All Forum Posts by: John Verduzco

Congratulation and welcome Vincent.  I am curious if you have actively figured out your ability to borrow bank money? Access to credit can be a key asset in building your empire and with a solid employment outlook and reserves, banks should like you.  I am not a lender, but an active borrower of good debt and it has made a big difference in our returns and ability to build the portfolio.

As an investor that just took the calculated risk of spending $999 on a 1031 exchange option without actually finding the replacement property in time to complete the exchange, I still think the 1031 CAN be very valuable if the timing works on the sale and the replacement purchase.  In my case, I could have deferred about $57K in Capital Gains taxes, but in the end, it was way more important to purchase the right property (or properties) at the right time in the RE cycle.  That didn't happen and I "lost" $999.  We just weren't willing to lower our standards on a purchase.  One slight correction - I believe that deferring taxes via 1031 until death can avoid the tax man altogether.  If one dies with deferred Capital Gains tax, I am told it dies with you.

based on the title of the post, I assume you are trying to assess best path forward in drawing equity from your 2 rentals? Refi vs HELOC is always a nice question to ask, and you'll get lots of help here. Heck, throw in one more option and maybe you consider Refi vs HELOC vs Sell. No right answer, just depends on your situation, the RE market and lending market.

I would put a good agent on your team of professionals - flood can get tricky with actuarial vs subsidized rates. you can look at FEMA maps in the mean time. https://msc.fema.gov/portal

In our area of SWFL (Naples), the 2 biggest determinants are roof age/type and flood zone.  For Single Family rentals ($200K replacement cost).  You can go from $1000/year to $2000/year on Dwelling and $0 to $1500/year on flood.  We get quotes in due diligence, but always check flood zone before even making offers.

I have a solid agent here in Naples, FL.  What part of FL are you targeting?

as you start to repeat the process, especially if doing conventional loans on SFR's, bigger is often better. so I would look hard at putting $30K to work on one good SFR vs the $10K each for 3 homes. The reason is limitations on conventional loans. We have maxed out the 10 conventional loans on single family homes and if we had done it with $35K homes, we would have left a lot of great debt on the table. (approx. $1.5M of great debt vs $262k of great debt) This all assume that cash on cash returns are equal - which isn't always the case. In addition, all the cost to buy, cost to hold and cost to sell % are typically less impactful with larger purchases. Some are fixed costs that will be smaller % (and drag on your returns less) on more sizable purchases. Just have to find the sweet spot in your market that balances access to capital, access to debt and CoC returns.

Good advice from most everyone here. My $.02 is look at as many commercial RE deals and financial statements as you can get your hands on. Get comfortable with % of Gross Revenue (Rental Income) analysis. You'll find that while certain line items change (vacancy, property tax, insurance, mgmt, repairs, utilities, etc), the Net Income to Cost (Purchase Price + Repair + Hold Time + Cost to Acquire) is really the first metric that matters. Commercial calls it a CAP rate (NOI/Purchase Price), but even the CAP rate gets wonky in who defines it and what they include, etc.

Net, Net - Property Tax doesn't really matter. It is a cost and consequently just a % of Gross Rental Income (GRI) like everything else. To prove that, I pay an average of about $1400/year on insurance in Naples, FL for our SFR. My business partner pays about $400/year for insurance in Phoenix. Our CAP rates are similar (mine are actually better :). After you have the CAP rate you want, then financing is the last piece to make or break. Yes, a great deal cash, can be a bad deal without the right financing and vice versa. All the numbers matter, don't focus on just one.

Hi Steven - I think exiting the employee lifestyle is a noble cause and have taken that on beginning in 2007.  Since then we have spent our time educating ourselves, working with mentors, raising capital, investing and managing a variety of assets.  My wife and I are also in Naples and if you send a PM, I am happy to connect with you.

Jennifer - all great questions and I feel your pain in being "a little lost with everything".  From our personal experience in laboring over decisions on how to title our assets and how to protect them tax efficiently, we have found that each situation is unique and you have to find high quality legal, tax and insurance professionals to help you navigate.  We have found that the decisions are alway business decisions, but to make them you need good honest and thoughtful input from these 3 angles (Legal, Tax, Insurance).  Too much detail to post, but if you PM me, I'll share my experience and you can decide if helpful.  BTW - be careful on taking advice on these topics.  Get 2nd and 3rd opinions when you can.