All Forum Posts by: Jon Schwartz

@Alex Persons, in LA City, you're out of luck.

Here's Airbnb's breakdown:

https://www.airbnb.com/help/article/864

Long story short, you can't STR anything that's not your primary residence for less than 30 nights. The other unit in your duplex is not your primary residence; it's a wholly different residence.

More than 30 nights -- anything goes!

Good luck!

Best,

Jon

I'm interested!

@Sean Haran, given everything you've said here, you should definitely house hack here in LA.

You're 100% correct that $100 or even $500/month cashflow from a low-appreciation market isn't going to help you build wealth in the longterm.

There's really no better local market than right here in LA. Don't go the Inland Empire! Out there, you still have to deal with California's high taxes and tenants protections, but you don't have the benefit of being in a land-constrained, coastal, global destination.

What you want to do is buy in a quickly appreciating LA submarket. My favorite right now is Inglewood, but only north of Manchester. There's also plenty of opportunity right now in West Adams, Jefferson Park, and pockets all over the eastside.

Since you're young and unmarried, and also want to buy a fourplex of one-bedroom units. These will have more turnover than larger units, assuring you can reset to market rent every two or three years.

So you live in one unit in order to secure an owner-occupant loan, then move out in a few years when the property's income covers the mortgage and expenses.

Really, in LA, you're a perfect candidate for house hacking as a way to jumpstart a real-estate portfolio!

 Daniel,

Don't listen to us! Call a good lender and get straight to the concrete answer.

Best,

Jon

 Ademola,

In California, you're allowed to evict a tenant in order to move into a unit of a building you own.

LA is pretty strict about how to go about doing this. You have to deliver specific forms, and a relocation fee to the tenant is required.

This RSO website will answer your questions:

https://housing.lacity.org/res...

Good luck!

Jon

@Ryan Thomson, I don't think that's true. It's a duplex; I lived in half. My accountant has been treating the property as half primary residence, half investment property since day one. So half of gains aren't taxable as capital gains and the half are.

@Whitney Nash, thanks for the response! I'm going to message you.

@Bill B., the actually numbers are about 4.5x what I posted here, and I took bonus depreciation.

Hi gang!

I have a few questions regarding executing a 1031 while selling a house-hacked duplex. If you're a 1031 professional dispersing advice to attract clients, please have at it!

I'm going to simplify the numbers, but here's the deal:

Three years ago, I bought a duplex for $400K and put 25% down. I then spent $50K renovating the property. This year, I'll be able to sell it for $500K.

By my math, the total capital gain is $50K because the sale price is $500K and the cost basis is $450K. (Let's just set aside the cost of the sale, depreciation, etc.) Because half of the duplex was my primary residence, I can take half the capital gain, or $25K, tax-free because of the personal deduction. The remaining $25K is subject to capital-gains tax.

Am I correct so far?

Here's where I get confused: how much of the proceeds do I have to put into an up-leg to avoid paying tax on that $25K? At the time of sale, the outstanding loan balance will be about $280K, so my proceeds will be about $220K. I'm assuming that, since only half the duplex was considered an investment property, I only have to use half the proceeds to buy the up-leg. And likewise, the loan I have to take need only be for $140K, half the loan balance when I sell.

So am I correct that, to avoid capital gains tax on $25K, I need to put $110K down and take a loan for at least $140K on an up-leg property?

What happens if I buy an up-leg with $50K down and a $140K loan? Then I'd have $60K in boot, right? That's more boot than capital gains!

Somebody please clear this up for me!

Thanks so much!

Jon

Michael,

Don't pursue a real-estate license. Getting a license is easy and inexpensive enough; I think I spent $700 total for the books and the exams.

BUT! Once you pass the exam, then you have to pay annual fees to the National Association of Realtors, the Oregon Association of Realtors, and a local Realtors group to maintain your MLS access. For me in LA, it's about $1200/year that goes to NAR, CAR, and GLAAR ("C" for California and "GLA" for Greater Los Angeles).

So really, you're looking at a several-thousand-dollar investment.

Plus, as a buyer, you don't directly pay any Realtor fees. The seller pays both agents' fee out of the property's purchases price.

I commend you on being so knowledgeable and invested at such a young age! But spend your summer working and reading investing books. If you can, find an investor in Salem (which you can do right here) and shadow him all summer. You'll learn the stuff you need to know doing that, not studying for the RE exam.

Good luck!

Jon

I'm a house hacker in LA, so I'm no good for local networking, but I have one piece of advice to chime in with:

Investing in Socal is waaaaaaay different than investing in the Midwest. The overwhelming majority of "common knowledge" and advice on Bigger Pockets is about investing in the Midwest -- ie, low- or medium-cost-of-living areas where cashflow trumps appreciation.

For example, Craig Curelop, who literally wrote the book on house hacking, is an agent in Denver who helps first-time buyers hack five-bedroom homes, With so many roommates, the property cashflow from day one -- while the owner occupies a room.

In Socal, with the cost of living so much higher, it's next to impossible to house hack and see cashflow while you're living in the property. However, that doesn't mean it isn't worth it!

Here's my case-in-point: a client of Craig Curelop might see $500/month cashflow when house hacking a five-bedroom house outside Denver. But what would it cost that person to rent that bedroom? Say, $600? So the delta is $1100/month (instead of paying $600/month to live with four roommates, he's earning $500/month to do it).

In Socal, even if your property isn't cashflowing, you can still achieve the same delta in your cost-of-living savings. For example, I have a client who bought a house with an ADU. His net month cost is about $500 to live in the AUD and rent out the house. Were he to rent an ADU like the one he lives in, it would cost him $2000/month. So his delta is $1500/month. He's actually making more (in savings) than Craig's client outside Denver!

And one other small point: income is taxed; savings isn't!

Good luck!

 Option 3, and live there for more than 1 year.

Real estate is frustrating when you focus on the work. It's a baby-steps game that compounds over time. With that in mind, you're doing your future self a favor if you buy quality property in desirable locations.

Buy Option 3 and live there until you have enough saved for the next multi in a quality location.

You won't achieve financial freedom tomorrow, but it's very likely that this strategy will give you financial freedom in ten years.

Good luck! You can do this!

Best,

Jon