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RE: RE: right time to invest or not? - crimsonghost747 - 07-02-2019
I can't give you any advice when it comes to actual real estate investments. But I'll still happily share my thoughts on this matter on a more general perspective.
It seems to me like you've decided that you want a new home. So in that case, yes it definitely sounds like you should move. And from what I can tell, this very first property you mention is what you want. If it's what you want, you can afford it, and it's a great place for your family (you did mention safety and good schools) then it sounds like a good choice! I'd definitely say that a good home, and it's location, are very important when discussing quality of life.
I'd say make this "dream home" your priority. It may be a good investment, it may not, but if it makes you and your family happy then it's worth doing.
I'd also keep selling the current place on the table. Being a landlord may be profitable but it's also a pain in the ass when things don't go right. I have a family member who has always been wary of other investments and put everything into real estate. One of them totally backfired, one was a good investment but definitely brought a lot of head aches with a bad tenant, and the third one is a vacation home that is financially quite bad but overall a pretty decent move as he and other family members spend quite a bit of time there every year. Real estate can be profitable but it does come with "dealing with people" which is not always easy.
Main point with the above is that you if you want the property number one but you're a bit skeptical about the timing, selling the old places leaves you with significantly less mortgage and with less exposure to the housing market in that specific area. Personally I would be absolutely terrified of having a large amount of my capital tied up in real estate investments simply because diversification seems non-existent. I have no idea how much your current house is worth but it sounds like it would go a long way (even after taking care of the rest of the mortgage) into financing the new property or simply using it for investments.
Long story short: get the house that makes you and your family happy. But keep all of the options on the table. And I wouldn't bet on the rate cut happening, I just see no reason for it at this point.
RE: RE: right time to invest or not? - NilesMike - 07-02-2019
Most people who struggle with being landlord did not realize it is a PEOPLE business. If one is not good with people they will chafe at being a landlord.
Broker, appraiser, landlord successfully since 1987. Do it all over? No, I would go heavier in the DGI direction.
Good luck.
RE: RE: right time to invest or not? - fenders53 - 07-02-2019
(07-02-2019, 06:36 AM)NilesMike Wrote: Most people who struggle with being landlord did not realize it is a PEOPLE business. If one is not good with people they will chafe at being a landlord.
Broker, appraiser, landlord successfully since 1987. Do it all over? No, I would go heavier in the DGI direction.
Good luck.
Mike is correct. It is absolutely about customer service. (and not getting conned with excuses). If I was paying VBIN $3500/mo rent, he damn well better be taking care of my problems with a smile when it inevitably happens. If you can't, then you hire a property manager and give up some of the profit.
I have a few friends that did the multi-family rental in lower income areas. They definitely made more money faster, and I was NOT at all jealous. No chance I want any part of that if I have a day job.
I used to tell my friends............ "Everybody that rents does not suck, but everybody that sucks has to rent".
You gotta be somewhat selective.
RE: RE: right time to invest or not? - ChadR - 07-02-2019
You said this property is down 100k since the peak. How much profit do you have in the house now? If it was your primary residence for 2 of the past 5 years, you can have a tax exempt gain of up to $500k if you're married. If you turn it into a rental, you can potentially kiss all that tax free gain good bye. If you're sitting on a big gain, it's hard to lose that.
If I was you, and there is a nice size gain in the house, sell it and get the tax free gain. If you still want a rental house, buy one and you've got the higher depreciation basis for the new rental house.
RE: right time to invest or not? - vbin - 07-02-2019
(07-02-2019, 09:55 AM)ChadR Wrote: You said this property is down 100k since the peak. How much profit do you have in the house now? If it was your primary residence for 2 of the past 5 years, you can have a tax exempt gain of up to $500k if you're married. If you turn it into a rental, you can potentially kiss all that tax free gain good bye. If you're sitting on a big gain, it's hard to lose that.That's a fair statement, I did not consider the taxes. But I don't plan to sell my first home either a long time. Plus I can claim depreciation and fixture costs from taxes every year.
If I was you, and there is a nice size gain in the house, sell it and get the tax free gain. If you still want a rental house, buy one and you've got the higher depreciation basis for the new rental house.
Can you please explain what you mean by "If you still want a rental house, buy one and you've got the higher depreciation basis for the new rental house."
RE: RE: right time to invest or not? - NilesMike - 07-02-2019
The key to real estate is to never (or nearly never) sell. The hardest time is the first few years of ownership.
When the property gets converted to income property you can then 1031 exchange it for another (hopefully larger) property w/o any taxes.
https://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2015/09/17/tax-implications-for-converting-a-primary-residence-to-rental-property
https://www.realwealthnetwork.com/learn/how-to-do-a-1031-exchange-rules-definitions/
RE: RE: right time to invest or not? - ChadR - 07-02-2019
You turn your current house into a rental, you start depreciating it at the price you paid for it. eg You bought it for $150k, that is what your depreciable basis is. If it is worth $250k, you don't get to depreciate that extra $100k. When you sell it years down the road, you pay taxes on the $100k of gain. Where if you sell it now, you get the $100k gain tax free and the new rental you buy for $250k you get to depreciate the rental at the $250k basis. And then when you sell it, you pay capital gains on the gain from $250k and not $150K (this is ignoring depreciation recapture). There by saving the taxes on the $100k capital gain.
The downside to the 1031 exchange is that you have to keep in the rental game. If you ever get sick of being a landlord or want to use the money for something else, you then have to pay the taxes. But yes, it is best to never sell real estate.
RE: RE: right time to invest or not? - rayray - 07-02-2019
(07-02-2019, 01:23 PM)ChadR Wrote: You turn your current house into a rental, you start depreciating it at the price you paid for it. eg You bought it for $150k, that is what your depreciable basis is. If it is worth $250k, you don't get to depreciate that extra $100k. When you sell it years down the road, you pay taxes on the $100k of gain. Where if you sell it now, you get the $100k gain tax free and the new rental you buy for $250k you get to depreciate the rental at the $250k basis. And then when you sell it, you pay capital gains on the gain from $250k and not $150K (this is ignoring depreciation recapture). There by saving the taxes on the $100k capital gain.
The downside to the 1031 exchange is that you have to keep in the rental game. If you ever get sick of being a landlord or want to use the money for something else, you then have to pay the taxes. But yes, it is best to never sell real estate.
Very good advice here, along with NilesMike's.
All the people I knew who had rentals primarily stayed away from single units., they preferred multi-units, that way cash was always coming in when one or two units were empty. No money came out of their pockets, like ever, it was all rent money that paid for everything.
One guy, who had many many properties never sold a property outright, he always acted as the bank, i.e., held the mortgage. I remember he sold a five unit with a small coin operated laundry-mat, he told me he couldn't keep the machines empty and had bags and bags and bags of coins in his house--I don't think he declared the coins lol. Anyways, this was his first property he bought for 20k sold it in the mid 80's for 250k but held the mortgage. The guy paid this guy every month for almost 15 years, ran into money problems and defaulted. He got the property back, had it for a few years, sold it again, held the mortgage for 20 years until it was paid off. Another thing he did was non of his rentals came with appliances, nothing, he would tell me he's in the rental property business not the appliance and repair business. He didn't want to be getting 2am calls that some dishwasher, dryer, washing machine or fridge wasn't working.
Another guy who has massive amounts of rentals told me the success of a rental was double the mortgage, in-other-words, if your mortgage is 2k a month he wanted at minimum 4k in rent coming per month--if that was not possible then he said he wouldn't buy it. His favorites were 5 units or more, that a 5 unit put money in his pocket immediately.
I guess the answer is it doesn't matter what any of us tell you--that if you want to be a landlord and you're ready then do it--but don't do it half-ass, go all in and remember it's a business, treat it as a business. And don't rent to friends or family.
RE: RE: right time to invest or not? - fenders53 - 07-02-2019
That's sound advice rayray. I've heard the same from a number of landlords. I broke a few of the rules along the way. I had a very good job and didn't want to deal with four or five different tenants. The house has never been empty a week so it worked out well enough. I don't think my rent was quite double the mortgage. That would definitely be difficult with anything less than a duplex. They paid it completely off soon enough though. I also didn't want to be an appliance repairman, but the house was already furnished with older stuff. I specifically put in the lease the rent does not include appliances. You may use the ones present if you wish. If anything breaks it becomes your appliance if you decide to repair it at your own expense. If you invest any repair money you may take it with you when you leave. That worked out surprising well for 18 years. Several of my tenants ended up leaving a complete set of working appliances for the next tenant. It helped keep the rent competitive as well. Some of the reason it was never vacant. The last time I listed it available, I had 12 people requesting to be screened by that evening. Competitive rent in the right neighborhood is too easy to keep occupied. You just have to get the details right so you don't learn any hard lessons. You won't get it perfect. Things happen, people get life problems and change etc. Talk to other local landlords and learn the local things you should know.
I had a friend who rented a home in a rough neighborhood. The crackhead tenants were pulling the aluminum siding off the house and recycling it for drug money. Scrap prices were very high at the time. He didn't watch the house for a month and they burned him. There are a million landlord horror stories like that. VBIN won't be dealing with that crowd. I'm not trying to discourage you. As I said the ROI makes my stock returns look weak by a wide margin. I should calculate my annual return. Once it was paid off I began to get my entire initial investment back every single year. And that's a single family dwelling that everyone says you shouldn't bother with.
RE: RE: right time to invest or not? - NilesMike - 07-03-2019
Sometimes it is very easy to forget, especially for my wife when the service request come, these tenants are OUR CUSTOMERS.
RE: right time to invest or not? - vbin - 07-03-2019
Thank you all of u for sharing the thoughts, very insightful. More information is always helpful.
RE: RE: right time to invest or not? - NilesMike - 10-31-2019
(07-02-2019, 08:14 PM)rayray Wrote:(07-02-2019, 01:23 PM)ChadR Wrote: You turn your current house into a rental, you start depreciating it at the price you paid for it. eg You bought it for $150k, that is what your depreciable basis is. If it is worth $250k, you don't get to depreciate that extra $100k. When you sell it years down the road, you pay taxes on the $100k of gain. Where if you sell it now, you get the $100k gain tax free and the new rental you buy for $250k you get to depreciate the rental at the $250k basis. And then when you sell it, you pay capital gains on the gain from $250k and not $150K (this is ignoring depreciation recapture). There by saving the taxes on the $100k capital gain.
The downside to the 1031 exchange is that you have to keep in the rental game. If you ever get sick of being a landlord or want to use the money for something else, you then have to pay the taxes. But yes, it is best to never sell real estate.
Another thing he did was non of his rentals came with appliances, nothing, he would tell me he's in the rental property business not the appliance and repair business. He didn't want to be getting 2am calls that some dishwasher, dryer, washing machine or fridge wasn't working.
.
Regarding some of the horror stories.
YOU GOTTA HAVE A PLAN
I have had more than my share of totally ruined rental units. I have all of them insured by the same company and same agent. The insurance pays for the renovations and covers the missing rent until the unit unit is ready to re-rent. You must present the case as vandalism. Get a police report when you gain access to the unit and file your insurance claim.
Regarding appliances and late night calls. I don't answer my phone outside of regular business hours. The tenants are instructed that if they have a fire or other life threatening issue to call 9-1-1. Other "catastrophes like a burst pipe or no heat situation" they call one of my guys. If it turns out to not be an emergency situation when he gets there. THEY PAY THE BILL. All spelled out in their rental agreement. (No more leases-they are way too tenant favorable)
Just met a younger guy 40ish who has 115 SF rentals. Oh if I was 20 years younger