All Forum Posts by: David M Trapani

Why would you pay the tax?   Unless you are strapped for cash I would say do the 1031 tax free exchange. You’ll build assets & long-term financial security much faster in this fashion. Best wishes & good luck! 

Where are the properties? Are rents below market? If so, what can they be increased to w/ cosmetic upgrades? Any rent control? Is this a high-demand, popular & growing area? If the seller owns the properties free & clear & owns other properties, he may simply prefer not to cash-out and pay capital gains. He / she may like the monthly check paid on the seller carry back note instead, deferring capital gains. It depends so much on the location and the market. These can be awesome opportunities. Agree with others, don't overpay! Need to know how much to renovate, what the market rents are and what the cash-flow will look like post-renovation. Need more info. 

Incidentally, it appears South Lake Tahoe and Anaheim are being pushed back with litigation against their attempts to arbitrarily (capriciously) restrict / ban STR's. We don't have the outcomes as yet, but this may be a good sign for private property rights.

Franklin, TN. The closer to downtown the better. High growth. Huge demand. Limited supply.

Hi Matthew,

Making use of seller (owner) finance can be a fantastic way to acquire real estate!

Following the 2008 "Great Recession" my credit score was in the tank. Thus, couldn't borrow conventional financing.

There were 2 ways I acquired real estate anyway: 1) Cash; and 2) Seller finance

The first duplex I purchased was in Midtown Sacramento. It was run-down with 1/1's on each side and needed fairly significant renovation. However, it was in an excellent location.

The ask was $350,000.

I offered $100k cash down and asked the seller (owner) to carry the balance the balance of $250k for 3 years at 6% interest only with monthly payments of $1,249.50.

There were 3 other offers. One was all cash. Was discouraged upon hearing of the cash offer "competition", because I believed the seller would take that offer. Instead he took mine! He owned the property free and clear and was able to carry that new first note and mortgage from me secured by the property.

Put $100k into renovations, which put me at $450k in. The property rented immediately and never had any vacancy. Prior to  Calif state-wide rent control we enjoyed rent increases based on market demand. Sold the property for $650K (1031 exchange to another property).

But, it doesn't end there! Asked my seller if we could still work together and if he would continue lending me the $250k. He said the only problem was when we sell the duplex he was going to have capital gains taxes and couldn't loan as much.

So, we went to our CPA's who gave their blessing to moving the note to the property I next acquired (lawyers call this hypothecation). And, in fact, we just did it again when we did a cash-out refi on that second property and used his note (once again) to acquire yet another income property.

This is (and was) one of the best experiences I've had with real estate.

Was also able to purchase a small 2/2 bunaglow from a lady in Midtown Sacto who owned it free and clear and she had other properties. Gave her $100k down and she carried $325k balance ($425k purchase price). When the home appreciated and though (very aggressive) principal pay-down (her note was fully amortized over 5 years both principal and interest), we did a cash out refi (she got paid off on that seller carry back) and we used the cash out as the down payment to acquire another duplex by combining with a new first mortgage from the same lender.

So, yes, by all means, if the terms are right - I'd say go for it!

Cheers!

PS - To answer your other question, we didn't inherit any tenants on that first deal. It needed renovations before we could lease it up. Buying multi-family with existing tenants can be a good play, especially if rents are below market - you can make some nice renovations to justify rent increases - and your not in a rent control jurisdiction. You can make equity almost immediately by doing this. In one instance on one of the Sacto duplexes (again pre-rent control) we improved the property with about $10k and upped rents from $850 to market rate of $1,350. One was a new tenant we placed and the other agreed to stay at the new rate. The building went from $425k purchase price value to $550,000 within a few short months.

I've moved some equities to middle Tennessee. Great appreciation. Good cash flow. Tenants often pay the utilities. No rent control. High growth area. Texas is cool, but the property taxes are a bit daunting, higher than CA in a lot of places. 

HI Amit,

Was making a generalization. My personal preferences, may not suit others.

Also, while landlords have made money in San Francisco, we can't tell yet what impact (if any) statewide rent control will have.

Even as a real estate attorney I don't wish to hassle the red tape of rent control. I see other investors already spending legal fees to unravel and navigate the rules.

Prefer not to add legal fee expenses or hassle that. Better alternatives out there for me.

Yes, San Francisco real estate can be fantastic, particularly on appreciation. However, I wouldn't personally want to rent to a residential tenant there. SF Landlord-Tenant laws are a procedural mine-field for Landlords. Hear of horror stories from other attorneys who work in that area, sometimes you can never get rid of your tenant, make a fair return on investment, or even move back into your own property.

Did Nob Hill condo for about 4 years. Made $85,000+ in STR income and $250k gain on $525k price ($750k) - which we 1031'd out. STR's rules are tight in SF. In my case, my Son was attending USF. Put him on title. STR rules require an owner live in the property a significant number of days per year. This way we didn't have to navigate conventional tenant rules.

The crime and homeless problem were getting worse in SF and Sacramento, among other issues, so 1031'd out.

Local politics in SF and Sacramento (and in CA) becoming more and more Socialist. Taking of private property rights is something I want no part of and do not wish to invest in those kinds of climates.
I don't have any experience with commercial property in SF.

I've made more than I'd like to admit as a young investor. Especially in the 80's and 90's.

Bought in the wrong location. Paid too much. Acted on emotion and didn't understand how to run numbers or analyze cash flow. Too many transactions too fast - burned up by transaction costs. The impatience of youth / ; Sold ones I should've kept. Inexperienced handling of tenants. Choosing bad property management, etc.

It's all part of the learning process. Hopefully, others won't make the same mistakes. Try not to make the same ones twice!

All of my California LTR's have gone out of state with 1031 or to STR's in STR friendly high growth / high demand areas. Rent control is a slippery slope and likely, will only get worse over time. Not good for investors. Many other better alternatives out there.

Personal philosophy - Research local STR ordinances. Find friendly STR venues, with high demand and growth. Make cosmetic improvements to the property to force appreciation. Pay down mortgage principal aggressively. Keep eyes and ears open. Be ready to 1031 your equity out or have an LTR or other alternate strategy if there's a move to severely restrict or ban them. Keep diversified with other forms of real estate as well. Keep low LTV's or free & clear if possible.