All Forum Posts by: Aaron Knoll

Amazing work. 
May I ask: how do you find time to manage 20+ units? Do you do this all personally or rely on property managers?

If anything, I think a lot of Bay Area and folks are moving *to* SLC, as opposed to residents of SLC moving out. What's your take?

You can still find deals on multi properties if you're patient but they are few and far between. It's an even bigger problem for SFH's and anything on the MLS. Another issue: most of the multi-units I could see buying in SLC would not be the best for ski season rentals. Some towns like Sandy have ordinances restricting AirBnb.

 Hi Leslie, thanks for your question. My main goal is having someone else pay off my mortgage -- i.e. forced savings. Cash flow is positive, but marginal for this property -- but note I have a 15-year mortgage on it (cash flow would be substantial with a 30-year). Appreciation will be nice but I never count on it. In the next 10 years this neighborhood could do well -- it's in a good location, is solidly middle-class but has not yet "gentrified" (though its surrounding areas have). But saying it's going to appreciate XXX is crazy. More likely there will be a bubble or recession in the interim, and selling during that time would be a mistake. 

I don't mind managing property (though dealing with vacancy is very stressful) -- and I'm prepared to be a landlord. Also in this RE environment, good investment opportunities are not exactly falling from the sky. 

The advantage of cashing out is that it's a good time to do it. The disadvantage is that I know I'd blow through that cash, i.e. it's great short-term to get out of debt but bad long-term. I think of the question as "do I cash out to get out of debt?" or "do I preserve my RE assets"?

Thanks, - Aaron

I rented out this particular property for 6 years and expenses never came close to 50% of rent... that's insane. 

Granted, things age, I had to put on a new roof, a new furnace, etc. But even with all that, expenses were maybe 20% at worst. 

Also I'm not sure what the "opportunity value" represents... investment vehicles with 10% ROI aren't just falling from the sky in my neck of the woods. And any RE venture entails either risk, sweat equity or both.

I do agree that the cap rate / CoC return are marginal, and I could take the $100k cash from the sale and invest that in a more profitable venture.

Thanks. It's not great cash flow, for sure. 

I have a classic dilemma: rent or sell?

Grade: a solid B. House needs some work, but will fetch a good price on the MLS.
Good neighborhood, not huge upward potential, but in a state (and area) that is currently seeing explosive growth. 

Likely sale price: Anywhere from $340k -- $370k.
Rent: $1800 -- 2k / mo. Mid-market for the neighborhood / area.
Mortgage: $180k left on a $200k note 15-year fixed at 2.6%. 

PITI: $1620 / mo.

Other: we have about $30k additional in a heloc (mostly used to improve another property, which we are now moving into). 

Analysis: cap rate is 6.4% -- not horrible but not great. With the 15-year mortgage, this property nets $15k/yr, paying down the mortgage every year (increasing slightly over time).Cash flow is roughly break-even in short term; but long-term major repairs may be an issue.

(Reverse) cash-on-cash return: We'd net around $100k -- $120k on the sale. From that perspective, keeping this home is a 12--15% annual cash-on-cash return -- not bad! 

Other factors: (+ = sell, - = rent)

+ we are moving into a grade A home that we picked up for a steal, for which $25k of work but could gain $100k or more in value. We need the cash to eliminate debt and improve this new property.

+ improvements to this property would at best break even, and in the long term this neighborhood seems "safe" but not clearly on the upswing. 

+ we have occupied the home for >2 years (after having previously rented it out), therefore it would qualify for capital gains exclusion. 

+ the home requires some repairs. Nothing major in the short term, but in the long term landscaping, retaining walls, etc. It would be a great home for a homeowner, less so for a long-term landlord. 

+ renting out is stressful. Vacancy hurts. 
+ from a tax perspective, we'd have to pay taxes on roughly $9k/yr of income, which would increase our tax bracket and liability (likely by around $3k/yr). 
- in an uncertain long-term employment situation, I could boot out a tenant and return to this grade B property if we kept it, while selling the grade A home (likely for a significant profit, even in a down market).

- We previously rented this home out for 6 years as absentee landlords. Handling it as local landlords might not be so bad.

- "better the devil you know" -- we know the major risks and limitations of this home, which make it a better investment than a property we do not know (excluding, perhaps, a turn-key condo).

- After 13 years, the mortgage would be paid in full and we'd have a $400k+ asset free and clear. 

- I hate selling.

Any recommendations? Rants are welcome. Thanks!

It is bad news. America has just signaled to the world "we are not sane, and your business is not welcome here".

A lot of foreign investors will flee the US. The value of overpriced condos in Miami, Boston, Seattle, and other foreign investment destinations, will tank. The dollar will tank. There may be some areas that will suffer less than others -- the suburbs, rural areas, major employment centers with comparatively sane real estate costs (Austin, research triangle, Salt Lake City, Denver). But make no mistake: we're in for a rough ride. 

Thanks Joe Reardon! I ended up doing the math on the 3115 and decided that the gain wouldn't be worth the pain of filling out the form, for the one year when I could claim it. In the end, my taxes this year ended up being pretty straightforward. 

$1500/mo will be tough for a single-family near the university area. For that, you're really looking at Liberty Wells and central city (just south of the Avenues). 

If you go a bit further out, like north Sandy, you'll be within 20 minutes of the University and can start to get single-family homes in that range (I don't have any though...)