All Forum Posts by: Nick R.

Jose,

What is the job that you have taken? 

Is it in real estate at all? 

Have you read Rich Dad Poor Dad? 

In his book, Kiyosaki describes his purpose for employment at a young age as a means to get experience, not so much the means to a paycheck. If you want to get into real estate investing, I would recommend that you take work with real estate related business; property manager, title company, real estate company, or construction. Whatever you do, go in with the mindset that you will own the business one day and learn everything you can about it, then move on to the next.  Regardless of if you are doing manual labor or clerical work still try to learn about other business aspects; purchasing, billing, taxes, customer service, bids, sales, etc. Work your way up... Do not let yourself get comfortable in any given gig. 

There is one specific thing that you could theoretically be able to offer to a partnership, but I don't want you get burned. So research this, and your investment, thoroughly and be very careful with your partnership. 

As a first time homebuyer, you could qualify for the first time homebuyer program with FHA. That is a value that you bring to the table only once. First time homebuyer FHA financing considerably reduces the downpayment - even if a partner paid all of it. The catch is that you, personally, need to be on title and the note.

Here is an example: For easy math, imagine my airbnb in your local Scottsdale market was purchased for $1 Million. As an investor, my financing terms required a downpayment of 20%. That's $200,000 plus closing costs. If one of my partner's could use a first time FHA loan however, we could have put down as low as 3.5% or just $35,000. That "saved" the partnership $165,000 in liquidity. The bank will require PMI in the monthly payment but that could be acceptable depending on the deal, purpose, and exit strategy.

Catch #1: How much equity is a first-time homebuyer credit worth to an investor partner? This is a negotiation and you won't be able to help much on the monthly payments either.

Catch #2: You probably won't get to do this again - specifically when you are ready to buy your own home, you will need that 20% down payment.

Catch #3: Even these First Time FHA loans require a credit score. If you do not have credit yet, you will need to get a credit card and start developing your credit. NEVER pay interest. Simply make a few routine purchases every month, purchases that you will make anyway and pay the balance off in full every month.

I agree, that the updates won't get the 10% to rid yourself of PMI. We did the exact thing you are speaking of when our appraisal came in low once upon a time - we paid down the mortgage principal during a refi to get to the 80LTV so PMI would drop. I would only do this to get the PMI off. Reducing the principal only is not worth it in an environment where you can borrow for 30yrs at 2.75%

Side note, I live in Bothell too. My wife and I flipped our bathroom in a few days for about $500. LVP for $100, a prefabricated counter top with undermount sink at Lowes was $199, a sink faucet was was $79, paint was $50, a modern distressed frame for the mirror $50. We will buy a few accessories like towel bars and TP holder, but you can get it done WAY cheaper than you think and learn along the way.

cheers 

Joel Owens, et al

Thanks for the feedback.  Yes my gains are currently held with a QI, so no worries there.  My imagination started running wild over weekend when my QI office is closed so I reached out to the BP community to help calm my nerves.  Knowledge is calming.

To Carl & Ashish's point regarding the SMLLC, the relinquished property was held in me & my wife's name. We file jointly, if that matters. Can that structure be converted to an LLC?

My identification date is Nov 9th, but nothing has been formally identified yet.  

Thanks

Nick

Curious about a particular 1031 caveat as it applies to me... I sold a single family rental with loan and title in my personal name. I put my gains into a 1031 exchange account. Now I want to purchase a multifamily property (5+ units) with a commerical loan. 1031 exchange law requires that exchanged properties must be held by the “same taxpayer”. Meaning that the multifamily must go into my personal name. If I quitclaim the property to the LLC after closing escrow on a commercial loan, I have heard such action could trigger a “due on sale” clause whereby my total loan amount could become due and/or I could be required to pay a prepayment penalty. Without the LLC, my tax structure is less favorable and I am exposed to personal liability. Any guidance on this situation?

I took the opportunity in this last peak to sell my rental SFR that I considered to be in a less desirable location. My ROE was hovering just over 1%, which I only justify by 12% YOY appreciation I got since 2015. I considered HELOCing the thing, but I just didn't like the location (sub-market of south Everett) so I closed escrow on the sale in Sept. I think I squeaked it by, because now inventory has shifted higher and my market is very dependent on demand to get top dollar. I read a report that said 1 in 4 houses listed in Snohomish county saw a price reduction in Sept. Everett is getting a lot of attention from plans to start private airline service from Alaska Air and others. Seattle needs another major airport beside SeaTac and Everett is an obvious choice. All that to say, I definitely plan to return to that market.

As for strategy.  1031 all the way, and I plan to parlay into multifamily elsewhere. I looked in markets where cashflow is not analogous to Sasquatch. This is certainly not a shoot from the hip strategy.  I have been planning this pivot since February and now that I am actively exchanging I still finding areas of due diligence where I should have better prepared myself.  

I think our market is strong and I do still expect some growth next year in desirable locations.  I suggest waiting this seasonal slump (my opinion) and meanwhile educate yourself a ton on the 1031.  Consider ending your leases in April and get listed on market next May with intent to exchange into higher cap market. 

Mark, I would be interested in exploring the option. That being said, partnerships and 1031s have additional levels of complexity and legal structure. We would need to form a TIC agreement and I am vague on those nuances.

I am guessing you are EST and I am pacific. Let's talk tomorrow. 

Hey BP crew!  I just closed on a property that I intend to 1031 exchange.  While I prefered to have my upleg(s) under contract by now, I just haven't been able to find what I want.  Anyone with a cash-flowing multifamily or small apartment 400k-800k.  1.2% monthly rent or better, some rehab/deferred maintenance if priced accordingly.  Let me know what you have!  Thanks

Michael,

Welcome (belated) to the neighborhood!  I own my primary home here and rent out a single family as well.  I am actually looking to sell the rental this month and buy multifamily with proceeds, probably out of state. It is in South Everett, North Lynnwood area.  While it is a single family (built 2005) you could rent 2 of the rooms out and keep one for yourself. Market rent on the whole place is $2200-2300/mo.   

Tyrone, It is hard to advise without knowing your "business model".  Specifically, how is your nonprofit generating revenue?  I do think you need to own the property.  I can chatter you up a ton on this, but the truth is that I don't have any experience. However! I do know a BP member that is actively running/landlording a "halfway house" and doing so very profitably, within 30 minutes of Seattle.  I suspect they would be okay with a public referral, but just in case, I will send a private message and they can close the loop if they choose or I will follow up with their permission.  

Am I understanding you correctly? You intend to ask the landlord to defer their cash flow to your non-proft in exchange for 5yrs of 0% vacancy and tax write offs? I will go out on a limb and say that getting concessions from a landlord in the 50% magnitude will be incredibly challenging, particularly in this expensive of a market.  A landlord with margins high enough to absorb those concessions probably does not exist except in extreme examples in markets like Memphis where there is a glut of cheap property that can be owned outright with decent rents to cash flow.  
 

Landlords are running a business, and while their business may have a philanthropic arm, most will be leveraged and cannot defer much revenue without breaking the balance sheet.  With median vacancies in King/Sno county typically under 5%, even under 2% in certain sub-markets, why would a landlord choose to target a high risk demographic at a 50% rent concession just to get a tax deduction (not a credit) and mitigate a 3-5% vacancy rate?

Anyway, I'll hook you up with my contact.  They can help you get going, it is possible to do, but based off my understanding I think you need to approach it different.  

I'm no pro on interest rates.  I'm bad at predicting them and even worse at predicting how society will handle it.  After the housing collapse, I take all projections with a heavy grain of salt.  All disclosures aside, I do anticipate 3 MORE rate increases from the fed this year, maybe 4 @ 0.25% each.  I anticipate the next one in mid June at the next FOMC meeting.  Will they affect the mortgage rates, who knows?  Many economists see interest rate hikes as a sign of strength in the market.  Who would buy a 10yr bond @ 2-3% when Zuckerburg just crushed 8% gains today in the midst of a publicity nightmare.  Many economists also believe that the S&P500 aggregate earnings have the rate hikes "built in" already.   

Sometimes rate hikes get 123 main street people off the sidelines too.  This causes a temporary jump in demand simply to "beat the rate".  In tight markets, this can even drive up prices, only to have the rate settle back down anyway.  

This new guy, Jerome Powell, has also taken over Janet Yellen's spot, as the chair of the federal reserve.  New fed chair = wild card.  (Especially in a Trump administration where wild cards are everywhere).  Wild cards=uncertainty and uncertainty sucks for markets.  

All this soapbox to say...  Don't try to predict the future too much.  If your market is on fire, a pullback may be due.  If you are a realtor then purchasing power for your clients may shift a bit.  If most of your clients currently only afford a $100k property, you may have a problem late 2018+.  If you are investing for appreciation, then you didn't learn your lesson 10 years ago.  Invest for cash flow and don't over leverage.  If you are trying to time the market, I would caution you to only do so on properties that would not be subject to a 1031 exchange because you are just going to need to buy back, likely, in the same market from which you are selling.  

This has been on my mind too, so I would welcome any criticism of my analysis. 

Thanks

Nick (Seattle)