All Forum Posts by: JJ P.

 Oh, California.  Open up those Golden Gates.  If you can afford to invest here, close to home, don't listen to the naysayers.  This quote above is ridiculous. 

 One of the biggest reason your new investment will succeed is if YOU run it.  Heck, it's just a house.  You can do this! 

I have investments in Southern California and in small Oregon towns.   All the projections for our Oregon properties are subdued compared to the San Diego ones.   Oregon- low entry point, low cash outlay, low(er) appreciation, lower rent increases.  San Diego... astronomical appreciation, rents doubled in ten years and no end in sight.  Appliances, repairs, management, etc. cost basically the same, but take a bigger percentage chunk out of the lower rents. One new appliance might cost half the monthly rent.  Good tenants with reliable income and great credit are much harder to find where the income and job opportunities are lower.   

In Oregon, where income is more modest/fixed and the population is older, a $25 rent increase caused a tenant to move.  In SoCal, you'd get a thank you note for such a minimal rent increase. 

I don't need to hard numbers to say that I'll take the appreciation in an A market for the long game, every time. 

I'm facing a similar choice.  

To me, a well qualified buyer with a good down payment is a great candidate for an Owner Carry Loan.  You hold the note, get the down payment and the interest... probably in the neighborhood of 6-7%.  You could do an interest only loan, just to keep it clean at tax time or when the note becomes due.   You'll pay the gains ONLY on the principle that gets paid down, meaning the principle payment portion of the financed money (if it's amortized, not interest only) and the down payment.  This can really save you a bundle of Capital Gain taxes, because it can be deferred in many ways and you've got a bit of timing to play with.  If you're retiring and your income will drop in year XXX, that's a good target for a payout.  You can also sprinkle principle paydowns in the loan... there's lots of creative ways to finance a note.  

The key here is a well qualified buyer.  Don't skimp on the due diligence here... you're your own loan officer and underwriter.  That agent sounds like he/she is just fishing for property to find a buyer for.  Heads up...That's not likely to be someone that will come up with a great Owner Carry buyer.  

On the flip side, a 1031 will toss that tax bill somewhere into the future.  If you enjoy the returns of being a landlord, and want to continue, great.   It sounds to me like you're well down the path of real estate investment.   Just keep in mind that the new basis for the Capital gain is the full sale price gain, including the purchase and the appreciation.  That just makes it a little less liquid than your other purchases, so 1031 into something that you plan on keeping, ideally until death.  Keep in mind that you can also buy more than one place with the 1031 monies...in any combo that works out with your equity.  The plus is that it splits up the capital gain tax liability when you sell it, because you can sell them separately. 

AJ, it seems like the Oregon Coast is still a well kept secret. 

I think your price points are high.  1.5M in Coos County is going to get you oceanfront, bay front, or sweeping views.  

 I always seem to agree with you, Jay.  Maybe we're just so far down the road that it's more clear from this vantage point.  

Buy the best house you can, people!  Buy something that you'd live in, if you had to.  Then rent to people who want to live in a nice, safe neighborhood. Better one good house than three or four icky ones.  

My advice is to stay close enough to home that you can be somewhat hands on.   
To me, that is staying in the West. There are hundreds or even thousands of markets that are available to reasonably drive to or affordably fly to from Los Angeles. And yes, that includes California.  Lay your eyes on the property you're buying, as well as the neighborhood.  One success at a time should be your first goal.  More houses are better, sure, generally, but start with quality (of home, tenant, ease, neighborhood) over quantity.  

I'll take the contrarian view here and say that steady income (not as much appreciation) can be found in small towns, bedroom communities and rural areas throughout the state. Drive a few hours up I-5 and there's lots of affordable housing.  In these areas,  rentals can be scarce.  Provide a good product (the well kept house) and screen your tenants thoroughly, and perhaps you'll be lucky enough to have long term, trouble free, clean tenants with minimal calls and troubles. 

Investing is a business, and most people don't open a new business and immediately start outsourcing everything.  You really won't know if your "team" is good until they perform, over perform or under-perform over time.  The magic is you.  

We've replaced appliances when a drain valve accidently was left closed. Whoops... that should have been a 30 second fix instead of a $1200 appliance.  This from a reputable management company who hired a new fix-it guy.  The new guy clearly wasn't that great.  

Is there a place that you already like going to, or is it just a numbers crunch?

Apartments.com has a really good rental comp calculator that's free.  You can keep track of the local market and make sure that your prices are in the sweet spot. 

Also, can somebody please tell me what the "S" word is?  Slumlord?

 I actually had to crack up over this.  Kudos to you for wading in.  Honestly, I appreciate it because your input made me clarify what exactly my business model is. And how different yours is. Thanks!  You brought up plenty of points that are worth noting  

It’s worth mentioning that people with enough money to invest in real estate may never have spent a moment in a Class D or F neighborhood   So they don’t understand what they’re taking on   Even more so if the whole thing was orchestrated by a $15,000 seminar on how to do it   These poor blokes are blindsided when things go south  

Most of my friends don’t invest in real estate because of the classic argument that “the water heater might break in the middle of the night.”  Like myself, they simply don’t have the skill set or desire to tackle what you’ve done   

Quite frankly, you’re providing needed housing for the bottom rung, and you’ve figured out exactly what works.  That learning curve scares me! The bottom line for me is that I like self management, (haven’t had great luck with management companies) and the less calls from the tenants, the better. 

I definitely appreciate your input, and hope you stick around