All Forum Posts by: Robert C.

@Brian Burke, I usually keep a lot of my investment details close to the vest on BP, but you've inspired me to try to be more transparent and layout some of the things I'll be working on in 2018. 

I don't really think of these as "goals" so much as just "things I have to get done" this year:

1.) I'm closing on a 40+ unit apartment building in March. At the risk of becoming a laughing stock on BP, I'm paying $500k a door! How's that for your Bay Area MF prices?! I'll be using the next 2-3 months before closing to get my repositioning plan in place, lining up visits with my architect, structural engineer, and gc to make sure we hit the ground running. I'm also working on my financing for funding 60%+ LTV, which isn't as easy as it was even a year ago, but luckily I've built up good banking relationships, and it looks like they're willing to take the leap with me.

2.) Hire a new assistant to help with the day-to-day property management. I've been mostly a self-manager (I let my first assistant go early 2017), but it's time to get over my lingering trust issues and free up part of my brain again away from customer service and back to the business building activities I enjoy.

3.) Diversify. First of all, I'm like 99% invested in real estate right now. And secondly, within real estate, I've pretty much got all my eggs in MF within two local communities. With the market topping off (in my opinion), I'd like to look at other investment opportunities both for the sake of diversifying and simply to learn some new stuff. I've already moved some funds to stocks, and I've taken a couple of long shots on a VC fund and crypto-currencies. I'm looking forward to learning more about performing notes and shorter-term syndications. I'm also doing my first ground-up development project this year - a 3000 sq. ft. spec house. Should be fun!

I tend to be more of a lurker on BP, with some occasional input, but I do enjoy reading many of your posts (and listening to the podcasts), since I learn about topics much less familiar to me. I tend to think that investing over the long term is less about having strict goals and more about expanding your knowledge on what's out there, so that you can recognize the future BIG opportunities when they present themselves. 

@Chris Martin, @Michael Plaks, @Brandon Hall, Just to clarify about the number of LLC's question, it sounds to me like there could possibly be a difference between maintaining a pass through LLC versus a partnership LLC? Is that what you guys are talking about?

So, if all my properties are in pass-through LLC's, then the 20% deduction will more likely apply to the aggregate net income calculated on my Schedule E. If there's a net loss over all the pass-through entities, then no 20%.

However, if I'm in a partnership LLC (50/50, 40/60, or whatever), then the 20% deduction might be applied BEFORE hitting the individual K-1's? That would be a pretty big loophole where it would make sense to have some combination of pass-through LLC's that are taking losses, while putting all profitable properties into separate 99/1 split partnership LLC's in order to get the 20% there. Correct me if I'm wrong, but that could increase the amount of net losses carried over to future years, right?

@Denise M. Tschida, What's your cashflow look like right now? It looks like you've got around $450k to $500k in equity already (unless you cash out refinanced), so you need a roughly 12% net cashflow return in order to reach your $5k goal today. But, if your goal is to do it in 8-10 years, you probably have time to take it a little slower, and I'm wondering if you might hit that goal anyways just by sitting on your three rentals. I'm connecting a lot of dots here... but you may have a bunch of different options (perhaps more conservative) for you to easily hit your 10 year goal. Got some more details to share?

@Sean Walton, Most lawyers will advise yes (I'm not one). But it seems like they re-established the tenancy, especially if the old landlord continued to accept rent, then you definitely have to restart the notification. It's always better to start over and make sure all the rules are followed. 

@Sam Josh, If you're going to keep your money in the Bay Area, I would only put it in your primary home if you plan to sell right after the renovation. That's how you get the best bang for your buck. Even though you might be improving the value of your house, you're not seeing any return so long as you're occupying/enjoying the space. 

If you just want to enjoy a bigger space that's fine, but don't think of it as an investment decision.

@Juan Rango, Just to chime in about bias - it exists whether you're considering different asset classes, or within just one type. I remember when I started investing, I sat down with a bunch of different folks. One of them was a luxury housing developer, and he basically laughed at me when I said I was considering buy and hold multifamily, saying there was no money in it. There was another women who told me doing flips was the only way to get ahead in the Bay Area. Well, looking at us 8 years later, I think we're all doing pretty well! All I have to say is that I did WAY less work on buy and hold multifamily with about the same gain (or better with tax benefits), while they've been toiling away with pain-in-the-butt contractors... but I guess that's my bias!

Ultimately, it ends up being a personal decision depending on which strategy you can "wrap your head around" and what you're excited about pursuing. Whether you're mostly in stocks or real estate, one can do better or worse than the other because of timing, strategy, and/or luck.

@Geoffrey B., First, this is stuff you should talk to a lawyer about for SF, and I'm not one. The rules are constantly changing as of late. 

Based on my experience, banks will lend to you in SF based on actual rents, so vacating the unit won't be to your benefit when getting the loan. Signing any lease within 3 years of doing an OMI is not legal in SF, and reporting requirements have become even stricter recently, so you'd be opening yourself up to a lot more liability if you try skirting no-cause eviction regulations. Even buyouts need to be reported to the rent board prior to simply having the conversation with your tenants. 

Now, if you can buy the building, move-in and wait the 3 years before renting and refinancing, then that would be feasible. Most of the time, the numbers don't work out too well. And if you decide to live in a 5+ units building here, you'll probably be sharing space with some grumpy neighbors who will make you miserable, considering they've probably been living for many years in a deferred-maintenance-ridden building, while regarding you suspiciously as the new owner who's thinking about kicking them out... From that standpoint, you'd be better off moving into a smaller building.

@Bac Nguyen, Jim Glassman was definitely the optimistic one. He thinks that the economy is doing well and it will continue doing well, thus the "top of the 9th, but will go extra innings" analogy. Tod was more cautious, and he said he's not buying right now cause everything is too expensive. At the same time, he doesn't think anything big is going to crash the market unless the big tech companies take a hit (Google, FB, Apple, etc.).

Regarding tax reform, Jim was giving his opinion under the assumption that tax reform would never pass, saying it's politically impossible to do if they are trying to stay revenue neutral. Tod doesn't care about the tax reform as far as how it effects real estate unless it targets 1031 exchanges or depreciation expense (as Minh alluded to). So, according to them, US real estate will be just fine if the tax reform does not pass, because it will just be status quo. 

That's what I heard. Regardless of what they think, we probably simply need to look at our local economy to decide how things will turn out. I agree that tech problems here will create real estate problems, but there's no way of predicting what could be catastrophic enough to shake the big companies or when it might happen IMO. 

@Account Closed, That pretty much sums it up. You're right, it didn't seem as interesting  this year. Actually... Tod seemed a little grumpy (although rightfully so when that one guy sorta attacked him with the community involvement question). Guess I was off on how many units he currently has, but what's 1000 units for a guy like that?? Ha. 

Jim Glassman seemed to be talking more from a national economist perspective, so I'm not sure how much is currently applicable to the local Bay Area. He seemed to be telling us to go to Colorado or Utah! Maybe if he's right, that means that the folks buying further east of us are going to be okay for a while longer than some people think. 

Sorry, I didn't get to meet you, Minh. I was in and out - basically arrived for the presentation portion and then had to run to relieve the babysitter. 

Regarding your potential deal, how are you handling the new rent control laws in San Jose? I was reading up on some of the more recent regulations, and MAN, some of it is worse than SF when it comes to vacancy decontrol. Have you tried petitioning for increasing rents more than 5%? I was looking at a listing down there where the owners have current rents at $700-$800 range. I couldn't find a loophole to make the numbers work for anything near what they're asking. I may actually prefer the rent control game in SF better just because things haven't settled in SJ yet - but maybe that's because I don't know enough. 

I'm heading into a pretty large 1031 exchange, so I'm looking around for some decent size apartment buildings.

@David Song, So I have the same exact regret as you! If I had a time machine, I could have earned 2x-3x what I've done during the same time frame. That being said, looking back, can you think of any indicators that would have caused you to make a different decision assuming you had a little bit more local real estate knowledge? For me, I think if I just knew a little bit more about the historic cap rate levels in the area, that might have made me somewhat less stingy on my cash-flow goals. 

The fact of the matter is that the Bay Area is a different investment game than most other places whether you are buying for cash-flow or appreciation. There's a lot of money here, and there's a lot of highly educated investors competing for limited product. That means that every little advantage you can gain in terms of knowledge or niche will help someone be successful. 

At the time when I got into multifamily, I certainly didn't know that rents would almost double over a few years. However, I DID know that rents could already be pushed up $100-$150 before most landlords were onto the scent. That was one advantage that allowed me to jump in and react faster than the next guy.

And YES, you have to consider the timing of the market here. Even if you don't have a crystal ball, you need to adjust your strategy based on your best guess about the market, which is why (going back to @Diane G.'s original post), taking an unemployment figure is a perfectly valid indicator to either double-down or sit on the sidelines for awhile. It's all nice and good to talk about how great places like Texas are for cash-flow, but that's not what we have here at our fingertips. You have to play the cards you're dealt if you're going to stay local.