All Forum Posts by: Charles Patterson

I have not completed a 1031 exchange yet, I am still a number of years off before I am ready to complete one.
But the premise of it is that you are deferring the capital gains tax payment until a later date.
If you were to sell and not do a 1031 then you would have to pay the capital gains tax on your sale now.

Ref: http://www.taxpolicycenter.org/briefing-book/how-a...

now, bigger pockets has a number of resources that you can reference. It might be worth it to look up a few of those.

Article:  https://www.biggerpockets.com/renewsblog/2015/09/2...

Additional Resources:  https://www.biggerpockets.com/rei/guide-1031-excha...

Another Article (specifically around the rules): https://www.biggerpockets.com/renewsblog/1031-exch...

And a lot of their pod cast guests talk about completing them.  But I do not think they have done a podcast centered around the 1031 yet.

Finally, it is always best to talk to a Real Estate CPA (Certified Professional Accountant) about the exchange and what you need to do.  Ensure that you find one that owns Investment Real Estate of their own, as they will be the ones most knowledgeable about it.  They will be worth the minor expense of talking to them if they save you multiples more in the taxes.

Matt gave the high overview well.  I would say google it to get more details.  There are some stipulations around it that you need to be aware of (such as time frames).  But what is nice about real estate is that you can 1031 a single family house into another one, or a multi-unit house or commercial building.  It is what allows investors to continuously "trade up" from their previous investments.  If you wanted to stick with land-lording for the passive income it is something to look into.
I would begin my search for the next property the moment you put it up on the market though, because of time frames surrounding it.

Run the numbers and DO NOT TRUST YOUR GUT!  your gut can lie, but numbers are hard facts.  Brandon just did a live deal last week and after he ran the numbers on screen he pointed out that his gut told him it was a good deal but the numbers didn't lie.  He would have had to go much lower than asking price to ensure getting a profit.

So, first and foremost... RUN THOSE NUMBERS, and don't fudge them just because you get emotional over wanting the property.

That being said, the whole managing closing on three properties, that one is all up to your multi-tasking skills, organization, and processes.  If you have enough support in place then it should be no problem (especially if one or two are turn key and ready for renters).  If all three need work done, do you have the support in place to help manage three rehabs at once?

Once again... just step back, take a breath, and evaluate it.  Is it better for three properties to take 6 months total to get online, or three properties 1-2 months each at a time, because you had time to devote to ensuring that it stayed on track?  Again, if you are organized enough, have the processes and support in place then you will fine.

Also... hello from the north.  How is the Pittsburgh market.  I am nervous to venture too far south yet from home to look at investments.  I don't have the support structure built out yet for remote landlording.

You are not taking into consideration other factors...
Your $1,500 a month - $1,200 Mortgage (taxes and PMI) = $300 is correct.
But you can always assume Capital Expenditures and Repairs (I do 10% each) and Vacancy (I do 5%).
So with that amount, you are look at $300 for repairs alone, taking your Cashflow to -0-, then if you set aside the 5% ($75) for vacancy you are in the negative.
And that isn't even taking into consideration an additional estimated 10% for property management (Because you might not always want to manage your own properties).

I would say to 1031 exchange that into something with more cash flow potential for you.

And I just realized that I never answered these two questions....

3. Are you just adding eviction clauses in the lease that have to do with noise complaints, unpaid bills, as well as taking a large deposit for damages?

      I always have eviction clauses for unpaid utilities... but this is because in my area the landlord is on the hook if the tenant doesn't pay.  So I want recourse to "encourage" on time payment of both rent and utilities.  The city can even put a lean on my property if it is unpaid.

4. Am I an idiot if I don't do this?

      Not at all, there are a lot of college rentals out there and people doing them.  In fact, here is a bigger pockets article on it for you.  https://www.biggerpockets.com/renewsblog/2015/07/29/introduction-student-housing/

Another thought, what do the exact surrounding houses look like in terms of residents?

If they are primarily college students then you might have more difficulty getting none-students to rent.  But if they are none-students, the flip does not hold true.

Another question have you ran the numbers through the bigger pockets calculators yet to compare?

I think this will really come down to a personal decision on your part.  Compare the two and then ask yourself if you are willing to go through college students?  Does that extra income justify the extra time you will have?

On the upper side to renting to college students is that they always have friends who are willing to take over their spot next year (landlord approval pending of course), parents back the lease, and you can sometimes get extra income over the summer as they tend to stick around.

However, you become very busy between tenants, doing fixes and getting contractors in there if the need arises during turnover.

A down side is if for some reason you get a vacancy you tend to not be able to fill it if you are out of that window that the college students are looking for a place.... not impossible, just becomes more difficult as time goes on.

I should also ask... what is your CoC Return with college students vs without?
I would plan on keeping some extra aside for repairs (as you have mentioned) for college vs without.

I used to live in a college town and currently have some investments there... so lets go over a few things.

1.)  Ordinances?  I know that I always check the ordinance mapping before purchasing anything so that I know who I am allowed to rent to.  If your house is in a residential area that is set up to not be college student renting friendly then be careful because the neighbors could turn you into the city and then fun with that.

2.)  You are approaching this right in taking into account that there will most likely be damages.  If you proceed then take a video of the property the day before they take ownership (or day of) and post it to youtube and don't make it publicly broadcasted/searchable.  If you ever have to provide proof of condition then you can always refer to the link as video proof.  This is in addition to your move in report.

3.)  HAVE THE PARENTS SIGN THE LEASE AS WELL!!!! do your background check on each tennant as well as their co-signing parent.  If you have damages then be sure to inform the parents of the damages and additional moneys owed.  This will keep the parents on the kids a bit (but damages will occure)

4.)  Do your walkthroughs more often.  For college rentals I do mine quarterly rather than twice a year.  If something is damaged and needs fixed I fix and bill (again, copying the parents).  This allows you to let them get that realization that they can cause themselves financial strain.

5.)  Keep in the usual eviction clauses, you might need them.

6.)  I like to have each student have their own lease.  View it as them renting out the bedroom with the unit being common areas.  This way if one wants to go they can go while the others stay on.

7.)  Utilities in their name not yours!  Time for them to learn some responsibility.

8.)  If one unit is college students, all units are college students.  That just takes down on headaches.

9.)  Be ready for pets and if you don't allow them to be a firm NO.

If I can think of any more pieces of advice I will post them.  Renting to college students can be very profitable as you have already ran the numbers on.  But they can be harder on the house as well.  Remember that these "Adults" are still "Kids" and are now learning how to function by themselves in society.  BE FIRM.  And as Brandon says all the time, "Train your tenants."  They are now away from home and rather they know it or not they are seeking structure and rules.

Thank you @Wayne Brooks.  She said that she is going to her attorney tomorrow to clarify.  Hopefully he understands her confusion and clears things up.

I do agree about it being an installment sale or combo lease with agreement to purchase.  I have one of those contracts wrote up for one of my properties right now.  She just is not believing a word I say. 

We will see what tomorrow holds.