All Forum Posts by: Joe Scaparra

Why sell, enjoy the cash flow.  I don't know if your married or not but if so sell the property when either you or you spouse dies and take advantage of the Step-UP-In-Basis which allows you to move your cost basis on the property to the market value on the date of death.  This resets both the cost basis and eliminate the depreciation allow you to start depreciating again.  Then if you sell you should not have to pay capital gains or recapture depreciation.  

@K S. Just so I am on the same wave length with your initial post, it seems to me that you are saying that investing in the S&P 500 over the last 16 years would have been more profitable than investing in real estate (specifically you used a SFH comparison). And in fact, you say it is not even close, yet we haven't stated what the objective was for the investment. Give me a well defined GOAL then I can evaluate if what you say is true or not.

Throughout this discussion there has been many side streets that have been thrown out.  Passive investing, taxes, maintenance, rehab before the sell, location, lucky, use of leverage,  all cash.......ect. What is the goal/objective?  If you say what is the more passive investment.....bingo you are correct, buy the S&P fund and forget about it!!!!! 

However, if you tell me what is the best investment to become FINANCIALLY INDEPENDENT over a mid-range of time then I am ready for a debate.  I am not interested in how much my investment is worth at the end of the 16 years..........I need to eat everyday, to-the-day I die.  Yet as I build this portfolio I have a job that provides food and I can let my investment cook, it is when I want to jettison the job and yet live financially free to-the-day I die that investing smartly with real estate WINS THE PRIZE.  You do understand we need to have a COMMON DEFINED GOAL to have a reasonable debate.  

Now let me pause for just a minute so you might have some kind of understanding of my background so you decide if I am worth listening to or not.  I am just a old retired fighter pilot jock who spent 20 years in the playground before I had to grow up and became a financial advisor for 20 years (18 of which I became independent; sold my firm 6 years ago).  My idea during my early to mid-years of my financial advisor career was helping clients become financially sound using stocks, bonds, mutual funds, ETFs, options and insurance.  If you read my profile on BP you will see at which time and how I became a real estate investor.  So like you believe now, I did back then;  the way to invest was through the STOCK MARKET..........and I think it is fine that people still use that as one leg of their investment strategy, I have come to the conclusion that real estate investing for the right person is far and away superior to investing in the market.......but it is not passive and takes a lot more hands on than buying a mutual fund.

Since you gave an example of your investing in a SFH 16 years ago, allow me to go back 2005 (17 years ago) and tell you about one of two duplexes I bought that year. Let's see how it turned out.

Paid 130k and put i put in about 10k renovating one side. Over the last 17 years I have had 3 total tenants.  One tenant has never left and the other tenant has been changed out ONCE. Maybe it is because my properties have been kept up nicer than the others on the street and because my rents have been below market.  You see I was a NEWBIE investor in 2005 and running my own financial firm.  I knew little of what I was getting into concerning real estate investing.  So, being somewhat scared to PISS off any tenants, I did not raise rents for 5 years nor did I ever charge a late fee in fear of pissing off a tenant.  However, as I got experience and saw my taxes rise (yes I too am in TEXAS), I got the courage to increase rents.  Rents started out at 725 and after five years my first bump was to 925.  I thought that i might lose a tenant or both but even at 925 I was below market.   They didn't leave and my confidence soared! They now pay 1600 each side.  

Now let's put to bed a few concerns that have been thrown around by you.   Your taxes, maintenance and insurance over the years double.  Hell my taxes have tripled.  So What!!!!! My taxes run about 2% so at 130k my taxes started out at 2600 and now my property on tax rolls 430k are about 8500......wow that is 3.2 times original taxes or about 5900 more each year than when I first bought.  However my rents has gone up 1750 more EACH MONTH!  1750 X 12 months is 21000 a year, more than enough to offset the 5900 increase in taxes. Right!  But you say how about insurance, maintenance and don't forget vacancy!!!!!!!.  Yeah Insurance has double too from 1000 to 2000 per year.  Maintenance is not worth talking about, unless you want to talk my new roof that was replaced due to a hail storm.  My deductible was 3000 so yeah other than a hot water tank replacement or a 10k rehab on the other side over the last 17 years it has been very minor. The advantage of a duplex is even with a vacancy you have substantial income still coming in!

Again what is the goal.  My goal is to eat each and every day and enjoy life to the fullest.  I care not the sale of property.   I will keep this property to the day one of us die (spouse included).  Then I will take the step-up in basis and pay NO CAPITAL GAINS and NO RECAPTURE OF DEPRECIATION. Oh, btw, you mentioned that if you have profit you must pay taxes......not so fast my friend.  You mentioned it earlier, DEPRECIATION is just another way of saying taking profits without paying taxes.  On my 19 units I thank the government for depreciation that I never plan on paying back.  Oh, how about another tip we need to mention.  I live in Austin but I go to all the Texas A&M home games (two hours drive time).  Since I have property in Bryan, I drive buy one on the way to the game to see how the yard is doing and now I get to write off mileage, you know an expense that really is not an expense but legal.  Or I buy a nice riding lawnmower and take to a rental property once so I can legally write off that expense too.  You get my drift......don't you?  What are my S&P write offs.  

Have we even mentioned control of your investments. How much control do you have in the daily running of the S&P companies you invest?  When the few times the market is crashing and you have all this anxiety, the stock market shuts down and panic selling sets in how do you feel.  A Dalbar study showed that over a 10yr period the S&P returned about 10% annually, yet the average S&P investor only realized about a 2% return because it is VERY HARD to control you emotions, especially when you feel you have no control other than to get out!!!

I am 68.  For the first 15 years of real estate investing, I took no income.  Took all profits from all real estate and paid down one loan early then the next then the next.  Now I am retired and I eat every day better than I could ever imagine.  With so much POSITIVE CASH FLOW I could live another 500 years and my cash flow would only improve each year........unless my government finds a way to take it. Yeah my biggest threat is not the markets, the tenants, or the maintenance  upkeep.......it is the government.  S&P you pay each year on your dividends whether you like it or not.   Yeah, I pay to on some of my profits, but when I don't want to, I just do a little upgrade to my property, write it off and charge a little more rent. 

Let's revisit that duplex purchase of 130k in 2005.  I put 20% down and positive cash flowed the property from day on.  However let's take a look at this investment from 50,000 ft high.  20% down is 26k plus closing cost so now we have 30k out of pocket. We also did an initial 10k rehab and 10 years later do another 10k rehab on the other side.  Now out of pocket 50k.  Let's call average rents 1000 each side or 2000 per month X 17 years.  Total income collected over those 17 years about $400k.  Taxes, insurance and maintenance probably averaged 9k per year times 17 years 153k.  Total out of pocket 50k plus pay down on mortgage estimated 130k (paid off 9 years with profits) so total out of pocket 50k.  Total income 400k -  153(taxes/insurance/maintenance) - 130k (mortgage) = 117k positive income and a property free and clear worth 500k.  Let's not forget that this property now kicks off 28k positive EACH YEAR.  This is just one duplex!  

Now as I end this rant, I will say from my assessment, you invested in the wrong type of property, your personality may not be a good fit for investing in property.  People I mention real estate to are either really excited to hear about the opportunity or they quickly shut it down as they have nothing but bad things to say and usually they had little to no experience with investment real estate. 

May I go out on a limb and ask you about that house you invested in, yeah the one you posted about.  Could it be that you bought that house initially to live in and sometime later you converted it into a rental property.  If so that would explain a lot.  Cheers.

Remisola, That is an excellent question.  Cash flow is king as far as I am concerned.  It is getting more difficult to find enough cash flow in the Austin MSA to make a good investment.  However, depending on the circumstances it can be possible.

I am more a duplex investor as the POSITIVE cash flow is easier to obtain than say a SFH. Depending how much you have to put down a deposit to get into a property, will affect the cash flow coming in.

There are a couple different angles to look at cash flow.  It is easier to make things work if you are considering your first purchase as compared to renting.   If you are renting say an apartment for 1800 a month, would it be better to own a duplex with a mortgage of $3000 a month.  If the mortgage included taxes and insurance then yes the duplex could be a better option.  Rent one side out for 1500 and you now have 1500 to pay on your side.  Rent out a room on your side for 800 all bills pay and now you cost is 700.  Saving 1100 from renting.  1100 X 12 months equal 13,200 per year because you decided not to rent.  Yes you have the vacancy and maintenance to deal with but with $13,200 extra you have some cushion before you go negative for the year.  Additionally, you have principal buy down on the mortgage and possible appreciation of the property to also offset the cost of vacancy and maintenance. 

Now backing up, if you are looking for property as a pure investor meaning you are not going to house hack the property then it is extremely difficult to buy in the Austin market and cash flow positive. I would look more to College Station/Bryan TX where you can find cash flow as a pure investor. Investors are looking to STR or MTR to increase cash flow and that could work but the risk associated with those strategies also is increased.

If you want to discuss this in more depth you can DM me and we can either talk on the phone or meet for coffee.  I mentor several people on real estate investing because I enjoy giving back.   Cheers.
 

@Steve Tom,  You have a good question.  If I read your question right, tenant cost to repair property  exceeded deposit.  Can I use the Pet deposit to help cover the cost.  I would say yes, you either take it from the pet deposit or send them a bill for  the remaining cost of repairs.  One could also logically conclude that pet hairs contributed to the clogged air filters ect.

Now for the future, may I recommend you Quit Charging a pet deposit!  Instead Charge a non-refundable PET FEE!  I charge $300 per pet.  Most if not all apartment complexes charge a NON-REFUNDABLE PET FEE, and some also charge a monthly pet rent.

Hold Up, NOT SO FAST!  First let me say I am not a lawyer so this is for informational only!

However, let's review the facts.  Walk thru completed but expectations were not met.  Landlord took more than 30 days to give a detail report of the deposit.  Yes in this case the landlord opens himself up to 3X penalty!  However, if the landlord sent a check for the balance AND the tenant CASHED the check, I think that might be deemed acceptance of the return of deposit.  IF so the judge may dismiss the case.  However, if in fact the tenant has not taken possession of the balance of the deposit then the landlord will be held to the 3 X penalty.  This is also predicated on the tenant providing an address to the landlord in writing as to where to send the deposit.   The 30 day requirement does not begin until the landlord has received the forwarding address from the tenant in writing.

@Abiola Bakare, Hi!  It is difficult to give you sound advice without knowing much about you.  I would recommend you use the profile page BP.  It will allow you to tell everyone a little about yourself, your real estate experience, your Goals and Why you invest in real estate.  If you need an example, go to my profile page.

With that knowledge, I can then give you better direction as to where, what and how to invest with real estate. I don't have a good understanding of your desires or what you are seeking. What are your priorities in terms of capital appreciation vs cash flow. What type of properties are you seeking; SFH, Condos, Townhomes, Duplexes, 3/4 plex, ect.

I certainly have my bias and would love to sit down with you if you are in the Austin area or possibly a phone call. Usually my time spent with newbies last a minimum of 1-2 hours on our first meeting (either in person or on the phone). I mentor several people, mostly those who are just starting out. It is most important that you have a clear understanding of the type property and the strategy you want to use (FLIP, LONG TERM BUY AND HOLD, STR, MTR).

My specialty is helping people come up with a goal and their why.  I am a CASH FLOW priority investor.   My ultimate focus is not how can I get you rich quickly but rather, wealthy over time.  I am 68 yrs old (semi-retired).  My end game is to show you a path to financial independence, whether that be at 45 yrs old or 70 yr old.  If this is something that interest you, then I think I could be a good resource for you. 

Lastly and before you think I am going to sell you a training program that cost thousands of dollars.  I am not!!!  Nor am I going to try and make a commission selling you real estate or lending you money.  I am neither a real estate agent or mortgage lender.  I have no conflict of interest.  This gives me the opportunity to tell it like I see it.  Some of my advice you might quickly embrace, some of it you might not want to hear it........I don't know but if you want to build wealth, my advice might be helpful.  

My advice comes with the cost of a cup of coffee or lunch.  Unfortunately, usually when people get something for free they don't value it.  I like providing some guidance, it is up to you to embrace it or not.   Cheers.

@Ryan Edwards, Howdy and welcome to BP.  I am a local investor, check out my profile.  I am neither a real estate agent nor am I a lender.  However, I am an O'ld Fart that has some experience in small multi-family investments.  

I would be happy to sit down with you and impart some of my knowledge that I think you will find helpful. I mentor several people and I spill my guts for the cost of a cup of coffee.  If this sounds interesting to you, hit me up with a direct message and we can set up a meeting.  

Also, I recommend using your profile page to tell us more about YOU and your goals and desires concerning real estate investing. Cheers.

Hi Floris,

I have been investing in Central Texas for 25 years. Can give you some of my wisdom over the last 25 years but I am better at talking than typing.  If you want to do coffee or lunch let me know. 

I am neither a realtor or lender nor do I have a thousand dollar training program to sell you.  

What I do have is extensive investment experience (look at my profile).  What's in it for me?

Feedom, to tell you what I know without any conflict of interest.  Why?  Just because I like giving back.  I am a 68 yr old fart that likes to bloviate.  Most people find my bloviating worth hearing. Hit me up for coffee if you want.  Cheers!

Great question!  Since you ultimately want to make this an investment property, would you select this property if you had plenty of money and was going to use it as investment real estate from the get go?  

At the current time you are negative $1000 a month.  That is fairly frugal for living in Austin.  Good for you!  I would rather you find a property for which you could live in and still produce some income.   Like maybe a duplex.  However, that may cost more than you're able to handle.  So I will stay with your current question on this property.  

You need to improve your situation if you change your situation.  You are $1000 negative now, if you are willing to rent out a room while you live in the townhome and you are only out of pocket a $1000-$1200 then I think the move is worth considering.  

I don't like any investment property that has HOA or condo association fees. They eat into your cash flow. Cash Flow is KING! Don't let anyone tell you otherwise!!!!

I could go on for several hours with you on this question but I don't like to type as much as I like to talk.  If you want to grab coffee or lunch I can sit down with you and give you STRAIGHT unbiased advice.  You see, I am not a realtor nor a lender so I have nothing to gain.  Nor do I have a training program that will cost you thousand of wasted dollars.  I am just a 68 old fart that like to give back so if you want some of my 25 years of wisdom investing in properties then hit me up with a direct message.  

There are very few, good buying opportunities in the Austin metro-plex for pure investors.  If you live there and are currently renting, then there still is a pathway to house hack say a duplex and better your situation.  However, if you have money and are looking to buy investment property there are many, many better places to invest than Austin.  Cheers!