All Forum Posts by: Russ O'Leary

Hey there @Eric Berkner!

I live and invest in Butte and I keep a close eye on other markets around me like Bozeman and Helena. Like pretty much everywhere in the country, we've seen a pretty massive run up in prices this last 18 months. Cap rates are terribly compressed because rents are generally pretty sticky and lag behind real estate prices. Inventory is still low and there is a lot of money floating around looking to buy investment properties. I talked to a real estate friend in Missoula a couple weeks ago and they are having the same issues there. I haven't purchased a property in almost a year. Its tough out there!

That said, Montana is a beautiful state with lots of opportunity. When I finish my current projects, I think I'll start dabbling in new construction small multifamily. It seems like the best way to actually have options about where you want to have your property. We'll see what this new year has in store!

I've heard that the Missoula market has a couple pretty decent PM companies. That could be an important factor for you if you aren't planning to move back and self manage.

@Basit Siddiqi

"it would only apply for 1/2 of the sale since it was a duplex where only 1/2 was a personal residence."

I was not aware of this. For some reason, I was under the impression that the entire property qualified. This certainly changes the math a bit. Hmm...

Maybe you can give me some insight on the "two of the five years immediately preceding the sale" rule. If I sell the property in a year or two, would it still qualify for the 121 exclusion? Put another way, If I convert it back to a rental now, would I lose the ability to claim the 121 exclusion in the future (assuming that I sell it within the five year requirement)?

Thanks for the heads up on this!

Russ

@Jack McWatters Billings is much more blue collar than Bozeman. Great Falls and Butte are also more blue collar (and Helena to some extent). Montana is still very accessible from an investment standpoint. There is a ton of open land and opportunity to make a go at things. That said, Covid has created some weirdness this year with people looking to get out of the big cities. Prices have spiked as of late... so beware of possible bubble.

@Jack McWatters Bozeman is impossible to invest in right now. It is like the San Fransisco of Montana. I'm not sure how anyone makes money investing there (unless they've owned RE for years before the boom).

Billings is still possible to make work. But it is far from the mountains, so there's that.

Best of luck to you in your search. Montana is a beautiful state.

@Daniel Haberkost A couple years ago, I would have never thought about selling this property. Heck, even 6 months ago. But this $100K tax free seems very enticing and it may be the last time I have the opportunity to do this (I'm moving into a SFR that wont ever be sold).

I certainly would start reinvesting the money almost immediately (likely improving another building I own... or buying another more distressed 3 unit). So it could just be another stepping stone.

@Whitney Hutten, The goal is to have 30 units that each cashflow (minimum)$100/month. $3000/month total after all expenses. I'll likely go beyond that, but 30 is the goal for now. I've thought about refinancing, but the appraisers around here are really conservative and I likely couldn't get them to appraise it for more than $240K. By the time I apply 75/25 LTV, I could only pull out another $10K. Short term debt on a LOC on the remaining value is possible, but I'm not a big fan of short term debt unless I have a clear path to repay (ie. BRRRR)

Thanks for your response!

I've lived in a duplex for the last 2 years. Identical apartments top/bottom. The place is nicely redone, but was done by another flipper in town, and isn't really up to my overall quality of work standard.

I get $1010/month rent upstairs and would likely get $1200/month for the unit I'm in now. Another living opportunity just came up (a SFR on a family ranch) that we decided to move into (still in the process of moving). I am now struggling to decide if I want to keep this duplex or sell it.

Pros for selling:
-I would net about ~100K after paying off existing loan (market is acting a little irrational, IMO. I purchased this property for $165k ~3 years ago, and now I could likely sell it for $275k+)
-Because I've lived in the property 2 years, I believe it qualifies for the section 121 exclusion (I wont pay capital gains on the 100K if I sell)
-The cash would allow me to invest in other properties that I own and bring them up to my desired rental standard
 -Frees up cash to potentially acquire a 3 unit building I've had my eye on for a while in an equally desirable area (Somewhat distressed, would be a BRRRR project)

Cons for selling:
-I would lose a cashflowing rental with a good location and desirability.
-Takes me a small step away from my goal of having 30 units in the next 5 years.
-Loss of potential future appreciation. The owner of the distressed property next to me is in the process of doing a major renovation that will likely end up being a SFR worth $300K+. Maybe this building will be worth $300K next year...
-Holding large amounts of undeployed capital seems like a stupid thing to do with so much craziness going on, but maybe this is a perfect position to be in?

Here are my questions.
-Does it make sense to sell the property? (more philosophical questions than anything)
-Does the 121 exclusion still apply if I rent it now and sell it a year or two from now? (my reading of the exclusion is that you only need to live in it 2 of the last 5 years for it to qualify, is this correct?)
-What other considerations am I not thinking about?

@Mindy Jensen It is funny how often people just blatantly lie about their smoking habits. Even if they do smoke outside, the smell often follows them inside on their clothes or just by way of the window or door being open.

I've heard the ozone machines can work wonders. I've yet to go down that route.

@Dennis Cosgrave I guess I should have said "I might do a major renovation".

It just depends on where I'm at when this tenant moves out. I might just re-rent if I don't have the time to take on another rehab project at that moment in time. This property is a B- or C+ rental (clean, but outdated). I don't usually like playing in that space. So eventually, I'd like this place to be an A class unit. This is about protecting myself from the loss associated with extra cleaning/painting when they move out.

@Matthew Meikle I think the law is pretty clear that it is not discrimination. It is a choice.

Unfortunately, in the years we've been doing this rental business, some folks have simply ignored the "no smoking inside" lease stipulation. One guy recently, when asked if he smoked in the house during his move out walkthrough, said "no, I never smoked in the house". When we walked down into the basement, there were cigarette butts laying all over a workbench. We said, "what about these". He said, "well I did smoke in the basement, but that isn't really in the house" *facepalm*

The point is, some folks just don't obey the rules.

My questions has more to do with the risk vs. reward. I am wondering if anyone knows of anything that would stop me from charging extra rent/deposit to rent to a smoker. It is not that different than charging pet rent/deposit, in my opinion.