property. The rate of the HELOC is prime -1%, so compared to my previous 30 year fixed rate loan payments I am saving a ton. However, I continue to pay what I was paying before to drive down the balance of the HELOC and take advantage of the accelerated pay down. I plan to get a stand alone commercial loan on the rental and pay down the HELOC in the near future. At that point I will have a large amount of available credit that is accessible without going through another qualification process.

I am fully aware that my strategy only works in an appreciation market. If the value of my home had not tripled in 10 years and the value of my rental not doubled in the past 4 years I would not have been able to capture such a large HELOC. But I am under the assumption that CS is also a strong appreciation market, so perhaps this method will work for you.

Hello BP,

So I am a very big proponent of "think global, invest local". All of my REI buy and hold properties are in CA. However, I have a small manufacturing facility in Plano Texas that has been running for nearly 13 years. When I first started visiting Texas, I could see that property values were on the up swing, but I could not get my mind around the fact that every piece of dirt looked exactly the same. So I decided to invest in my own backyard.

More recently my mind set is changing from separating real estate investing and my manufacturing business, to potentially linking them. Being in the manufacturing world has shown me that the availability of qualified labor is tied directly to local housing costs. My operators are being priced out of local areas and I am considering doing something about that, by providing housing. Without getting into the weeds of the plan, I am considering purchasing homes, under my REI firm, and renting them directly to my manufacturing company. In turn, the manufacturing company would let employees stay in the homes as long as they were employed with the company. I realize that this will drive up my overhead for my manufacturing company. However, I believe the strategy will "act" as a raise in income for my people, without raising associated costs of increasing wages for the company. My corporate margins will go down, but since I have no share holders this is actually a good thing in that it should also lower my year end taxes. On the REI side, I will be increasing my property holdings and have 100% control of cash flow.

What I am trying to figure out is an efficient tax structure so I will not get crushed by income tax in CA and property tax in TX.  If I can figure out the tax piece, I think the plan becomes a "win-win-win" for both my companies and my employees.  Please also comment if you see any other potential traps in this strategy.

TIA,

-Arlen

I was meeting a bearded, flip flop wearing, hippy looking millennial so I decided it was appropriate match the theme and to dress stereotypically! hahaha.  

I am working on my "kitchen pass" for that ride in Vietnam!

Looking forward to the meeting of the mini-mes this week.

Congratulations again!