All Forum Posts by: Michael Strachan

One option you have is to refinance that property to pull out some of your accrued equity and reinvest it. That depends on how much equity you currently have in your home. You mentioned you have only owned the property for three years so I assume you haven't paid down much of the principal but because you did put work into it, it could be worth getting an appraisal of the new value. Here is a great article written on this topic:

https://www.biggerpockets.com/renewsblog/refinance...

I'm an agent in the Bay Area, so feel free to reach out to me if you'd like to chat. Good luck!

Bay Area real estate can definitely be quite expensive. From my perspective, if you're looking at a home for yourself to live in, you're already on the right track by analyzing it as an investment property. You have to take into consideration the cost of living if you don't purchase and continue renting vs the cost of owning. In many cases, the tax benefits, loan paydown, and appreciation make Bay Area real estate a great investment, especially over the 7-10 year period. As far as the cap rate, they do run low in our area, however if you can get it to cash flow, bringing the holding costs to 0 makes it well worth the other benefits I mentioned in the long run. That's just my two cents.

For the legal questions, I recommend speaking with a real estate attorney

Yes you've got it! The cash out refinance is a great option because you've got a bunch of equity sitting in the property. Basically you go to the bank and ask for a loan, offering the property as collateral, and in exchange for the lump sum of cash, you are required to make monthly payments on the loan (sounds like a mortgage right?). As long as you keep those payments lower than the monthly rental income, you've got a cash flowing property AND a lump sum of money to invest or spend as you please (give yourself some wiggle room to account for vacancy, maintenance, capital expenditure, etc.). At this point, it's a loan so the money is yours to do whatever you want. Of course I would recommend buying a home with it, but you could head down to your local casino and put it all on red if you choose to! Just as a disclaimer, I am not a lender, so you'll want to discuss the details with a loan professional. Some people don't like the idea of putting a free and clear property up as collateral for a loan, if this is your case, the 1031 exchange may be the path for you. Let me know if you have any further questions!

I see, so you have no interest in living in the property. Then it seems the 1031 exchange would be a great option. Logistically you would have two primary options for going through with that. You could sell the property before finding a new one to purchase, however as soon as that property sells, the clock is ticking for you to find a new property. If you fail to meet the deadline, you owe tax on the sale of the property. Or you could find a new property first and make the offer contingent upon the sale of the first property, which is a less attractive offer from the seller's perspective. As you can see there are pro's and con's to both strategies. I hope this helps.

Depending on the amount of equity you have in the property, another possibility could be to do a cash out refinance, in which you receive a lump sum of cash in exchange for equity in the property. In that case you could use the cash to purchase the property in the area you desire to live in while maintaining the original property. Also, because this is technically a loan, it's entirely tax-free in comparison to the 1031 exchange which is "tax deferred" (similar but different). Of course you would have a monthly mortgage payment on the first property, but as long as the rents cover it and you can still cash flow that could be a very advantageous position to be in.

Congratulations, that's quite the engagement gift! I would say that what you do with it depends largely on you and your fiance's particular real estate goals. It would be very helpful to know more details about the property, such as current value, current equity, whether it's a single family home, duplex, triplex, etc. Personally I would not recommend worrying too much about entities considering this would be your first property. Often times it overwhelms people unnecessarily when they are beginning their real estate journey (I am not a legal professional so take this with a grain of salt). Some of the main strategies to consider would be:

Continue renting it out and collecting the passive cash flow while also benefiting from the other wealth-generating benefits of owning real estate. 

Live in it and eliminate your housing expense, which can be a very good strategy for rapid wealth creation. If it's a 2-4 unit property you could live in one unit while renting the others (house hacking as it's called in this community).

1031 exchange in to a new property which can be a huge jumpstart into home ownership in a high cost of living area like ours.

I am actually a realtor working in the Bay Area, so if you have any questions about our local market or would like help putting together a game plan, I would be happy to meet with you. Good luck and happy investing!

I would recommend starting by talking to an agent who's experienced in commercial real estate transactions. They could answer your more specific questions as they come up and hopefully offer you some insight that is specific to your local market.

@Angel Moreno

One possibility you may want to look in to could be the possibility of a refinance to lower your mortgage payment and then renting it out with the lower expense number and see if that could help you get it to cash flow. I can only assume based on the appreciation you've had that you've owned the property for a while and likely have quite a bit of equity in it. It depends a lot on your individual circumstance so I definitely recommend meeting with a lender to get into the nitty gritty. 

 Ah that's the real question! I'm curious to hear what people have to say about this. My initial thought would be to cite their references as not satisfactory. Although in the end all you have to do is accept who you accept and you don't owe them an explanation.