All Forum Posts by: Scott Trench

If I were considering this property, I would want to ask the following followup questions:

1) What are the rents?  $1200 - $1500 is a pretty huge range for condos in a complex and result in a 75% swing one way or the other in your cash on cash return from the low to high end.  Compare the rents for condos of the same square footage and bed/bath.  I'd expect that with some more due diligence you could get much more specific than with that range.

2) Per my understanding, it would be very unusual for the tenant to pay the HOA fees. Those fees are usually incurred by the homeowner. I would definitely want to double check that.

3) If the ARV is $80K and you are buying it for $70K with the expectation of putting $10K into it, that creates little value. Do you expect to create value in some other way?

I've found it so difficult to find strongly cash flowing condos in the Denver area that I've stopped trying.  Aside from the lack of cash flow, there are other factors at play, which I believe put the intrinsic value of condos at risk over the next decade or so.  Those issues have been debated extensively, including in this thread here:

http://www.biggerpockets.com/forums/311/topics/188984-denver-condos-and-construction-defects-law

Thanks for the supportive comment!  As far as a business is concerned, both interest and depreciation are considered expenses, and thus offset net income.  The net income of the business, depending on the business, is then either taxed directly, or flows through to your personal income.  

I'm not sure about the implications of investing through a 401(k) or other retirement account.  That's a great question and might make for a great new forum thread!

This trailer is an excellent representation of real estate investing.  I'm thrilled to see that many of the normal day-to-day activities that we carry out as real estate investors are portrayed correctly such as:

- Evicting families from their homes at gunpoint

- Hiring formerly evicted and desperate occupants to do dangerous and illegal work at low wage

- Attending high end parties while the human collateral of immoral yet immensely profitable real estate decisions duke it out in the slums

...

Hopefully you can tell that I'm joking here and that I'm not very happy with what I perceive to be a very unfair portrayal of real estate investing, investors, and how real estate investing business is conducted. 

Let's hear some thoughts from investors on this new Hollywood movie!  What's your opinion?

I'm a young investor, and purchased a property via the "house-hacking" method back in November of 2014.  The property is under my name, and I rent out the other side to two wonderful tenants.

The work has been done Do-It -Yourself style, and I have gone a few months now successfully living rent free.  

Make no mistake about it, I consider this Duplex to be a business, and run it as such.  I manage the tenants with a separate email address and have a separate bank account for property related expenses.  I pay rent to the business and take money out of the business.

But the property is under my own name.

Reading the OP, I am committing a basic fail against common sense as a real estate investor. But I disagree completely. I had several immense advantages in putting this property under my own name that would have been forfeited were the property under an LLC:

1) I used FHA financing. Try putting down less than 5% on a property within an LLC, especially as a first-time buyer.

2) I am the occupant of the home.  I can rent to whoever I want, and for any reason whatsoever.  It's MY house, not a rental property, and the laws governing it are as such.

3) I had much better interest rates on my mortgage than the LLC would have had access to.

4) My mortgage interest is tax deductible.  In the first few years, where the bulk of my mortgage payments are comprised of interest, this is more advantageous than depreciation.

5) Assuming I live in the property for more than two years, and the property appreciates, I can sell for a tax-free capital gain.

The disadvantages are as follows:

1) Limited protection.  I'm 24 years old and this property is basically the grand total of my worldly assets.  I don't have much to protect.  I also have an umbrella insurance policy.  
This type of protection is good enough for millions of landlords with far more to lose than I. 

2) I'm obviously the owner of the property. I can't hide ownership behind an LLC. In my case, this advantage to the LLC is totally moot. The tenants live next door! I'm obviously the owner.

Conclusion:

Investing through an LLC would have been extremely expensive for me, setup and legal costs set aside. Furthermore, it would have delayed my first purchase significantly, and taken away subjective advantages in running my business as a personal asset.

I think that it is shallow to claim that having an LLC is a "no-brainer". I think that at the very least, my argument here shows that it is a debatable topic and that a reasonable person could conclude that there are indeed strong advantages to operating real estate assets under your own name.

Now THAT's how you fish for votes!

@Account Closed

That's very true. But if you are paying rent of $1,500 per month, and then you switch over to a PITI of $1,500 per month, perhaps 70% of your payment goes to interest, taxes, and insurance. 30% might go towards principle. In my limited experience, I find it to be rare that people go from one rent level to a much higher mortgage payment. Most kind of just get the coolest apartment or biggest, nicest house in the best area that they can afford, which is pretty similar in amount.

Anyways, if 30% of that $1,500 per month starts going to equity in the property, that's $450 per month.  Of course, they are still paying "the man" the remaining $1,050, but it's the difference between a -100% return on their rent, and a -70% return on a housing payment.

That's a massive financial difference, though still a loss.  Most can't quantify the expense in the way that I describe here, but it becomes very obvious over time.  It's a massive reduction in lost wealth.

I think that all things being equal, it's my belief that many in my generation would rather not own homes for the time being.  I will say that as a tenant, it was nice to not have to worry about anything, to have the flexibility to up and move to another city when the lease expires, and to have the ability to remain mobile.

I don't think it's a stretch to argue that Millennials are less interested in owning property than previous generations.  I think that for many of us, property represents a physical constraint that imposes on our freedom to move from city to city or country to country in many cases.

On the other hand, the financials of home ownership are so clearly stacked in favor of owning vs renting, that Millennials want to own for THAT reason.  The number one financial thing that my friends and peers complain about is that it sucks to pay rent.  It really does.  That's why I began house-hacking as soon as I was able.  I think that's why most of my peers will eventually end up owning homes as well. 

I think that it's going to be very difficult to quantitatively demonstrate or back up my claim that Millennials (at least that I know) are less inclined to want to own property than our parents when the financial benefits of owning vs renting are so significant.  I don't care what my preference is, a difference of $100K or more over a decade is a pretty powerful reason to buy property.

By popular demand, BiggerPockets has just launched the new Short-Term and Vacation Rental Forum!

Now, as a member of a college fraternity, and and having played with many traveling rugby clubs over the years, I've been a firsthand witness to what the wrong tenants can do to a nice vacation rental home.  I think I might personally be out on the whole vacation rental business for life.. but I digress.

This is the go-to place for any questions, concerns, or discussions about vacation or short-term rental properties and the unique challenges and strategies that accompany this niche of real estate investing.  We've seen interest in this type of investing grow over the years and are excited to offer this new forum for your discussion.

I'm excited to see what's discussed in this new forum!

Special thanks to @Karen Margrave for helping us to create and build this brand-new forum.

Oh, and by the way, if you know of any previously created forum threads that should be moved over to this new forum, please link to them in the comments below.  I'll be sure to move them all over to the new forum!

@Jean BolgerI'm making an assumption here, but if you just got to 100% occupancy, you might have recently had a higher than usual number of move-ins.  Move-ins might result in a lot of trash from unneeded boxes and packing stuff, and all at once that could result in your overflow.  If this is the first time you've been to 100% occupancy, that could be part of the reason for the overflow. 

On the other hand, you might see the same problem next year at move-OUT time..

Thanks @Karen Margrave!

We will launch the VR forum as soon as we have somewhere in the ballpark of perhaps 50 high quality forum threads that our users have identified as appropriate to be moved to the Vacation Rental Forum!  I see that we have identified one right here in this thread ;).