All Forum Posts by: Brian Schmelzlen

Greg, as already mentioned fix and flips do not qualify for 1031 exchanges because they are considered to be inventory. The good news is that you won’t have to pay capital gains. The bad news is that you will be paying ordinary income taxes (which are higher). Same reason- it’s considered inventory. The actual good news is that under the tax law that just came into effect you will get to deduct up to 20% of your business income from your federal income taxes. I say up to because there are a few tests that can limit the deduction.

Walk a lender through your tax return. If the rental is cash flow neutral it shouldn’t help or hurt you. If the only reason for the tax loss is depreciation that is a non-cash item and would not have any impact on your ability to make your loan payments. Actually that isn’t true, it would improve your ability to make the loan payments by reducing your income taxes.

Your credit score will be a factor that banks and private investors look at, but they care more about is your track record and business plan. Your credit score probably means more to banks than private investors simply because of their underwriting standards.

In terms of business cards, just have your name on it and your contact information. It’s not fancy, but it doesn’t need to be. As to what strategy makes sense for you, if you are familiar with what the general types of investing are and you are naturally gravitating towards one it is a good bet that is what is right for you. You don’t necessarily have to do it to rule it out. For example, I know I could never be a wholesaler because I don’t enjoy negotiations or marketing. Know your personality, and that will help guide you to the right strategy.

I don’t think it would be worth the headache. I would try to find a better potential tenant.

It might be good that it’s taking you a little time to find your second deal. It will give you time to focus on your first and make sure that it is running smoothly. Take the time to learn everything you can from your first deal before getting too caught up in finding the second. In terms of finding the second, I would start focusing on networking more. Talk to property managers and realtors.

I don’t see this having a large impact on the value of California real estate, outside of possible short-term fluctuations. It had been capped at $1 million (effectively $1.1 million), and our state doesn’t have any shortage of houses worth over $1 million. At the end of the day, home buyers are going to purchase emotionally (based on how they feel about the house), rather than as an investment where they run all the numbers. Property taxes and mortgage interest deductions will be an afterthought for them.

Great topic! Thank you for posting. I am curious what your thoughts are about the San Diego market? I am very interesting in office buildings, and want to start local.

You should have semi-annual inspections in your lease (something to consider when you renew the lease). You should be using that time to change the air filters and batteries in the smoke detectors. If it is not already in the lease, call the tenant to ask to do so. I don’t think many tenants would be upset by you wanting to do that stuff, and it will give you an opportunity to check everything out. I am glad that you occasionally drive by the property. It is important to have periodic unscheduled drivebys.

Hi John,

1) It ultimately depends upon your goals, but if you want to acquire a number of properties this is a much slower approach.  Using financing (leverage) allows you to buy more properties much quicker and/or have less of your cash tied up in any deal.

2) Yes, location is always key but that doesn't mean you need to go for the nicest spots.  You need to determine what your strategy is,  and then find the best location for that strategy.  There are a number of people who make money from low-income housing, plenty who make money from the luxury market, and a ton in between.  Sit down with someone to talk out exactly what you want to invest in, and then determine what location best suited for your strategy.

3) This again depends upon your strategy- who are your ideal clients?  If you want young families, buying in a school district makes a lot of sense.  If you are looking for young professionals, downtown makes a lot of sense.

4) Yes, BiggerPockets has a number of calculators.

5) No one can give you a dollar figure.  However, I would never invest so much that you do not have a safety net; not only do you need reserves for your investments but for your personal life as well.