All Forum Posts by: Allan C.

Drop it into 4-week US treasuries for the highest yields with reasonable liquidity. You can ladder your funds to make 25% accessible within a week, and the rest over a 4 week period. 

you also get state tax exemptions if you're in a state with income tax. 

If you're in a short time horizon I don't think it's worth buying. You have a fair amount of transaction costs (commission and transfer taxes) that will eat into any appreciation. And while rents have increased since the fires, they are still relatively low compared to purchase costs and debt servicing at today's rates.

Now, currently legislation proposals on SALT limits may change the math if you fall into the itemized tax deduction category, but that shouldn't be a deciding factor. 

I'm with @Greg Scott, I think your risk of making a bad move in this market environment is higher than your tax obligation. You're likely looking at $30k tax obligation, and you can lose more than that working under time constraints. I know that feels like a lot to give up this early in your investment journey, but I suggest you do more analysis to get a better sense of your risk/reward. 

depending what market you're in; you may be better off putting your gains into a high yield savings account and get back into the market 6-12 months down the line. 

Everyone is giving you good advice on funding, so I'll point to something that may not be on your radar. I don't think funding will be your limiting step - it's getting insurance. 

commercial insurance is getting very tough and many companies have increased their rigor. Are you looking at buildings >50 yrs old?  Are all mechanicals (HVAC, electrical, plumbing) upgraded?

I suggest you get very familiar with commercial insurance to help guide what property to buy.  

It's ok to make mistakes as we all do. You're doing the right thing in reassessing your strategy. I think the first issue you'll need to overcome is determining if you are fit to manage C-D clas OOS properties. Your issues are just starting now and unlikely to subside over time, even with PMs. 

The next thing you should assess is if you have clear understanding of investment fundamentals. When you quote having 3-4x returns in a different market, it makes me think you're only looking at surface level factors and not understanding the whole picture. Returns are proportional to risk, effort and barriers to entry.  Higher returns means you're taking higher risk and/or putting in more effort. Are you willing to do that for higher returns? Do you have an secret sauce that enables you to capture higher returns than your competitors? If you don't fully understand the answers to those questions, then you have unrealistic return expectations. 

I know you likely feel like you're priced out of local markets, but why not look locally first? If you're willing to buy C-D Midwest markets, why not look in San Bernardino county? Or find rougher areas of Long Beach, Gardena or Inglewood?

I generally agree with your sentiment about leverage, but your example is really misleading. I'm ok with you ignoring the P of the mortgage payment, but excluding the Interest part of debt servicing is ill-advised. 

To @V.G Jason's point, using different interest rate assumptions affects the returns substantially. 

leverage is still useful, especially when you have opportunity costs that return higher than loan rates.  However, that's a different analysis than what you're presenting. 

can I test how long this property has been in the family?  I ask because inherited homes usually have a $15-20k/yr tax difference vs current market rates, so just checking if that is similar situation for you.  Unless this home was purchased within past 10 years, I would double check that you want to give up the tax basis. 

May be worth you just moving into the property as your primary and keeping vacant to reduce future tax obligations. 

I don't let tenants self-paint, but I offer them the option to pay my handyman to paint a color of their choice. I also increase the deposit (if allowed by local regulations) to cover future cost of repainting back to the original color upon the end of their tenancy. 

Sounds like you're headed for repainting the unit at the end of their tenancy regardless of the color choice. They've already indicated that their kids will make a mess of the walls. 

I don't think you're at a decision point, so you likely won't have to make a decision in near future.

Everyone keeps targeting the 8% interest loan, but I'll ask you to look at this differently - how much would that property cash flow if interest rate dropped to 6%? Do you have any reserves now, or can you set up a HELOC? Being over-leveraged isn't the issue - it's not having sufficient reserves.

You also didn't mention the interest rate for your student loan - you likely don't want to pay that off if you have relatively low rates. You do have a fair amount of debt, but get some paper and do analysis to figure out how exposed you are. Then develop contingency plans for those scenarios and see if that makes you more comfortable. 

Unless regulated by local laws, I put deposits into a high yield or investment account. You should view deposits as a cash generation fund, and not capturing 5%+ yield on deposits is just leaving money on the table. 

I'll use an example - let's say you have $100k of deposits that isn't sitting in a high yield account. You're missing out on $5-15k annual revenue. You don't need to segregate your deposits from operating funds (unless legally required) if you are disciplined enough to track it by spreadsheet.

You need to maintain some liquidity for tenant turnover, but you don't need 100% of your deposits available. Depending on size of portfolio and market conditions, you typically don't need more than 10-20% liquid. But that's a risk-reward situation you need to self assess.