All Forum Posts by: Crystal Smith

If the goal is to build passive income and generational wealth then the approach you may need to change is considering what kind of sacrifice are you willing to make in the short term to realize the long-term goal. Possible approach changes and sacrifices you may have to make:

Expand your search to properties that are not move-in ready where you can utilize a Renovation Loan (such as an FHA 203K) o improve the property. If you plan to live in the property then the short term sacrifice you may have to make is to live in an area that is gentrifying in lieu of an area that is already fully developed. Find a property, develop it, live in it, rent it out and then repeat.

Another approach, which I believe may have already been mentioned is to find a mixed use property in lieu of just focusing on a 3plex

Another approach is to find something near one of the universities and run your rental analysis as if you are renting by the room at dorm like prices in lieu of renting each unit individually. When school is out then turn the apartments into an STR.

Another approach since the goal is to build generational wealth with passive income is to build up your current cash reserves through a few fix and flips, then use the cash to purchase and hold.

Pro- An LLC can provide some anonymity protection, but in my opinion, it's not enough. Depending on where you incorporate your name will still be recorded on the public record with the Secretary of State. If your goal is anonymity then you have to choose a state where your name is not recorded. You can also purchase inside of a LandTrust for additional anonymity

Pro- Legal protection; combined with the right type of insurance

Con- Traditional bank will not lend to an LLC with no track record. You can start it, get a track record of at least 2 years and then maybe....

Pro- Hard Money lenders who can only lend to a business will lend to a new LLC, but you will still be personally guaranteeing the loan.

 Not sure what market you are in where rents are going down dramatically, rents have been going up in the markets where we do business. Unless of course, you are referring to commercial rents.  If you are referring to residential rents then you have answered your question- "Buying right"

But buying right is too simple an answer.  I recommend to "navigate the turbulence" in your market do a deep dive on rent trends over the last 15 years.  Why 15?  The last real downturn was around 2008.  If you examine the data you'll be able to see if rents in your market have rebounded since then or are they still depressed .  If the rents have rebounded or are way above the last major downturn then whatever you are experiencing is most likely a short term blip and you should "buy right" and ride the wave back up.  If the data shows that there's been no recovery since 2008 then.....

Because I don't know the price points in your market along with what you can get for rent it's impossible to answer the question about whether or not it makes sense to buy with 3.5% down or 20% down and still positively cash flow a duplex.   I recommend you do some market research on the price points to purchase and what you can get for rent to answer the question yourself.

Regarding a 3 to 4 unit, If you decide to use an FHA loan make sure you research the FHA self-sufficiency guidelines.

 Have any condominiums in your building with an ocean view sold between $1.2-1.3M in the last 6 months.  If not, then your price may be too high and your agent may be right.  What has your agent told you about the average days on market for recently sold listings?  If the average is much less than 45 days then you are overpriced.  If the average is around 45 days then don't panic yet.

For investors that treat Real Estate like a business, and a part or all of their business is wholesaling, then a change in the laws is a good thing for a good business person.  The good business person will adapt and the bad ones will drop out of the business.

 The answer to the question- should I care?  If you have the right systems and people in place to facilitate due diligence on a property independent of the seller/owner or broker representing the seller,  then no, you should not care if an agency that owns & purchases rentals is also selling properties.  The part of the agency that purchases properties may have investment criteria that certain properties do not support, so they sell them because they may meet another investor's criteria.   The properties may meet your criteria. I'd focus on making sure you have the right people in place for legal and property condition due diligence.

 Make sure you talk to @Aaron Hickey about using the structured settlement approach.  It removes the forced timeline associated with 1031 while providing the same tax delay benefits.

While there's not enough information in your original post to provide advice here are some things to consider:

1. With a .6% ROE and a current inflation rate of 3.3% year over year, you are losing ground unless the projected appreciation rate of your property is high enough to overcome these negative numbers. If the projected appreciation is high enough to overcome these numbers then you hold.  If not then you sell.

2. A strategy you may consider  is selling is using either a 1031 or a structured installment sale to delay taxes.  You can talk to @Aaron Hickey to see if a structured installment sale would work for you.

3. If you decide to sell then having a tenant who wants to buy is perfect. Before signing a contract with the tenant request a Proof of Funds if they are paying cash or a pre-approval if they are going to get financing. Don't commit to a contract until you know they can close.

You get the property under contract direct with the seller. Make sure your contract provides you with permission to market the property, which includes marketing on the MLS. You sign a contract with the realtor to market the property at a price higher than what you have committed to the seller. You then have to decide if you want to assign your contractor to the new buyer or double close. The realtor gets paid commission from the sale. The seller gets paid what you committed to on your sales contract. You get paid the difference.