All Forum Posts by: Curtis H.

@Mark Creason

I'm with you on number 4 and number 2!

@Dave Foster

That is some serious gold right there. Awesome awesome stuff. I can totally do that, and funny thing is, the vacation home idea is exactly what I wanted to do. Maui, Austin, Orlando area (to lure my future grandkids to see me when they go to Disneyworld), and California. That's where I'll have vacation spots :-)

Number 1 is my favorite though. That is exactly what I imagine myself doing at 55 years old. Except it will all be direct deposit so I won't even have to do that!

Dave Foster I got the deed but not the permission! But in about a month I will have refinanced in my name. Question on the 1031. So eventually after a series of 1031 exchanges, one wants to cash a property out. I assume you sell the last 1031 property as you normally would and just pay the capital gains tax at that time right?

Brendon Woirhaye True indeed. The one thing I remember in the TX market during the downturn was that the rental market was STRONGER because so many people were losing their homes. With my above plan, if there were a downturn, I would think the cash reserves I would have built up would help me buy more rentals at the bottom of the market. I was talking to my wife about this plan a couple hours ago and she REALLY doesn't want to sell anything we acquire in CA because appreciation is just ironclad over say a 15 year period. If you can rent it and cover PITI, keep it and watch the value grow. I tend to agree. So that would mean instead of selling my current house, I simply take a HELOC on it to tap into the equity when needed, but keep it rented as long as possible. So in short, anything I buy in CA is more of an equity and appreciation play (which will only be a few properties) and all my out of state rentals will be a cash flow play. Since I make a good living, I don't need to live off the cash flow and will put it all back into paying down the mortgage faster. The goal is in 12-13 years when I retire (at 50!) I will own all my rentals free and clear. If they appreciate nicely during that time, even better. Then sell one of the CA homes that should have $500K of equity or so, and 1031 into a small apartment building somewhere I could afford it. Or better yet partner with someone with experience in that arena and split profits. Then I live off the cash flow of my free and clear rentals and the apartment building. Boom.

@Dave Foster

Good point on the 1031. I wasn't even thinking that way but is another tool to use. Appreciate the tip.

@Matt Geerts

It's not that it's complicated, it's just risky if I don't have another lender lined up FIRST. Let's say I call them and say what you mentioned (which I would love to do) and they realize I pulled an okie doke on them and don't take kindly to it and call the loan due immediately. If I don't have a lender ready to go with all my docs verified, I could be in big trouble and be FORCED to quickly sell a home I want to live in because I don't have time to get financing in place. Then find a new place to live with a family of 5. Not good. So yeah, it can get complicated real fast in my opinion. 

"They don't benefit from calling due on sale for some lofty moral reason."

The way I see it, they do. $400K is owed on the loan, and they can sell this house in a week to an investor for $600K, and a homeowner for $650K. Unless I'm missing something, they stand to gain quite a bit from calling the loan due.

@Dave Foster

I simply looked for homeowners who were about to go to foreclosure sale, and started knocking on doors. The first couple houses I was a bit nervous, but kept at it. This was probably house number 5 or so, and they actually were willing to listen. They were listed with a realtor by the time I knocked on the door, so I told them I didn't want to bother them, but would love to email them my idea that would help both them, and me. I told them I had to talk to them personally because their realtor won't tell you about my offer because the deal is better for you than them, but I will contact your realtor no problem if you are interested in my proposal. I am not trying to cut him out. They gave me their email, were interested in the offer, and I called their realtor and told him my exact offer. He was livid, but also was a slime ball trying to rake them over the coals for a full 6% for sticking a sign in the yard. He told them he could stop their foreclosure and then stuck a sign in the yard as their realtor and they never saw him again. 

- I had the owner call their lender with me on the phone and gave them permission to talk to me. I got all the info about how much was needed immediately to stop the foreclosure, etc. I negotiated that to half now, and the other half added to the monthly payments over 12 months. The bank agreed. 

- I had the owner sign a contract 

- Contacted a real estate attorney referred to me by a BP member to email me an iron clad Sub2 addendum he already had in a word file (cost $325) and had the owners also sign that.

- Called the lazy and angry realtor and said I'll give him 2% commission for doing nothing. If he declined and the home went to auction in two weeks he would get nothing. He agreed to take the 2%, which was about $10K. I had budgeted for 3%, so I took the last 1% and gave it to the owners as walking money because they were in a tough spot, and I really did feel bad for them. It was their family home since they were born. They were in their 40s and 50s. 

- Did a title search (IMPORTANT!) and found out there was a $2000 unemployment lien on the home. Surprise!

- I had an inspection done by a contractor to make sure nothing was a dealbreaker

- Called an escrow agent to handle all the funds to be wired to the bank, commission to the agent, money to pay off the lien, and walking money to the owners.

- I went to escrow office and signed all the paperwork one day. The next day the owners went to the office and signed. Escrow agent records the deed. I'm now the new owner and there is nothing the original owners could do to take the house back. It was mine.

- Whole process took less than two weeks.

- I gave the owners an extra 3 weeks to get their affairs together and find a new place. Then asked them what they needed at their new place. They said a fridge with icemaker and television. So I bought a fridge off Craglist for $150, picked it up in my minivan and dropped it off at the house. Gave them a gift card for $500 for a television, hired them a moving service for $250, told them leave the junk in the yard and attic, I'll take care of it, and wished them well. They were extremely appreciative.

Sorry to be long winded but I thought some other people may draw inspiration from this experience. It was my first creative deal, and now it's my home in the hottest area in my city. I otherwise couldn't afford to live here. All that, and never once did I have to apply for a loan, get my credit checked, etc. I just needed access to cash to reinstate the loan, which I had in savings and 401K. So I'm looking for my next deal the same way. Looking for anyone about to go to auction that is behind more than $25K and less than $100K. Anything below $25K behind in this area and usually the homeowners can figure out a way to get the money to save their house so I won't bother. $50K and above is usually tough to come up with in weeks, so those are my targets. It is really tough now because the area is appreciating so fast, they can put on the market and unload to investors within a week. So I have to find them before they get realtors if I want to save $10-15K. The two main advantages I had to win this deal was that I was pitching them that this would be a house for me and my family to live in, and that I would MAKE SURE they transitioned ok. That REALLY helped, and it was the truth. Also, I offered THEM the extra money the realtor was trying to pocket. 2-3% commission on a $450K home is more than enough for sticking a sign in the yard. 6% is robbery, and that is what the realtor was trying to get. In fact, I did all the paperwork and had the signings with the owners. Me nor the owners ever saw the realtor. I couldn't tell you what he looks like and he made $10K.

Hello fellow BP members, 

Does this seem like a good plan for someone who invests part time while having good W2 income and excellent credit?

This seems like a very good strategy for building capital over a 10 year period. In my case...

- I bought a beat up home Sub2 in a great area 2 years ago and fixed it up while living in it and built up $200K in equity. I have satisfied the capital gains requirement and can move on to next house.

- I find another beater in a good area and do it again, while renting out the above house for 2-3 years (I still won't have to pay capital gains when I sell). The cashflow would be minimal, but it would cover the PITI which is my main goal while building more equity.

- Sell the first house and probably net $250K-$300K in profit. I now have been in my 2nd home 2 years, and have satisfied the capital gains requirement. I can move from here and rent it out like I did the first. 

- Rinse and repeat. 

Now this house I'm in currently obviously has benefited from the huge appreciation levels we are seeing in CA. So I don't expect those gains on the future homes, but still they will be nice gains. I would expect $100K in equity per home I sell since I will always buy them beat up and add value, as well as capture appreciation for 2 years. 

- Added bonus would be to take a HELOC out on primary residences during that 10 year period to buy rental properties out of state

Am I missing something here? If people don't mind moving, this seems like an awesome way to go.

@Steven Hamilton II

Thanks!

That seems like a very good strategy for building capital over a 10 year period. In my case...

- I bought a beat up home Sub2 in a great area 2 years ago and fixed it up while living in it. I have satisfied the capital gains requirement. It now has $200K equity. Another $50K in remodeling will give me $300K equity.

- I find another beater in a good area and do it again, while renting out the above house for 2-3 years. The cashflow would be minimal, but it would cover the PITI which is my main goal.

- Sell the first house after 2-3 years of renting to avoid capital gains and probably net $350-$400K in profit. 

- Rinse and repeat. Now this house I'm in obviously has benefited from the huge appreciation levels we are seeing in CA. So I don't expect those gains on the future homes, but still it will be nice gains. 

- Added bonus would be to take a HELOC out on primary residence to buy rental properties out of state

Am I missing something here? If people don't mind moving, this seems like an awesome way to go.

Squash the HELOC question , found the answer. HELOC stays put if you move. As long as you own it you are all good.

I still do need advice on the capital gains question though. 

Thanks!

Quick question, 

If I have a home that I lived in for two years and then moved to another home (while leaving the first as a rental), have I lost the chance to sell the first home without capital gains tax since it's now a rental? 

Also, if you move from your primary residence that you had a HELOC on, I would imagine moving does not put the HELOC in jeopardy because the equity is still there? Or since lenders don't like to do HELOCs on investment properties that would be a breach of contract?

Never mind, I think this thread answered my question. Seems the answer is "it depends" like most of real estate investing :-)

https://www.biggerpockets.com/forums/88/topics/247...