All Forum Posts by: Clayton Mobley

@Jack B. , I agree with @Jeremy Bartlett that it makes sense to start building your portfolio where you want to be if your goal is to have your investments be in your home market, at least eventually. The puget sound market is pretty inflated as it is, so you may have an easier time riding out any upcoming correction in a less heated market. Of course, if you're just looking for a place to put capital into REI and your goal is cash flow, there are other markets where you could definitely be putting your money could do more than Vegas, although I'm not sure what specific numbers you're looking at.

If you are pretty set on moving down there and you want to have your investments in the same market you live, then I'd say get started building your portfolio down there where your capital will go further. At the very least it'll be an excuse to head back down for a bit to meet contractors/agents/PMs (I always rec making the trip to meet and greet before pulling the trigger) ;)

Best of luck!

@Sonit Bhatt As you can see just from the responses you've gotten so far, there are plenty of markets around the country that produce solid returns. Obviously, we're fans of Birmingham, since that's where we live and work, but truthfully you can get good returns in many places, though the South and Midwest are generally considered the big winners lately.

My advice would be to focus less on market and more on people. Decide what kind of investment you want - do you want MFR or SFR? Different markets are better or worse for those investments - Birmingham is great for SFR, but the B-class cashflow MFR market is pretty limited, for example. Are you looking to build your own team in your new market, or do you want a full-service turnkey outfit to handle it start to finish? Once you determine your specific goals for your new investments, focus on the people you trust to get you there. You can have a perfect investment property in a perfect market with perfect numbers and still end up losing money month after month if the folks you trust to rehab/manage/market that property drop the ball. People are more important than market, every time.

Hone your focus, and then look for the folks that can best help you build something successful. Since this will be a market you don't know very well (ie you don't live there), having people that live and work in a given area will be crucial. 

Once you determine your top 1 or 2 teams, agents, contractors, PMs, turnkey providers, whatever, make the trip to meet them. It's an investment in your investment that will pay you back tenfold in peace of mind. Esp for folks that are going to be investing out of state, in a market they don't know well, going to visit the people you'd be trusting to handle your investment, see their work, tour the neighborhoods you'd be pouring money into, look folks in the eye, it's still the best way to gut check your investment choices.

Good luck!

One other thought: I suppose my answer above would vary slightly depending on your market and your goals. If you are in CA, then the upcoming correction might render a fixer-upper less valuable in a few years than it would be now, unless you're looking at more of a live-in flip situation where you'd be in and out in a year or less. 

If you're in a secondary or tertiary market, then my answer above still stands, as any correction that does occur in the next few years won't hit those areas as hard. But if you're in a big primary market I'd say still sell the coop, but maybe look at putting some of the capital to work in another market with more stable values. 

I know that ends up sounding wishywashy lol, if you'd provide any more specifics about your situation I'd be happy to fine tune my answer, and likely others will be able to offer more specific advice as well. What amount of equity are looking at? Do you have other savings you're looking/willing to invest? Will you qualify for a Sec 121 capital gains exclusion when you sell the coop (how long have you lived there)? What are your goals for REI? Are you looking to DIY rentals, BRRRR, or just whatever gets you the best return? Do you want/need your investments to be local so you can self-manage or just for peace of mind, or are you ok investing out of state?

@Diana Medina I'd have to say sell. You'd be benefiting from all that extra equity accumulation and getting out of an appreciated asset just before the top of this cycle (well, from where I sit, I think we're getting near the top and there should be a correction in majorly inflated markets). I'm not sure where you are located, but based on the appreciation rate you described I want to guess CA? Unless you mean you doubled your equity in the last four years by accelerated pay-down?

Regardless, really, I agree with @Matthew McNeil that I'd get out of anything that limits you. HOA fees, financing restrictions, you don't need them. If you're willing to sacrifice some up-front comfort for a fixer-upper and you have contacts for good contractors/agents, or are great at DIY work, then i think that route would be a better use of your capital.

@Mike Hanneman If you've already closed the sale you're a bit stuck. If you wanted to execute a 1031, you'd have needed to initiate it and get a Qualified Intermediary on your team before you sold... but if this is a vacation home that you use for personal use, and not as a rental investment, a 1031 wouldn't have helped you anyway. 1031s are only for the exchange of like-kind long-term investment property (ie not flips and not your lake house you use 3 weeks a year)

I am not familiar with the Opportunity Zone tax benefit mentioned above, though I am about to go check it out! 

My best guess is that, if you've already closed the sale, you're gonna need to pay standard capital gains taxes, plus some depreciation recapture if you ever did use it as an investment property - and remember the IRS doesn't care if you actually took those depreciation deductions, they only care if you could have taken them. So if you did use it as a rental, and therefore could have taken depreciation deductions, you'll also be taxed on that amount at a rate of 25%. 

Since it sounds like you've already closed, I'm keeping my fingers crossed that this was just a personal use prop and not a rental - you can't use a 1031 now anyway and your taxes would likely end up being higher. 

I second the rec of @Dave Foster

@Dan T. feel free to shoot me a PM any time!

@Jay Hinrichs exactly, blue sky. Raising rents consistently year after year just doesn't happen long-term so including those assumptions in the pro forma is a little misleading. You know I hesitate to put anyone on blast, esp in a market that isn't my own, but that's just a little thing I noticed that, esp for new investors, can really do a lot of damage to expectations vs reality in the long run.

Bonus benefit to this tactic: if CA values come crashing down, you could use the opportunity to buy back into your own market at a lower price point, since we know CA won't stay down for too long. Then you'd have a new appreciation play in a market you know, plus a cash flow portfolio in a more stable market to back you up. I wouldn't keep your equity stagnant waiting for that crash, just a thought for future opportunities ;)

@Dan T. No, other markets are just never going to be what CA is - maybe NYC or other hyper primary markets. However, this is one reason many investors opt for secondary and tertiary markets for cash flow investments - you don't get the massive appreciation, but you also don't get the huge falls - and rental demand typically stay solid or even increases in a downturn. 

Re: interest rates, they are higher now than they have been in the past few years, but still historically pretty low. I wouldn't let that deter you if you find the right move. Even if we take a dip, barring another 2008 I don't know that we'll get much lower rates any time soon. 

Sounds like the out-of-town house would line up nicely, fingers crossed your wife comes around - I know moving from a family home is tough, esp if you just had your first child. 

Since you're seeing the end of this cycle is near, I would lean toward starting your REI out of state, exactly for the reason I mentioned above - a secondary or tertiary market can still provide stable rental income, without being subject to such massive depreciation if/when our little bubble burst. You're seeing first hand that CA is wildly overinflated, and we all know where that goes. You're sitting pretty at the top, I'd say sell the current house, move somewhere less pricey but still good for the family, and then use that tax-free equity to build a portfolio somewhere more stable.