All Forum Posts by: Bill Henley

 Maybe a little harsh on Mr. McEvoy, David, but this is the thing I picked up on with your original post: the savage (and I mean that in a good way) intensity it took to go from offer to rehabbed in three months. That took incredible amounts of energy and determination and self-confidence, more than 99% of us can claim to have. Luck has nothing to do with it. Keep doing what you're doing.

Personally I am placing a bet on a big downturn in Bay Area single family residential. I moved here nearly 40 years ago. My wife and I bought a 2 + 1 in the East Bay in 1995. Offered $225 -- $5K under asking -- and got a new furnace and ducting, and a water heater, out of the pre-close inspection process. Those were different times! We are fixing to sell within the next 8 weeks. Comps are mid-900K, and $1M is in sight. About 400% appreciation in 22 years. Ironically, the decision to sell and get out arose from this same equity gain. My wife took out a HELOC about 2.5 years ago and has bought 7 properties, 21 units, in her hometown of St. Louis. The cash flow is now enough to replace my income so, at age 63, it's back to the slush belt for me. I'm sharing this ramble as a data point for how things can play out for a young family in a steadily-appreciating real estate market like the SF Bay Area. Also as one person's prediction that the time is right to take profits and get out at the top of the market.

It's premature to ask how a Trump presidency will affect investor confidence. If Trump deregulation, tax cuts, and public works spending boost GDP growth, confidence will rise. If Trump immigration policies and trade disputes, and Fed interest rate increases, slow GDP growth, confidence will fall. At this point no one knows which set of factors will be decisive. It is also the case that, if there was one lesson to be learned from the Trump campaign and its Electoral College success, it is that any predictions about Trump results should admit a huge uncertainty factor. I heard some MSM fool say this weekend that, Trump's announced absence notwithstanding, the White House Correspondents' Association dinner will "celebrate" all the "distinguished" reporting of the past year! True spit-take material.

I have a self-directed IRA that I would like to use to invest in a third party's flip. In thinking about a promissory note that would avoid both a prohibited transaction problem and an Unrelated Business Income Tax ("UBIT") problem, I thought of these terms:

(1)  The note will have no installment payments. It will have an interest rate of 12%, i.e., a "hard money" rate. Principal and interest will be payable in full at the end of 12 months.

(2) If the borrower sells the flip property prior to the 12-month payable-in-full due date, then the borrower will incur a pre-payment penalty. The amount of the pre-payment penalty will be equal to one-half the net proceeds of sale, minus the accrued interest. Of course accrued interest, and principal, will also be included in the payoff amount.

Does anyone see a prohibited transaction here, or a UBIT problem? Regarding UBIT, this would be the first investment that this SD-IRA has made, since being converted from a traditional IRA.

If we are ahead it's only because it's a lot easier to get a $350,000 HELOC in the Bay Area than in St. Louis.

I have made just one visit to St. Louis, last November, and I did make it to the very tail end of an REI lunch meeting. I was the guest of Peter from www.stlmogul.com. Peter's on Bigger Pockets and he's a guy you will probably want to connect with.

Hi Megan. We have three things in common. One, I am a relative newbie both to Bigger Pockets and real estate. Two, I have lived in the SF Bay Area nearly 40 years (Missouri native). Three, I'm moving to St. Louis in about 100 days to work real estate full time. During the past two years my wife has bought us 21 units spread over 7 properties, all in the triangle of I-44, Gravois Ave, and River des Peres. The real estate folks in this area are like a small town community. Maybe we'll cross paths when I relocate. I am likely to want to do some flips too.

Five headwinds that California coastal real estate is facing which never existed in any previous market: (1) Baby Boom retirement is creating more sellers than buyers. (2) The Fed's unprecedented regulation of interest rates through money printing and Treasury note buying is winding down. The Fed is already transitioning into the liquidation of its unprecedentedly huge balance sheet. Rather than roll over its Treasuries into new notes upon maturity, it is simply cashing them in. And of course everyone is aware of the recent rate increases, and the likelihood of more to come. (3) China's President Xi is getting increasingly desperate to quash the outflow of capital, much of which landed in cash-only real estate purchases in North America, with a particular emphasis in California. (4) President Trump's immigration and trade policies (*whatever* they may be) appear likely to dampen foreign investment. (5) California's high earner/highly educated demographic is in negative growth; i.e., they're emigrating.

Of course every part of the country faces most of these same changes and tendencies. But it is California which has benefited the most from the status quo ante. Anyone who doesn't have a healthy respect for the possibility that California real estate -- particularly the coastal properties -- is in a bubble, is probably not being realistic.

One answer to Avel Arci's question lies in Diane G.'s own example. The facts on the ground that a buyer in Feb 2017 must deal with are her $1,400,000 market value and her $4,450/mo. gross rent. Forget the 1% rule; that's a 0.3% rule. $280,000 down payment. $5,000 to $6,000/mo PITI.

@Mike Dymski: James Eng's Powerpoint is great. Thanks for the link!

@Mike Dymski: what is the definition of a *big* balance sheet in this context? To me as a resident of the S.F. Bay Area $1 million is not very big. But where I am buying properties is in the City of St. Louis. Is $1 million big in St. Louis? 

Here's an example of Bay Area prices: a 870 sq ft  2 bdrm 1 bath, the victim of a badly stalled rehab, located in possibly the least desirable part of my little town, that sold in December for $652K: http://www.zillow.com/homes/%09-1049-Kains-Ave,-Albany,-CA_rb/ . Notice that even the backyard tree couldn't take it anymore.