All Forum Posts by: Bryan H.

Quote from @Kiley Costa:

My husband and I are trying to decide whether or not to pay off our first (and only) STR in Palm Desert. We bought a 1 bedroom condo in July 2024. November has been our only cash flowing month (barely), but we anticpate cash flow from Jan-April '25. Interest rate is 7% and HOA is high ($760). We're trying to decide whether or not to pay it off or save to buy another property. My husband leans toward paying it off which will eventually provide passive income for re-investing. I'm torn and eager to dive into another investment that will cash flow year round.

Any and all advice or thoughts are much appreciated. Thanks! 

Sell it. I can tell you from experience one bedroom condos are among the worst long term real estate investment performers. They just don’t keep up with the growth appreciation rates of other properties in the same neighborhood or even the same building. A two bedroom or bigger will grow at a much higher rate over time. My personal example is a one bedroom condo I’ve held my entire adult life - and this is in a top tier market - Dupont Circle neighborhood in Washington DC. There’s simply less demand for them compared to larger properties. And DC is a haven for young highly educated would-be first time home buyers. Thing is…most of them wait for marriage - need more space, want a two-bedroom etc…

Quote from @John Mason:

My property is on a barrier island where it appreciates almost 10 percent for past 10 years..I would think that give or take it would do so next 5 years and I would use it to buy other properties

I think people should read John Schaub books more:)

What barrier island is that? I know of one barrier island where it may show 10% appreciation over the last 10 years, yet prices still have not recovered from their peak way back in 2003. One theory is climate change and sea level rise is being priced into the market, perhaps moreso going forward. I guess point being, long term appreciation is not guaranteed in any market and depends on the hold period. Investing returns on barrier islands could be one significant definitive scientific report, one hurricane, or the last insurer pulling out, from dropping off a cliff. 😬

Quote from @David Charles Edwards:

Yet accessing the equity is not your goal! The goal is simply to be able to drink wine and fish. Hence hiring a PM is a singular independent solution. Yes, there’s a cost to that (as with any other approach) other than what you’re currently doing. 

You are absolutely right in this regard!  I graduated from ECU in 1992, started a small business that has been open to the public in the same location for 32 years while slowly and methodically built this small RE retirement portfolio and with our last one set to graduate next year,  I'm ready to retire and relax.  Life is so incredibly short. 

We may have been at the same parties! I graduated JMU in 1990 and we did many weekend road trips down to ECU to visit friends and vary our strict party routine…

Quote from @David Charles Edwards:

Quote from @JD Martin:

Quote from @David Charles Edwards:

1. Status quo

2.  turn over to PM

3. sell them all and move into fixed income.

I'm just not sold on the 1031 angle.  seems riskier than what I'm doing now and lots of feesI

 If you are asking/expecting that there's a way you can access $1.5 million in capital gains without any cost, the answer is no. The only question then is if you'd rather pay 20% LTCG plus ordinary income tax on your reinvested proceeds or 5% effective rate on maintaining your investments while harvesting the equity you've accumulated. BTW, it's not a "theory" but simple math and what the truly wealthy do all over the world. The higher the delta between your cost to operate and your ability to generate income, the wealthier you will be. There's no such thing as "no cost" to anything since at a base level you're going to pay taxes. Avoiding paying higher taxes than necessary is a huge part of both generating wealth and holding on to that wealth, plain and simple. 

 Ok,  I get it a little better now.  You're not saying it's a better investment strategy.  You're just saying it has the potential to be less costly way to access the equity other than paying capital gains?  I wonder how the IRS and Obamacare would feel about my properties losing money year over year?

Yet accessing the equity is not your goal! The goal is simply to be able to drink wine and fish. Hence hiring a PM is a singular independent solution. Yes, there’s a cost to that (as with any other approach) other than what you’re currently doing. 

But @JD Martin idea of taking out all the mortgages at 8.5% to pay for the PM? It doesn’t mathematically add up to me in this scenario with these numbers, but I fully admit I may STILL be missing something. And I am here to learn, because I’m facing a very similar scenario, age 57, equity tied up in all paid off properties. At current interest rates I feel stuck. 

JD yes I realize you didn’t invent the concept of equity harvesting. But despite the “harvesting” name, every example I’ve ever seen or heard about does involve earning a better total return elsewhere than the borrowing rate. 

Quote from @JD Martin:

Quote from @David Charles Edwards:

Quote from @Jeremy Russell:

Quote from @David Charles Edwards:

Quote from @JD Martin:

Quote from @David Charles Edwards:

Quote from @Benjamin Aaker:

Are you possibly undervaluing your properties? You are in North Carolina and have 15 worth 100k each? That seems pretty low, though I don't know the market.
I know you said all in or all out, but what about getting a full service property manager so you don't have all the headaches of being a landlord? This would satisfy your annuity need, though would be variable of course.

 Retail on these condos is around $125k ea.  I'm looking at roughly $100k net after commissions and capital gains.

We may turn over to a property management company but it costs 8% off the double and probably double the repair budget since you use their guys.  Here are the options we've considered.

1.  Keep until we die and let the kids inherit on a step up basis. headache but built in inflation protection, property appreciation, and tax benefits.  This is the smart thing to do but I've been doing this 25 years and I'm tired of worrying about this crap when I'm off shore trying to catch flounder. 

2.  Keep the units but turn over to a management company 8% off the top plus roughly double my normal repair budget.  relieves some of the headache.  reduces net income to roughly the same as a lifetime annuity.

3.  Sell them all over a period of 4-6 years. Put the money into fixed income vehicles of various sorts and walk away and spend more time drinking wine and catching fish.  Much less inflation protection. Big capital gains expense

4.  seller finance I explored this in depth a couple years ago but it didn't really save that much in capital gains and all the state taxes are due in year one and all the depreciation recapture is due up front. not enough of an upside.

5.  Primary residence shell game this might work for the first few units but would take too long for all of them and the hassle of changing addresses every two years to fake my primary residence for the IRS sounds like a hassle.

6. Borrow against one property every year on a 15 year note and put them all under property management, or borrow against all 15 all at once. Aim to cash in 80% LTV on each property every year, and in 15 years you will have the first one free and clear again and can do it all over. Just make sure the rents cover the PM+Note+Maint/cap expenses. Then you get to access all your capital, pay no capital gains, and still keep the properties as a hedge against inflation. 

I don’t understand your logic here.  They are all paid for already.

I think he is referring to a HELOC, but ultimately it is a way to avoid or defer capital gains taxes as the interest rate on the HELOC would be lower than your capital gains tax. You're getting the equity, 80-90% per property per loan, upfront and trading the capital gains for interest which is deductible.

 I kinda get that.  Trading capital gains expense which is 15% for interest expense which is currently around 8.5% The part that I don’t quite get is WHY?  Im not looking to expand the portfolio.  I’m looking to retire so I can travel, fish, drink wine, and generally have less worry and responsibility.   If I turn the units over to PM and borrow against them,  what would I do with the money?  Beating 8.5% would be pretty hard on a regular basis. I guess I’ve had this Dave Ramsey mindset for a long time which is why we are debt free.  Also,  wouldn’t it make more sense to borrow against my primary residence?  Lower rates and mortgage deduction if I itemize (which I typically don’t).  Just so I’m clear…. Borrow the money and invest however I choose…..  turn over to PM….  Let PM and accountants deal with all the work…..  let the rentals pay for themselves over again over time.  

I'm not referring to a HELOC, since you normally don't get those on investment properties - I'm talking about straight up mortgages on the property. Read up on equity harvesting here and elsewhere, but yes you get the general idea in your last paragraph - cash out, let the PMs deal with the properties, rinse and repeat every 15 (or 20, or 30) years. Yes, you have to open up a little bit from the Dave Ramsey mindset which works great for people on the edge but not very well for investors or those with money.

Even at 8.5%, as long as everything gets paid for it's largely irrelevant. If rates fall significantly, refinance. Now if you don't need or want the extra income, then you can just leave thing as is, but then there's also little compelling reason to sell and take the tax hit. 

What extra income? I must be missing something because I don’t see how this equity harvesting scheme is supposed to add income in his pocket. He’s currently NET $112k on $1.5M assets because he has no mortgages. This is income he is counting on NOW. Mortgage them all and the income that he’s currently living on goes away - traded for a lump sum of cash. So then divide that lump sum over the 15 years of the mortgage hold period and it’s a NET LOSS compared to what he’s doing now. 

Heres a per unit look at it:

$125k equity per unit 

$100k cash out (80% LTV)

$12k annual loan payment on $100k  at 8.5% (there goes all his rental income) 

So then let’s look at his cash windfall. Divide the $100k cash out over 15 year proposed mortgage = $6666/year. This is less than his current return. 

I think equity harvesting only works if you can find another investment that produces a higher return than the borrowing rate. This was doable back when rates were 3-4%. At 8.5% not really possible.  I’m no expert so please show me I’m wrong because I’m in a very similar situation and I just don’t see it. 

As for 1031’s…

1031s are almost impossible to pull off, even if you’re simply trying to leverage into a higher value single property. Most people who do this are not worried about the keeping the income they’re currently making. But try pulling off a 1031 AND keeping the income that you’re getting on the current property. Almost impossible because typically as property values go up with a larger property the RELATIVE rent you can charge goes down. For example…I can charge $2700/month for my paid off $400k property. But can I charge double that if I leverage into an $800k property? If so I’ve never seen it. Add in the new $400k mortgage you think I’m still gonna my to be able to make that $2700/month? I don’t think so… 1031’s work for people who still are earning their living elsewhere and it’s purely an equity leverage up decision. 

Quote from @Komal Sekhon:

Hi everyone, 

A bit of a unique situation. My dad invested in rental properties from 2008-2014 and made good rental income on them. Our city has now ballooned in value and no property is renting at 1% of price anymore (300k house is renting at 2k, 800k is now 3.5k). While not with my money, I have been working on the real estate business for my dad since I was 14. I've gone through eviction court proceedings, ran thousands of background/credit checks for application, made numerous leases, dealt with repairs and whole house renovations when a few tenants nearly destroyed properties, and worked with property management companies on the HOA units.

So I'm familiar with managing rentals (even remotely, as I still helped during college) and am hoping to get a good cash flow rather than appreciation. I'm 24, currently have about $200k saved up, and have talked with a mortgage lender but not finalized getting pre-approved. I'm looking to invest out-of-state for my first real estate investments and was hoping for some guidance on where? I have family invested in Cleveland but the declining population and snowy conditions makes me hesitant (lived in CA all life, no idea what repairs snow damage needs?)  

**Another aspect is that I am worried about investing my cash (currently in 5% HYSA) into real estate and then the market declines as interest rates are cu

Congrats on saving that much at such a young age! You are way way ahead of 99% of the population, and well on your way to setting yourself up nicely for financial security/independence. 

Just reading between the lines of your post, I’m going to make some assumptions, so forgive me if I’m way off…

It sounds like you’ve grown up being mentored by your dad in his brand of real estate, so this is all you can see. He was successful in the way he did it, it’s what you’ve known since you were 14, so this is what you want to do. But have you considered that you possibly could be suffering from tunnel vision? As you pointed out yourself it’s a different world now.  

Anyone on this forum is obviously a REI fan. But it is not always the right answer. And it definitely should not be the ONLY answer.

Maybe you already have a huge stock portfolio in addition to your $200k, I don’t know…

But any 24 year old with $200k saved should be putting at least half of that in the stock market in a well diversified total market or SP500 etf and just forget about it. Do you have any idea what that will provide you in 30 years? It will be the best decision of your life. Then you’d still have $100k leftover in which to build your real estate portfolio. If your current local real estate market had tons of obvious opportunities I might say otherwise, but trying to start your real estate portfolio investing out of state and deploying $200k seems like a tall order. 

You mentioned seeking income, not appreciation (at the age of 24). You did not say what your current job is.  I’m going to make a big assumtion: You are envisioning 
buying enough income producing property to mostly sidestep having to work for a living  and live happily ever after on your rental income. Don’t do it! 

For one thing, it’s when you’re young that you should be going after appreciation. This is how true wealth is attained. Living off of income is for people at retirement age. I’m telling you this from my own experience and mistakes. I partly did what I think you’re trying to do. I focused on income, and now I’m paying the price.

At 24, I think you should be focusing on earning money in any way other than income producing property. Your 20’s and 30’s should be about building a career - no matter what. If you love real estate, make it your career. Even give yourself a goal of a very short career: 20 years. With your $200k properly invested, you can do it! Go work for a commercial real estate company. Learn everything about the space that you didn’t learn from your dad. Your eyes may be opened to many more opportunities and perhaps a bigger life than you ever imagined. 

Hey there folks!

I'm under contractor on a lot to build from scratch a design forward 1BR house for STR use. All-in cost will be $375k. This strategy is all about beating the competition with eye catching architecture, so not interested in rehab/renovation of other local housing stock.

I have done this twice before in my area with great success, but this one's going to cost me a lot more for a lot less return than the previous two.  

Here is 3 scenarios: conservatively projected low/medium/ and scenario 3 is actual recent net returns  (unlikely repeatable right now) 

I'm looking for alternative ideas to deploy $150-200k down payment on a much larger investment than a 1br house, so I can play the appreciation game as well as the income game. The catch is....I do need around $35k or more net income from whatever I'm able to purchase. 

Is this realistic in some other market? In theory I can buy a $1m property, but I've never seen one that pencils out with any decent cash flow. 

Quote from @Andrew Steffens:

There are some missing pieces of data needed to make an in depth analysis from where we sit and give you more sound advice, however I own/manage property in Tampa which is a highly producing market and:

- With $300k to play with you can acquire a $1M property or more which does provide the best cash flow

- On a $1M acquisition and $200k (or less down possible) you can achieve 10-30% CoC returns, likely 15% inclusive of management is possible.

- Do not forget about appreciation, which is where the real wealth comes from.  I would recommend buying in a market that is growing such as Tampa, or many other Florida cities and Southern Cities for that matter.

Best of luck!

Thank you Andrew, yes I am interested to explore purchasing a much larger property for better growth/appreciation, and I do realize my strategy of building very small houses (geared toward max income) is lacking in the growth and appreciation side. If you have any examples showing the numbers penciling out on $800k-$1m properties I'd be interested to see. I think I can only qualify for DSCR loan though as I don't have any W-2 income. I must say, I am leery of hurricanes - both in my own market but even moreso in Tampa area.

Quote from @Tyler Winget:

Hey Bryan - seems like you're definitely a Pro. 

I'd say explore other markets, but man, if you're already doing this yourself, in your hometown hitting above 20% CoC, building cool places that appreciate and can be sold later not just as STR , but as homes....man keep going! And share one of your properties! I want to see!!

If what you're doing is working....why change it up? Keep at it. 

Also sounds like you're quite handy if you're doing most of the work on these new builds yourself, at which point, if time was the unattractive variable to doing another new build, you could do a flip in your local market and only have 2-3 months of work vs 9 for a new build. Still a pretty good payoff if you put $50k into a home and can make it look like you put in $100k. Just connect with a good, active agent in your area and ask what's selling quickly. See if there are any options for you to look at.  

At the end of the day, with out of state market and management, you'll always be left wondering, "are they doing as good of a job as I would?"...and the answer is No. Once you manage for yourself, no one will take care of the home like you take care of the home. And if you can't give into trusting that, out of state managers won't help. No matter how good they are. 

There's my 2 cents!

Hi Tyler,  @Carrie Matuga, thanks and yes the out of market issues you mention do worry me. 

This is the last one I did. Very simple open concept. It is 650sf 1br, so definitely won’t appreciate as much as a bigger home. It does have full size kitchen, big closet and washer/dryer so still a good vacation home option for a couple with no kids. I also designed it and sited it on the lot for an easy addition if one wanted to add bedrooms and additional living area.

Quote from @Michael Baum:

Hey @Bryan H.. You don't say what the area is so it makes it harder to really judge.

Is the housing market where you are at really tough to get a place that needs a bit of work in the right area?

I am not against building new, but it usually doesn't pencil out as well as refurbing a place. Not that it won't but it will take longer.

Frankly, if you are sitting on 300k cash, that needs to be put to work. Right now there are plenty of cash accounts that are paying 4.5 to 5%. You could dump that in there and earn while using it for the purchase/remodel.

So, tell us where you are located so we can get a better idea.

 Hi Michael, Thanks for responding. I'm located in the coastal Carolinas. Housing stock in this price range in my area are all cookie-cutter 3br "beach boxes" - meaning they are all more or less the same architecturally. Very difficult to stand out with so many of these, so building myself is part of my strategy to beat the competition with eye-catching architecure. To be honest, the way prices are right now, I think I can still build new for equal or even cheaper than buying an older house. The last one I completed in 2020 had an instant $100k equity added the day it was done. So much has changed last few years though with cost to build and lot prices doubled, so its hard to be sure,  but I marked building cost up 50% and numbers still seem to pencil out, just not as good as it was.