All Forum Posts by: Jack B.

As I understand it, if you live in the house for 2 years out of the last five before you sold, you get to avoid capital gains tax, so long as you bought as a primary residence, but the IRS doesn't care if it's the first two years or the last two years, so long as it was purchased as primary residence and not an investment property initially.

So what happens if you lived in the property the first 2 years, then rented it for 4, and move back into it for 2. Would you pay capital gains tax on the pro-rated portion or be exempt from capital gains (other than depreciation recapture)? Source please...

I've been considering 10-31 exchanging my SFH's for an apartment complex. Trouble is, few of them have a cap rate worth investing in, let alone a cash on cash return worth investing in considering leverage, and even then, the cash flow is very small compared to the total return on my SFH's. For example, I could buy a 4 million dollar apartment complex with 25% down and make maybe 50-60K a year. Right now off four rental houses I make 200K a year between appreciation and cash flow. Since MFH is valued on rents it would seem that selling prematurely is a huge opportunity cost.

It definitely seems like exchanging into some multi family before a crash just to preserve value is a good idea, but selling rapidly appreciation Seattle area real estate prematurely seems like a huge opportunity cost. Doing it before the market crashes would help preserve value but doing it too soon will leave money on the table.

My understanding is that although there will be a brief downturn in 2017-2018 there won't be a significant one for a few years after that. Economic indicators for each local market can help assess where your market is as far as supply and demand.

I have considered moving from single family to commercial multi family before the next BIG downturn via 10-31 exchange since they are valued on NOI unlike SFH.

Of course very few MF look good now with cap rates ranging from 2-7% in most cases. I too want to know what these people who are selling off are moving into. I did make 20+% in index funds year to date but don't feel comfortable having all my money in a single asset class.

It's a tough decision that requires more thought and research.

 I've considered that, since my investments would keep growing even while living off of them, however; the opportunity cost is too high leaving a high paying job so early. Not walking away from a 150+ K career that is growing prematurely. I figure 5 more years, then retire. I'll be worth about 2 mil by then. Currently about 1 mil. And even after I retire it would keep growing. The thing is, FI is not enough these days. I want to have a huge buffer for lawsuits, medical issues, lifestyle changes, etc.

I've heard it said that you want to flip the property between 3-7 years otherwise you end up seeing all that money go out the window on major capex. I can especially see this on older homes being true, in markets like Seattle that make for great appreciation, but poor cash flow.

It also makes sense from the standpoint of re-leveraging that gained equity. But what about the transaction costs of doing this constantly? With 8% being typical between realtors fees, excise taxes, closing costs, etc, you really end up paying the money saved from not spending on capex on transaction costs instead, no?

If you're looking for a quantiative decision making point, you need to calculate ROI, IRR, etc. Putting more equity into a property reduces your rate of return. The rate of return also drops drastically when the house is paid off. To the extent you can in most cases make more money with 10 year treasury bonds than with a paid off rental house, dollar for dollar, with less risk and headaches.

Also, holding houses for decades is a bad idea IMO. If you are not flipping them every 3-7 years you will start to run into major capex that will eat a ton of profits. What you instead want to do is ride the equity up then trade the unit for a bigger and better deal using that equity, thereby releveraging to maintain the high ROI of say, 10% or 20%.

Also, there is still room for appreciation in this market (at least where I live) as supply is still tight. Using the cash flow to buy more property is more prudent as you can make more money off additional cash flow AND appreciation. This is what I've done over the last 6 years and on appreciation alone I made 150K this year unrealized capital gains. Add rental income, loan pay down, and my job to the mix, by myself I made over 350K this year. Why? Because I use money to make more money. Rather than buying houses cash or trying to get them paid off like I used to, I use my cash to buy bigger and better deals. Right now I'm letting my houses fatten up to buy apartment complexes. 

Mark, is it cheaper to sell to a REIT fund from a transaction cost standpoint? I was planning on listing myself to at least cut out the agent fees on that side of the transaction, though it appears selling to a REIT may be cheaper, but I'm not up on the fees associated with that yet. Also, from what I've been told, the REIT's value the houses based on net income / cap rate. I ran the numbers on my rentals based on that formula and shockingly they came out to the same dollar amounts as the actual comps for the properties are. I just don't want to get low balled and leave money on the table. Word has it the REIT's don't low ball but by for long term cash flow.

I've also been told it's better to buy one big apartment complex than several smaller ones because the transaction costs are huge and you also save on property management this way.

Just read this again and I think it makes the most sense. Though I will say, I will be pooling cash before the next crash so I can buy some highly leveraged single family homes again after the coming crash. Why not? Ride that market up again and 10-31 into more apartment complexes. I'm really starting to see how some of these people get 100+ units quickly.

 I agree. Send her to collections if her deposit doesn't cover the damages. I have a dead beat tenant I just kicked out (different from a few months ago, different rental) and her deposit won't cover the damages. After her slew of insults while staying well beyond the lease, I've elected to send her a nice bill, with one letter...before it goes to collections. Good luck finding a decent place to live with that on your credit. Oh, want to go to court and dispute it? Sure, I have all the emails, texts, pictures of damages and video/audio of the insults and trespassing. LET'S GO.

 This. I went through this recently and the idiots didn't do a damned thing. Each voicemail and email proved further that they were lying through their teeth. Plus I had unpaid utility bills, pictures of trash left behind, damage, and their general nonsense. They even claimed that I evicted them minutes after paying rent (days late, after several attempts to get them to pay, and still didn't pay late fees) when in reality they started making all kinds of bizzare accusations so just gave them notice to move out at the end of the month. The next day they sent me an email that they were moving out that day. Somehow they thought that entitled them to that months rent back. Scammers got "scammed" I guess.

Kept what was owed out of their deposit. 

Remember, legal expenses are a business expense for you, not for her. You have the advantage, and from what I've seen so far, these people just talk like this to try to intimidate you into giving them more than they are owed. Lot's of scared landlords just write a check I'm sure. How unlucky for my tenants that I don't lie down for people trying to take advantage of me. I screw them back.