All Forum Posts by: Bill B.

How much more is the property worth with all these repairs? Are you willing to pay that higher price?

If I was the seller and saw a deduction for pressure washing the deck, I would cancel your contract and take any other deal. 

Remember, the second you say, hey here’s my new offer, this much less, you’ve opened the door for the seller to say nah, that’s ok I have another offer. They don’t even have to accept you original offer any more. I can’t count the number of backup offers I got accepted by telling the seller I’ll take your property as I see it for this price if your first buyer backs out. 

If speculating on appreciation is horrible idea, then speculating on the next crash (depreciation) is a horrible idea. 

Probably we’ll have another “crash” before 2050, probably. 2100 at the latest, mark my words. 

@Tanner Marsey

If you’re trying not to make money today it might be a little harder. But if mean you don’t care for cash flow when you say you don’t need returns today. I would say buy some buy and hold properties with 15-20 year mortgages. You being in San Diego and me being in Vegas, I would of course say buy them in Vegas. You can certainly disagree about that but I would say outside of California for sure. 

With 20% down and short term mortgages you should be able to get great financing. They may or may not return positive or negative $200/mo each which I take it you don’t care about. But when they are paid off they should provide an easy $1200/mo or more each when you want the money. 

This also gives you a couple exit strategies. One for you to move out of California to lower your income and capital gains taxes, exchange them in to something else, or sell one or two if you need a lump sum. You need less tha 5% annual appreciation to double the value in your time line. You could also just take out a new loan for 1/2 the value then and pocket 4x your original investment while they continue to cash flow. 

You’ve got what they like to call a good problem to have.

@Scott Cooper

 Beween break even and warzone I’d take break even every time. 

I only have 1 break even property but I have one that cashflows negative $500/mo. It’s one of my best properties but that’s not why I bought it, it’s a retire someday lake home. With $125k down on $500k. The tenant pays $2,700/mo for 7 years lease until I extend him or move him out to live there. 

It’s a 15 year loan that has $2,000/mo going to principle. 

So the same property....

Cashflows negative $6,000/year

Produces $18,000/yr income

Gives me a depreciation of $18,181 meaning all the income is tax free. 

Oh yeah, in the 3 years I’ve owned it it’s gone from $500k to $640k. (1 of 6 identical townhomes, so solid comps.) means the $125k earned 100% in 3 years plus the $58k in rental income.  ($198k return on $125k) (to be honest, also minus a $400 microwave and a $300 new garage door opener.)

This is not a strategy for someone who needs that $100/$200/mo rental income to survive, but then I don’t thing they should be buying investment real estate. You’re going to have that $1200 water heater or $4,000 ac unit, or $5,000 main sewer line repair. 

I could take the same property and get a 30 year mortgage. If I could get the same interest rate (3%) on the longer loan it would cash flow positive $500/mo. Yippee. Of course I’d pay an extra $195k in interest. And when I changed it to my primary the balance would be $315k instead of $218k. With the new standard deductions, low property taxes, and no state income tax I no longer itemize my personal expenses only my rentals. So interest on primary is no longer deductible. 

All this is a very long way of saying investing in your idea would be much better than doing nothing, IF you’ve already considered all the expenses and don’t need the cash flow. 

Ps. Just re-read the title of your post. I had to put down 25% as an out of state owner of rental property. If you truly found a reasonable source at 10% make sure you've included PMI and any higher rates. You may want to ask the same source how much you'd save with 15-20% down. You might go half as fast but if you save PMI and get a lower rate it might show a very good return on that extra 10% down. (Calculate the savings s returns on that 10% in addition to the interest.)

If you want to avoid all taxes you must spend $500k minus $20k closing costs. ($480k) Your net proceeds. Unless you think your going to make money on the $50m in renovations, don’t do it. You could spend up to your rental income on “repairs” as those would come off your rental income right away. 

you could offer the buyer a $50k credit for upgrades/repairs they want to make this would lower your net proceeds to $430k you have to spend. 

You could get a home equity line of credit against the home and pay it off with the sale and get a $50k loan against your $480k property. 

You could ask @Dave Foster if he has any smarter/better ideas. He’s the expert. 

It’s minimum 6 years old. I’d have a hard time spending any money to fix it. As long as by stacking you mean you can replace just the washer and it isn’t an integral part of the dryer in a combo, I’d replace it. Most repairs for me were in the $200-$300 range and new ones with warranties are $400-$500. 

@Paul C.

In most cases they will remove it themselves if there is a tax advantage to the homestead. The two main advantages are usually lower property taxes and protection in the case of being sued. 

When I bought a property in MN that was homesteaded by the current seller the state removed the homestead the next year without me doing anything. (I assume no state income tax was paid from that address or they have a program that looks at the property tax mailing address.)

If you filed a new one in the same state I guarantee they will catch it. 

If you’re thinking of using a property manager they should take care of that. 

If you’re not, other than any initial rehab Vegas properties don’t really need a handyman, especially an out of state one. With 13 properties I probably need 1-2 ac repairs, 1-2 water heaters per year. Outside of that, they’re really pretty low maintenance. Tile roofs, stucco siding, almost no weather, desert landscaping, and realatively new houses means having a decent plumber covers most of it. 

Allstate costs me less than $600/year per $300k house with 300/300 limits for the umbrella to kick in. They are limited to 6 rentals unless your agent is willing to put in an hour’s worth of work. Mine wrote up a “Business case” to allstate head office about why they should take 6 more from me for a total of 12. Took less than 2 days for approval. 

They’ve covered 2 x $30k claims (toilet supply lines in 2 different houses) with no complaints and no rise in premiums. 

1) yes I would move them to your new lease to avoid any legal changes since the lease they initially signed.

2) I would walk through each unit and ask the tenant if they know of any issues and if there is anything that they need fixed and if there is anything they would like fixed. ( Before you own it.)

3) what you’re looking for is called an estoppel I believe. You want it to include things like how much security deposit is the owner holding, how much rent are they paying, when dos their lease end, what utilities are they responsible, etc. anything the owner declares you want the tenants to say “that’s true”

4&5 are optional. And much less important than 1-3.