All Forum Posts by: Allan C.

The issue with Chicago burbs is plentiful land, so appreciation is limited. The good thing about Chicago burbs is good schools, especially in the SW where you're at. You're basically investing for cash flow, so you'll need to find properties that are newer and don't have much deferred maintenance. 

if you want to invest in the city, study the CRLTO extensively as you are highly exposed with strong tenant laws. 

Some insurance companies are not covering properties without upgraded mechanicals. Panel upgrades are $5-10k so simply ask for price reduction. I never have sellers make repairs anymore since they will go with cheapest bid. Don't nickel and dime the seller either - just determine which items have material impact on valuation of the property and get a lump sum deduction. 

you shouldn't frame the question as which class asset is best. It's all about tradeoffs and what works best for you. 

Returns are a function of risk, effort and barriers to entry. By definition class D should have higher returns given higher risk and effort. Class A has higher barriers to entry. B and C class are more realistic for general investors to find balance of returns and effort. Best class for you will be different for others - so think about what factors are most important to you. 

@Mohammed Rahman are you confusing capital gains tax rate with ordinary gains?

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.