All Forum Posts by: Robert C.

@Dave Foster, That's an interesting point from a timeline standpoint if I understand you correctly. So that would mean you could be about a year out before finding the new investment property, right? (If you have a failed 1031 followed by OZ fund timeline).

@Doug Hancock, I think there is a lot of mis-information floating around about OZ investments, so be careful on the forums. Part of that is because the rules are new and people are figuring it out. My read is that 1031 and OZ funds are "two separate tracks" with each having certain advantages and disadvantages. I don't really see the purpose of combining them together (even if you could) as you are suggesting, because I believe there would be more downside compared to just going straight into an OZ fund. With OZ fund you already get the the tax deferral on the capital gains, and you can pull out non-gain equity if you have any. That's what I've come up with at least - I feel like I learn a trickle of new info about OZ funds every month or two.

@Jameson Hooton, Another way to look at the "front-loading" concept is to view your business as being in a "growth phase" versus a "maintenance phase". I think your hourly question is probably more relevant to being in the growth phase of any particular business. 

Now... any business owner that I've ever respected, or considered successful basically lived and breathed their baby while they were growing it. So, from that perspective, I think the more relevant question is "If I put 100% of my available time into real estate, how does it compare to some other venture that I could be putting my all into?" For many people, they will find that growing a real estate business is less productive than doing another business during that first phase when you are trying to create good personal income. On the other hand, I think real estate has more advantages over the long term when you transition from "growth" to "maintenance" or passive income. A lot of traditional business owners have a real hard time letting go of the management, and it's also a lot harder (in my opinion) to replace yourself on the day-to-day things.

The end game for real estate, in my mind, is 1.) relatively passive retirement and 2.) multi-generational wealth. To boil it all down, reaching that goal just requires capital. Raising that capital efficiently is what you're really after, and that can be done in any number of ways not related to real estate at all.

@Ned Carey, I'm trying to decide if that means you're for or against crypto? Makes it sound like a really great investment when you think about how Silicon Valley was built!

@Alan M., Given your emphasis on being conservative, I would refinance either the Brownstone or the Primary. I would prefer the Brownstone, since you have no debt there and a really low rate on the Primary, however you'll have to do some comparative analysis since the former is a triplex and will probably get a higher interest rate. At the same time, 5 years goes by fast and the Primary will be adjusted before you know it. 

As a conservative investor myself, I cringe a little when I think about syndications at this point in the cycle because it puts all the control in someone else's hands, and the money gets locked up in another way during a time when markets could transition. That could be personal bias, though. However, I could see myself (if I were in your shoes) selling the condo and taking a chance on an opportunity zone fund since that's the "it" thing right now and there are some pretty amazing long term tax advantages. You can defer your gains, and potentially release some of your equity for other investments. I don't know Boston's condo market, but San Francisco condos have pretty much been flat or down since 2014/2015. You may also have some extra advantages if you lived in that condo 2/5 previous years with a capital gains exemption.

I'm kind of "meh" on having a ton of HELOC money. In your case, since you don't plan on leveraging much, it's a "why not get it" scenario. But I tend to see people who aren't active investors don't actually end up using their HELOCs all that much. Certainly not over $1 million worth, since the rates are not great, and you'll probably figure out a way to refinance other stuff if you need that much for an investment. It's really just a mental security blanket for more passive investors imho.

@Tyler Erickson, Great post and great discussion you've started. What I find funny/frustrating/fascinating is that there is clearly a great deal of agreement between all the experienced investors (like @Jonathan Twombly, and @Ben Leybovich and @Jay Hinrichs) about most of the data points as well as the overall status of the market - short term and long term. And yet a cohesive strategy seems to be illusive when you ask each person what they plan to do about it. You would think that all the pros could put their heads together and say "this is your best positioning going into the next recession now that the market is topping off", kind of like the "all seasons portfolio" for stocks. Why isn't there an "all seasons" strategy for RE?

I think that's why you still get so many repeats of the same basic "what should I do" questions that hit BP. There's plenty of data, buy everyone has their own personal opinion on how to proceed. At least that's the impression.

The only 100% definitive answer is that if you bought on the upswing and you sell now, you will have locked in big profits! But it doesn't sound like a lot of people are doing that. I wonder if it's because we're all trying to be Warren Buffet, when we should really just be "buying the index". 

@Braden Evans, A few things come to mind about your idea just thinking from the landlord's perspective. 

For one, they're probably still going to want you to personally qualify for the house on your own credit. The landlord will want to know that if your business model doesn't work out that they will still get paid. Certainly showing a minimum of reserves may help if you don't have the income/credit to support. I could be wrong, since landlords do come in all shapes, but owners have been spoiled by a great renter pool over the last number of years and can have high expectations. 

6 bedrooms in Menlo Park is a pretty big house with probably a lot of maintenance expenses. The owner may want their renter to take care of most if not all of it so they don't have headaches. Also, your renters may want certain things in place, like working internet. Those types of expenses will either have to come out of your pocket, or you may have to add to your rental price. 

$6200/month is really low for an SFR of that size in Menlo Park. I wonder if there is either location or deferred maintenance issues. Just a heads up. If it is a true diamond in the rough, it may rent fast.

As I'm typing this... I'm thinking of some rentals I manage in Redwood City. We get a lot of facebook folks since it's right next door to Menlo. I might be interested in working something out if the location suits you (in particular I'm thinking about a 3-bedroom apartment we just remodeled). PM me if you like, and I can send details. I thought about renting out the rooms individually, but have been avoiding because of the additional management it would take. 

Good luck with the property visit, and welcome to the Bay Area!

@Serge S., Thank you as well for the feedback. Most of what I know about DSTs and installment sales are from reading online or in books. So, from that perspective, a DST has always seemed to me something to consider more towards retirement, or when I'm truly tired of active RE management. You're making me think it deserves another look, though. Can you mention some big reasons NOT to do a DST when exiting? It does sound awfully good on paper.

Not to bring the conversation over to opportunity zones, since there are tons of threads on the topic now, but based on my research, it seems like there are a number of tricky uncertainties there like:

1.) How to pick a fund to invest in? Seems like there are endless managers who are great at raising money right now, but it's hard to tell which ones know how to operate on the ground (even more so than traditional syndications since it's so new).

2.) If investing individually, a lot of the good locations are as competitive as ever with prices already on the rise, and the property has to be ripe for extensive rehabilitation or development. 

3.) I heard that different states are adopting variations of the opportunity zones tax law, which brings me to another point that there's so much hype and information being spread about opportunity zones right now that it's hard to figure out what's accurate or worth pursuing. 

Definitely some interesting topics to think about. I'm a guy who's hyper-localized in my investments, and while I think that has served me well, I also think it's become a barrier to pursuing certain other opportunities. 

@Jonathan Twombly, Thanks for the response. I definitely agree it would be stupid to purchase a property based on a baked in perceived tax benefit. And it makes sense that with syndications, as you are saying, your investors are happy to get their money off their table with great returns. 

After the fact though, when you already own an asset and considering a sale, I have to admit I struggle with the mental trap of being an individual investor sitting on large capital gains (I know, cry me a river, right??). When you live in California, skipping the 1031 means at 35%-40% total tax bill when you include state taxes and depreciation recapture, so it becomes a real cost-benefit puzzle to cash out. In talking with RE investors who choose to cash out versus hold, I'm always curious how they rationalize the decision either way.

I know some people say "use this opportunity to sell some assets in worse neighborhoods", but I also disagree with that sentiment. If you ask me, if you're someone who is worried about an impending crash and wants to take cashout, you should really be selling on a LIFO principal - sell the most recent assets that are inherently more risky due to the timing of purchase. 

This stuff really messes with your head sometimes! Ha.

@Jonathan Twombly, Just wondering, Jonathan - Did you spend any time thinking about your tax hit before you sold? Or does it not even come into the equation for you? I know stock investors don't think about the taxes so much as portfolio repositioning. But it's hard as a real estate investor to not compare to the 1031 option. Is it different as a syndicator versus personal investments? Interested in your perspective.

@Shannon Wright, @Eric Carr. It's certainly beneficial to have experience in rent controlled cities so you know what to expect. I have rentals in San Francisco, and certain investors do always find a way to make a lot of money. What I can't stand about San Fran rentals is the dynamic between landlords and tenants. I'll be honest, there are far more renters in my rent controlled apartments who are just plain rude and entitled. Also, I wonder if enacting a state-wide measure will have unintended consequences that we haven't seen before from city-specific controls?

@Michael T., "Unintended consequences", right? My city of Redwood City just passed a rent stabilization measure which requires offering a minimum 1-year lease starting January 1st. Guess what? The whole city got a rent increase on the first day of the year! There's much less incentive to be a "nice landlord" when you are putting the value of your property at risk.