All Forum Posts by: Herman Fox

I had the same question, but mainly about the mail. My attached casita is part of my primary which share one mailbox down the street on a standalone wall amongst grid of other residents mailboxes. This wall of inboxes looks full and only made for the primary residences so adding one solely for my casita rental seems impossible. The HOA is a lennar 'nextgen' Casitas which is one of many of the builds in my community. I'm wondering if it's legal to handle the mail for the tenant and drop off the mail to the tenants if it is addressed to them?

@OP - As far as utilities goes, I pay for them and write it off during tax preparation.

Quote from @Account Closed:

Hi Alex, 

I work for Honeycomb, a dedicated insurance provider for rental properties that operate in CA. You can also look at this list of insurers from the DOI to explore other options: https://interactive.web.insurance.ca.gov/apex_extprd/f?p=144...

Thanks for this list.  Aegis and State Farm both dropped my Marin, CA property due to being "500 feet of brush" but my home is nestled near water, but far away from any flood zones and this so called "brush" is mowed by the city twice a year thanks to the insane 2.3% property tax i endure every year.   Yet, insurance companies just seem to google earth my property, after i've signed and paid them for a whole year.  now i need to get my $$ back and seek insurance elsewhere.   How did it get this bad to insure in CA, the claims must be up the roof and they know something about climate change before all of us?

Statefarm just dropped my rental propery in Marin, CA. Statefarm sent a insurance broker to connect me with any insurance and landed on Aegis. My rental property insurance went from 117$/month and now is 171$/month for a 2800sqft 2 story SFH...

Quote from @Account Closed:

Quote from @Herman Fox:

I'm a late newbie RE investor and only own a primary residence with a family of two kids.  We have about 600k equity in our Bay Area,CA  house with another 650K left to pay on our 2.5% refinanced mortgage.  I also have enough cash on hand for 20% down for a potential property and have been waiting for housing prices to go down in AZ.  I was thinking of renting out our CA house once we found an AZ home but have noticed long rental vacancies in my CA neighborhood.  With my 2.5% rate, I could still probably rent for under market rate including cap expenditure to keep the property at break even and allow me to keep the home for potential price or rental appreciation while i pull a new conventional loan in AZ.  I suppose this decision puts me in the long term mortgage game, but allows me to "use other people's money" -RDPD 

OR

I let go of this fantastic mortgage rate, and use the equity of our house by selling the CA house to purchase the AZ house with all cash.  No mortgage ever.  This would allow us to rapidly invest more from our W2 income for either retirement or hopefully a second chance at having that second rental property to hopefully attain FIRE retirement as the ultimate goal.

What would the Biggerpocket community suggest given my circumstance and runway? I've also been digging around trying to find househacking opportunities in big duplex/multifamilies but those only exist in TX as far as i've noticed, and i'm not savvy enough (yet) to be a wholesale/flipper.  I wouldn't mind learning but I also don't have much runway being 44 yrs young. 

Thanks for any suggestion, excited to be here!

Your Question; "Should I sell my Bay Area property to buy a house with cash in Phoenix?"

Yes. I have a 4 bed 2 bath with pool off market (not on the MLS) at a 28% discount you can buy for cash at $255,000 in Phoenix.

Next question, please.

 Hey Mike, is that in a rated 8-10 High school district?  

Quote from @Becca F.:

Quote from @Herman Fox:

Quote from @Bailey Coleman:

I would try to keep the house in CA. Rent it out long term or maybe even an airbnb. California investors buy here for the appreciation. If you sell you will potentially miss out on hundreds of thousands of dollars that house would appreciate for over the next 10+ years. Herman if you sell the house in CA you pay taxes on that money you collect for selling. I would do a cash-out refi and pull up as much money out. The money you pull out of a cash out refi is not taxed. Then used that money to buy more property in AZ. 

 Oh!  i didn't realize doing a cash-out-refi doesn't incurr capital gains or is a taxable event.  I will definately consider that as an option and dig into that more especially if that allows me to keep property and access more cash to use in AZ, this is perfect!  

Thank you!

 Herman, has this home been your primary residence for at least 2 years? If yes, you qualify for the Section 121 exclusion by the IRS. You don't pay capital gains tax on up to $250,000 for single filers and $500,000 married filing jointly. You can own a house for 5 years but if you lived in it at least 2 out of the 5 years (e.g. if you live in it for 2 years, rent it out for 2 years then sell it) and qualify for Section 121. 

https://www.irs.gov/taxtopics/...

I would lean towards Option 1. I favor keeping a Bay Area SFH and trying to pull equity out of it. Once you sell that house, if you ever want to move back or want the house back for some reason it's gone and it'll be difficult to re-enter the California market especially with a 2.5% interest rate.

I have a SFH rental here with tons of equity and I'm leaning 95 to 98% chance of keeping it. I'm considering selling and doing a 1031 exchange for out-of-state rentals (prices are up everywhere and interest rates are higher so that factors in my decision) and other states don't have a Proposition 13 which limits property tax increases to 2% a year. I'm getting on a call next with a realtor to discuss all my options.

Hi Becca!  I'm curious how your call went with your situation and thanks for sharing!

The more I think on my scenario along with yours, the more I am aligning with your thinking that keeping the 2.5% SFH in Bay Area and finding a way to pull equity out of it is the best. If i can rent it out consistently considering all the upkeep and capex, it could be cash flowing asset, though i'd feel a bit bad about renting my house for my fellow owner neighbors around me whom i've lived amongst for more than 6 years.

Otherwise YES, i've lived in it for more than 2 years so i will look into Section 121 as you suggested to consider as a selling option.  I've never heard of this until your mention, and it would meet the 500k cap in equity non taxed for my wife and I. thanks again for mentioning this!

I'm new as well, but i envy your position starting out right after school and having a sibing to do it with!  With how much runway you have, and not having to worry about children's school ratings while trying to find multifamily house hacks (spoiler alert, its hard to find duplex/triplex/quadplex with good school ratings!)  I would personally go with #1 and work your way to #3 and #4 which would presumably be more expensive to do in coastal cities.  #1 gives you more room to make mistakes and take more swings at more real estate, however i'm not familiar with MO or the rental markets there.  Again, it sounds like you're on a terrific path.

Quote from @Bailey Coleman:

I would try to keep the house in CA. Rent it out long term or maybe even an airbnb. California investors buy here for the appreciation. If you sell you will potentially miss out on hundreds of thousands of dollars that house would appreciate for over the next 10+ years. Herman if you sell the house in CA you pay taxes on that money you collect for selling. I would do a cash-out refi and pull up as much money out. The money you pull out of a cash out refi is not taxed. Then used that money to buy more property in AZ. 

 Oh!  i didn't realize doing a cash-out-refi doesn't incurr capital gains or is a taxable event.  I will definately consider that as an option and dig into that more especially if that allows me to keep property and access more cash to use in AZ, this is perfect!  

Thank you!

Quote from @George Mevawala:

@Herman Fox Option 2 allows you to put your money more to work. I would use the equity from the sale of your primary residence in CA to purchase 2 properties in AZ.. One as a primary residence ( still mostly buyers market currently & could find you a property with a motivated enough seller to get you some seller concessions towards closing costs and contribute to the rate buy down as well), and then purchase an investment property and turn it into a short term rental shortly after... You could still see some nice returns self managing it since you will be local, as we have lenient short term rental laws. Then you will be able to see the appreciation from both properties, cash flow from the STR, and tax benefits of owning the short term rental as well. Just my two cents for whatever it's worth. Feel free to reach out if you have any questions or would like to chat more. Best of luck!

 Hi George,  Thank you for this fantastic suggestion.  It all makes a lot of sense, and most people have said something similar.  I just need to come to terms that I'm moving from my native state and may never come back to CA at risk of getting priced out of CA for a while.  Plus its the house where my kids were born in, tough one to sell but i'll definately do it if i can set myself up to buy 2 or 3 houses in AZ!  The other tough part of selling the CA house is losing a potentially cash flowing property in CA with my 2.5% rate.  

you bring up a great point though, being able to monitor properties locally is less risky than out of state renting my CA home when i move to AZ.   Would you factor the diversification of region into this though?   ie, if one of those regions gets hit by some black swan ie. Arizona having severe water shortages or something, might be peace of mind having out of state properties.   Am i over analyzing?

I like what you mentioned about AZ having more lenient STR laws, i'm not sure exactly what that means yet or how it compares but i will look that up!

Thanks!

Quote from @Herb Lau:

If it were me, i'd be 

a) renting out the Bay area house

b) borrowing up to $400k in 2nd mortgage/home equity loan on it (up to 80% ltv) 

c) using that for AZ home purchase. If enough for duplex, awesome! If not still ok. Ideally the rent covers both loan payments and the $200k can be invested in HYS account while you scout AZ market more. Eventually, you find a good deal, and that 200k is even more and you still have W2 income saved during that time to add to it.

The three loan officers from Rocketmortgage/Chase/Properity gave me some less than desireable rates for Home Equity even with my 811 FICO:
$50 - $250k between 8% to 12% interest which only allows me to buy a 400k purchase price and feels like its not worth taking out 2nd mortgage. They started suggesting me to do a HELOC instead but those rates weren't much better.

Conventional, they are giving me a $5500/mo with ins tax principal for 30 yr fixed for a purchase price of 750k. Rental comps are going for $3400 in most areas i'm looking , which is a huge negative gap i need to find a way to close with rehabbing or maybe finding a way to go around HOA to build a prefab ADU to rent/airBnB.

I will eventually aim to get to your step C) that sounds amazing if i can manage to find a price point to pull it off!   Thanks for your reply  

Quote from @Theresa Harris:

Do you want to be a landlord in CA with all of the restrictions they have in place?

If you want to buy more investments, why not sell it and use the money to buy a few other rentals elsewhere?  You say you plan on moving to AZ.  Buy a rental with a mortgage (use other people's money to help you buy it).  If you have enough to buy two rentals, then do that.

A story about waiting for prices to go down. I bought a place about 6 years ago and planned to hold it for a year or two, then sell it and buy a better home.  House prices went up (almost doubled in that time) and I couldn't do that.  I'm happy I bought when I did because I plan to retire in that area and had I not bought, it would be almost impossible for me to move there (my local market is very different).  So don't wait for prices to go down.  Find a place where the numbers work and buy it.

 Thanks for your reply Theresa!  I've considered CA, but house prices have mostly gone up even in this downturn and any numbers i run have shown 10+ years out of negative cash flow for the loan i would need at these CA prices.  At least in AZ, i could accept negative cashflow for 5 yrs or hopefully less even at these rates.
       
Great story, i certainly don't want to feel paralized waiting for a dip that never happens.  I do plan in retiring in AZ and holding, maybe start doing investments locally in AZ would be easier to manage.

I will certainly consider your suggestion of buying multiple rentals, and it sounds like you would opt to Sell the CA one if you were me - and i'm considering even trying to do repeated 1031 exchange since we want to move there first for better schools for the kids, so it would be a primary home, and maybe we live in it for a couple of years and improve it slowly while we're there and 1031 to another home later on down the road until forever.