All Forum Posts by: Bogdan Cirlig

To me is very simple (in a way):

Flipping

• Full time job, lot of non productive hours put in, lot of knowledge and research in local market. 
• If you calculate your honest $$$/hr you will find out it's not that amazing, or yes for a selected few it might be. If you invested 100 hrs total with everything accounted for to make 40k you yielded $400/hr. that's great, especially if it's net income. Oh, in fact you have to give 30-40% to taxes :( so net is what $200/hr?)
• the real question here is the velocity of your $$$. If you wholesale you know precisely how much work is to find that one guy who's willing to sign a purchase option contract. Yes you made 40k but count the hours you actually put in and how many deals you lost to competition.
• active income taxed at your current % probably 35% + state tax or more if you're doing well

Buy & Hold

• Allows you to leverage your 20% cash and your excellent credit to get a piece of appreciating real estate while someone else is paying for your asset. What a nice 401k that you don't even have to put money in every year and invest in stocks, besides the 20% you start with.
• If you did the right job and identified the right market right neighborhood, right asset, you place it with a PM and move on with life.
• Your actual $$$/hr is sky high albeit not immediate as flipping
• tax depreciation, 1031 exchanges
• any loss (if any), while passive if you have a non RE job, becomes active when you sell that business asset hence you will write it off against your active income of that year and eventually carry a NOL for next years. We all know most buy & hold properties may yield a small loss after depreciation is accounted for lol, so from my tax perspective unless your property is HIGHLY cash flowing, you may have a very small passive loss every year, though not actual cash loss but depreciation loss.

So back to the original comparison that it takes 22 years to realize the $40k, I think it's worth noting that you also have the asset maybe free and clear by then or close to, and you didn't pay for it and eventually it appreciated a lot in value for the 20% you put down.

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@Account Closed, if there was a model based on data to predict bubbles with great accuracy, we will all know when to pull out or not get in. But instead is how irrational the market is. It's a long story on why I feel this way, it has to do with how VC money are invested in high-tech in Silicon Valley these days (and I have boots on the ground myself), how irrational are buyer offers and why they offer 20% over the listing price of $1MM? It all has to do with a lot of M&A that happened in Silicon Valley, money that people realized in an instant, and hence spending it uncontrolled. It has to do with how abrupt the $/sqft prices are rising in both rent and sold comps, and you can feel the insanity. It has to do with what hedge funds are doing in the market as they have vast resources to analyze the trends. This is fueled by the high-tech explosion (again) that is due for a reality check and correction. I'm saying that because of how the valuation and fund raising discussions occur these days at the cap table, reminiscent of pre 2000 craze.

As I can feel, there's a lot of "blood in the streets" to quote a nice book I once read, and the heard is running/stomping in a very irrational manner. This is a craze/bubble whatever the term you want, it cannot be sustained, with year-over-year appreciation of 20% lol. It will stall, and fall back to the ground. I am a high tech entrepreneur in Silicon Valley, an angel investor and a real estate investor. While i can't foretell the future, I see and feel the signs. The govt did an amazing job to pull the real estate market around back on the growth path, very very fast compared to last recession. But, markets have cycles, always.

@Michael Notoyou're saying craigs and postlets rentals are not on rent0meter?

We're at the top of another real estate cycle, cash out, collect your profits invest the proceeds to leverage your cash position. If your market experienced 10+% increase year over year that's the sign of a bubble. This market frenzy is about to burst, there are signs written over the walls. People with a household names are advising to proceed with maximum caution in 2015...

SF Bay Area is definitely in a bubble awaiting to burst just as soon as High Tech will burst, probably later this year.

You can find all comps on redfin or zillow or even ziprealty, yes past purchases, just to start off with. Unless you're doing a BPO, for regular ball-park estimates within +- 5%, these sites are just awesome. We're running about 800,000 CMAs every day, I can't even imagine putting real person manpower behind that :).

Gregory, congrats on your first purchase! Since it's (almost) a done deal, you need to be happy, I don't wanna ruin it for you :) lol.. no, j/k, it doesn't look bad. I'm usually concerned with how fat that HOA fee is and what hinderance the HOA imposes (i.e. no parking on the driveway, all cars must be in the garage) etc. These are usually reducing your pool of tenants very fast. Numbers look marginal-floating on paper so to speak. I'd also consider crime, schools, asset class/neighborhood and household income. You want to "blend in" into that area, meaning you're not luxury condo in a C class neighborhood.