All Forum Posts by: Colin Simon

Does "tenancy" here mean the total time they have been there, or the "period" outlined in the lease?

So, if my tenant has been here 9 months, and it's March 5, do I need to give them 21 days because it's month-to-month, or 28 days because they have been there more than 6 months?

Would that period of 28 days have to fall at the end of the month(e.g. since March 31 is too soon, I have to wait until April 30, couldn't do April 3?

@Account Closed Thanks.

https://www.bdo.com/insights/tax/state-and-local-t...

Now I'm curious if this set of rules mean you cannot house hack a new build and also qualify:

A “qualified opportunity zone business” is a trade or business in which:

• Substantially all of its tangible property, owned or leased, is qualified opportunity zone business property;
• At least 50 percent of its total gross income is derived from the active conduct of its business;
• A substantial portion of its intangible property is used in the active conduct of its business;
• Less than five percent of the average of its aggregate unadjusted bases of the property is attributable to nonqualified financial property; and

The way I read this, by house hacking inside of an O-Zone, you wouldn't satisfy the first bullet point, because part of it is a primary occupancy and not business property.

I found this information about qualifying property:

https://www.law.cornell.edu/uscode/text/26/1400Z%E2%80%932

(i) In general, The term “qualified opportunity zone business property” means tangible property used in a trade or business of the qualified opportunity fund if—

(I) such property was acquired by the qualified opportunity fund by purchase (as defined in section 179(d)(2)) after December 31, 2017,

(II) the original use of such property in the qualified opportunity zone commences with the qualified opportunity fund or the qualified opportunity fund substantially improves the property, and

I'd like to zero in on this sentence:

"The original use of such property in the qualified opportunity zone commences with the qualified opportunity fund"

Does this mean one can purchase a new build to qualify?

Ultimately with the appreciation v. cash flow debate, what you truly want is IRR aka both.

This deal swings way to the side of an appreciation play, which is enormously risky AND at a time when the market is pushing new heights.

I grew up in California and witnessed the power of appreciation. I can't fully leave markets that are likely to appreciate. The good jobs, the good schools... ultimately it's where the money is.

Why not go with the middle way, where you hunt a little harder to find a "break-even" property in Austin? It's a place where people want to live. If the market does go down, you won't be screwed, but you won't make a killing either.

Many of us who live in expensive markets are constantly trying to allocate capital in RE, but struggle to find cash flowing deals.

You might even have the income to pay off a good chunk of a mortgage, but you won't want to refi with raising interest rates, so does it make sense to purchase new investment properties with a "portfolio" of methods?

Scenario A (typical) - $500k duplex
-$125k down
-$375k mortgage at 4.6%

Scenario B (modular financing) - $500k duplex
-$125k down
-$260k mortgage at 4.6%
-$75k HELOC on primary residence
-$40k loan against 401(k) (technically this would be $165k down, but you get the point)

In scenario A, paying off the mortgage quickly makes zero improvement on cashflow until you pay it off completely, or refinance, and there's no point in that if your rate is locked in lower than current(or future) market rates.

Scenario B could involve higher interest rates on the HELOC and the 401k loan, but you have multiple, simple, easy options for increasing your cashflow, and then you don't end up playing as much in the overpriced, volatile stock market. You could take your time paying off the smaller loans, and if the market swings and foreclosures pop up, you still probably have a little side capital instead of having everything tied up by trying to pay off one monster loan. Is it possible to obtain a variable-rate loan on the HELOC, so it "hopefully" is cheaper, and if interest rates rise, you make it your priority to pay that off ASAP? It's a little bit of a gamble, but if it's a relatively small volume then you have more possibilities.

Is there anything stupid about this strategy? What am I missing? This assumes solid middle-class income and a decent amount of equity in a current primary residence. Will many mortgage underwriters have problems with a complex package like this?

I took my undergrad in finance from 2009-2011, the bottom of the bottom. Even in freshman-level courses they show you how insanely lucrative it is to have high leverage with any business during a bull market, and how hideously dangerous it is during a bear market.

My intention here isn't to be a jerk; but don't confuse yourself with 50 cent. You went all-in with risk during a strong bull market and came out on top. Which isn't too hard when a place like Seattle gets carried by tech giants and rampant Chinese investors. Be sure to get back to us at the bottom of the next recession - if you're still doing well, then I'll tip my hat to you.

"I’m always 25% down plus equity I’m getting on initial."

Oh, so you had enough capital for 25% down on 151 units within 24 months. And enough capital for closing fees on all of those.

Sounds like the real story is how you came to that quantity of capital.

Daniel, that sounds amazing. Closing on 151 units in that period of time is impressive.

Forgive me, but the analytical side of my brain can't quite accept your magnitude of success. I have so many questions:
-As someone else asked: if you're partnered on some deals, how do you claim 151 units? If you own 50% of a unit, how do you count it? Do you just say "30% of this unit and 70% of that unit = 1 unit"?
-What were your biggest financing hurdles? To take on that many loans, you must have made some complex and/or creative deals. Did lenders really just give you the green light repeatedly?
-Whoever was underwriting those loans(after they did it for the 10th, 11th, 12th time for the same guy within 2 years) must have cocked an eyebrow once or twice. What sorts of questions did you get?
-You must be leveraged to a very high level. Even paying closing fees again and again and again sounds like a strain. Doing that in a short period of time presents risks if there's even a market correction, much less a recession. Are you not afraid of that at all, and do you not see enormous risk in attempting to scale straight towards 500 units? 
-Building on the last question: wouldn't you rather let the whole "cash flow recycling" program run its course? It seems to me that with 151 units, with many of them cash flowing, you would have a powerful "velocity" of money with which to pay off at least a couple of loans, lower LTV's, and really entrench your position. Why wouldn't you take that path?

I'm still a newbie, let me know if my assumptions here are off-base. Thanks for your time :) and congratulations again. Quite the accomplishment.

@Teague Anderson Could you explain the special assessment? I only recently got into the game here in Boulder.

I'm interested in well-thought out responses as well. Seems to me that accepting less than 50-50 cash flow is a bad idea even if it's only for a little while.

Another way to sell it to them is that you put down the Earnest money and they put down the rest. If they don't like that, you offer to pay for inspections and closing fees. So you accept all the risk upfront, and they have zero risk in going under contract. They get an appraised, inspected, thoroughly evaluated deal presented to them before accepting any risk. What do they have to lose? 

Ultimately they are probably looking for a lazy way to diversify their worth because they're afraid of the high stock market prices. You're doing 100% of the work to provide them a reasonable place to put it.