All Forum Posts by: Bill B.

There aren’t really any rules. And there’s certainly no tax information valid for all American states, much less internationally. Until you pick a market just work on saving your downpayment. Obviously the easiest way to get started is house hacking. To do that simply buy in a market you’re legally allowed to own property and stay as long as you want. This replaces spending rent with investing in real estate. Get friends, relative, co-workers or worst case vetted strangers to rent rooms in your home. Build wealth and grow. 

Natalie is more qualified and brought up a point I was going to bring up. I don’t think you want ANY rental more than 5 years before you sell or you could get hit with a prorated taxable event. 

Imagine you live in your primary for 10 years. Rent it out for 2 years and then live in it for another 5. You’ve lived in it for 5 out of the last 5 years, even better than 2 out of 5. But my understanding is because you have rental use before the last 5 years you would only get 15/17ths tax free. That’s not bad you say. But it could be…1 year primary, 2 years rental, then 4 years primary. Because 1 year of the rental is before the 5 years when you sold. I BELIEVE you would only get 5/7ths tax free.  

Of course talk to your CPA before doing anything that could cost you 10’amof thousands in taxes. But personally i’d be wary of rental history more than 5 years before selling. Unless of course an expert chimes in and says I’m worried about nothing or I’m misguided. 

Do you think the "60/30/10 rule" covers 95 or 99% of all houses and all STR's?

You could change the 60 from a city to 60 from a “major city”.  Then maybe it’s only 80%? It just seems like a “rule” saying your house should have a roof, a door, and windows. 

I understand having a quotable rule helps sell books, draw web traffic, fill seminars, or get invited to talk as an expert. But saying your success is because you named a filter everyone else is already “accidentally” using isn’t inspiring. 

Maybe a more accurate one would be "Today, people want to stay in super unique properties. But… Not enough to travel further than they would for a regular property. So keep it close to cities, attractions, and amenities…" even if it doesn't roll off the tongue quite as well. :-) I truly wish him well, he's not my competition. But I'd hate for someone new to real estate to be sucked in by a marketing slogan. Totally remodel a property to be unique/weird and STR orientated, and lowering its resale value. Fail at STR. (A small hotel business more than real estate investing.) Then abandon real estate completely because they've gone bankrupt and lost everything.

He has $130k in the bank but not enough to rehab house?

DSCR loan on the rental? That should be ez.

Is the plan to rehab and sell or rehab and live in a nicer home? If it’s just lifestyle there’s no rush. Talk to a local bank about a new loan on the rental or on the primary (paying off 1sr and 2nd.) or worst case Heloc that pays off 2nd as I doubt you’ll find a Heloc or anyone else that wants to be third.  

The rental should be your target for trapped/wasted equity to tap. 

Never heard of it. Downsides off the top of my my head…

1) You’re going to need larger down payments. Many are going to have 20-40% equity which you’ll need to pay off. Even those who just bought a couple years ago are going to want more than 10% so after closing costs they don’t have to pay to sell. 

2) you’re probably going to be charged over market prices. The sellers are going to advertise their low rate as a reason they are charging you over market rates. But that’s basically prepaid interest. 

3) you're going to need good credit and and a good DTI, these aren't walk in and assume they're going to be qualify of assume.

4) you’re probably going to limit yourself to less than 1% of the market. What are the odds these are the best deals?

While I wouldn’t turn down an assumable mortgage. I’ve never seen it make sense. We have to much appreciation, causing too much equity and down payments in excess of 35%. Maybe in a stagnant or better yet a depreciating market you could catch an owner scared of losing what little they have left? Assuming you know it won’t continue to fall. 
  

If it’s free maybe you can post a couple deals you buy off it. But I wouldn’t advise you waste too much time on it. It’s something your realtor should be able to search for you for free without wasting your time. Good luck. 

I assume the graph is almost useless? Obviously the lowest 20% of income earners own zero real estate. They have a net worth of what $1,000? If anything it should say they “invest” in cars, as that’s probably their largest asset. Unless it’s being distorted by seniors who own their own home. And they don’t own their home to “invest in real estate”. They own it for a free place to stay. 

Ps. It looks like the poor own the 2nd most private businesses. So unless you want to be poor don’t start your own business. 

Pps. Yeah I see it says assets not investments but are you considering who was surveyed? At what age and what location? Senior farmers in the Midwest, college students in NYC, single mothers in Chicago? Were the bottom 20% almost entirely in MS,KY,NM, new border crossing immigrants, and Indian reservations? Or did they mean the bottom 20% in LA? Are they saying don’t invest in what the poor invest in, only what the rich invest in? The people who can afford for an investment to go to zero, lose everything invested and move on to the next one?  

Maybe they should put a map of where all the rich people live so we can move there and become rich. 

Tell me what you want the graph to say and I’ll make one saying it. :-)

Pps. I didn’t mean for this to come off as a “why did you bother posting that.” Post. It was a complaint about the graph and its creators not you Paul. Sorry if it came off that way. 

You're obviously only depreciating and doing the cost segregation on the adu you're renting out, not the entire home/property/purchase price. Correct? You are still renting out the ADU today, and only the ADU correct?

20% sounds almost too high to me. Especially in parts of LA where it could be 80/20 land over all property and then 80/20 for the adu, leaving you closer to 90-10 or 95-5%. Where only 5-10% is depreciable. 

Ps. You’re going to be taxed on the depreciation you could have taken during previous years even if you didn’t. So it might be time to find a new CPA. 

Pps. A cost segregation for just an ADU doesn't seem like it would be worth the cost. Especially in LA. Remember, you're depreciating the cost then, not the replacement cost today. If you tore down the ADU, how much less could you sell for? That's the MAX you could start with.

Yeah. I don’t think you are “in contract” until the earnest money is deposited. 

If they come back and you are desperate/have other offers make their EMD immediately non-refundable before you accept their offer. If you're getting other offers MAYBE roll the dice with them again.

What @Amit M. said. I’ve made 3 claims with Allstate. All 3 times they went after the someone else for the money. (Another driver and the maker of toilet supply lines in another case.)they refunded my deductible in every case, even when they didn’t collect 100% of the loss. 

If you don’t think they will sue the other company and save you the ductuble. Ther is zero chance I would make an insurance claim under $5,000. I assume your deductible is at least $2,500. If it’s not, cases like this are why it should be. 

1) I assume you've checked to make sure STR haven't been or aren't about to be outlawed in the area you're considering. (I know there's been a bunch of noise about outlawing it.)

2) can you just put enough more as a downpayment so you rent will cover it> the interest savings along should make it pay for itself. 

Even at 7% another $45k would drop your payment $300 and make you qualify. It might be a rare situation where taking Roth withdrawals or savings spending would make sense.