I should mention that this is an apples to apples comparison between 100k in the S&P 500 and 100k SFH cashing both out after 16 years. I did not include the fact that I'm doing a 1031 exchange on this unit nor did I include a scenario where you only put enough down to break even with the mortgage so you can leverage yourself with more properties.
Bills example as my own is a classic early 2000s strategy which in most states today, would not work. You'll be requireing a larger down payment on a higher priced house with higher interest rates. His own example shows his unit at 100k rented for 1k (1%) as my own but is now 400k but only rents for 2000 (.5%) which is worse than mine. That's a terrible investment for anyone reading this and thinking you can do that today. The strategies have shifted from buying turnkey properties to buying distressed properties and renovating them and hustling.
Almost my exact scenario. $100k purchase price back in 1997 for a 1br condo in Dupont Circle, Washington DC. Top location, top neighborhood. Today it’s worth exactly $400k after estimated $300k income over 20 years (I lived in it for first 8 years). Yeah 1br condos just don’t do that great.
Anyway, now I have a window. Tenant just left - I’d love to sell now but feel super stuck because I need to maintain the $20k net annual income it’s providing. Just did the $15k remodel. If I sell now I walk with only between $275-300k, because it’s fully depreciated. Should I just eat that $100k depreciation recapture tax and start fresh? Being able to 1031 the full $400k into a larger better performing property while maintaining the $20k annual income feels like a fantasy. Who’s got a great idea?
$20k what? Per month? Per year? Per lunar cycle?
I should mention that this is an apples to apples comparison between 100k in the S&P 500 and 100k SFH cashing both out after 16 years. I did not include the fact that I'm doing a 1031 exchange on this unit nor did I include a scenario where you only put enough down to break even with the mortgage so you can leverage yourself with more properties.
Bills example as my own is a classic early 2000s strategy which in most states today, would not work. You'll be requireing a larger down payment on a higher priced house with higher interest rates. His own example shows his unit at 100k rented for 1k (1%) as my own but is now 400k but only rents for 2000 (.5%) which is worse than mine. That's a terrible investment for anyone reading this and thinking you can do that today. The strategies have shifted from buying turnkey properties to buying distressed properties and renovating them and hustling.
Almost my exact scenario. $100k purchase price back in 1997 for a 1br condo in Dupont Circle, Washington DC. Top location, top neighborhood. Today it’s worth exactly $400k after estimated $300k income over 20 years (I lived in it for first 8 years). Yeah 1br condos just don’t do that great.
Anyway, now I have a window. Tenant just left - I’d love to sell now but feel super stuck because I need to maintain the $20k net annual income it’s providing. Just did the $15k remodel. If I sell now I walk with only between $275-300k, because it’s fully depreciated. Should I just eat that $100k depreciation recapture tax and start fresh? Being able to 1031 the full $400k into a larger better performing property while maintaining the $20k annual income feels like a fantasy. Who’s got a great idea?
You mean you took 100k in depreciation? You only have to pay back 25% of what you took over 20 years and only if you don't 1031. Correct me if I'm wrong but I believe you take the home improvment value (not land) and divide by 27.5. That is your depreciation at least that's how my CPA is doing it from what i can tell. I then times that by my tax rate of 28% to get my savings every year. So if you depreciated 100k, you would owe 25,000 at close of sale if you don't do a 1031 exchange.
Yeah, looks like you got the ADU stuff down. You may want to look at a HELOC against your equity to build another.
I should mention that this is an apples to apples comparison between 100k in the S&P 500 and 100k SFH cashing both out after 16 years. I did not include the fact that I'm doing a 1031 exchange on this unit nor did I include a scenario where you only put enough down to break even with the mortgage so you can leverage yourself with more properties.
Bills example as my own is a classic early 2000s strategy which in most states today, would not work. You'll be requireing a larger down payment on a higher priced house with higher interest rates. His own example shows his unit at 100k rented for 1k (1%) as my own but is now 400k but only rents for 2000 (.5%) which is worse than mine. That's a terrible investment for anyone reading this and thinking you can do that today. The strategies have shifted from buying turnkey properties to buying distressed properties and renovating them and hustling.
Almost my exact scenario. $100k purchase price back in 1997 for a 1br condo in Dupont Circle, Washington DC. Top location, top neighborhood. Today it’s worth exactly $400k after estimated $300k income over 20 years (I lived in it for first 8 years). Yeah 1br condos just don’t do that great.
Anyway, now I have a window. Tenant just left - I’d love to sell now but feel super stuck because I need to maintain the $20k net annual income it’s providing. Just did the $15k remodel. If I sell now I walk with only between $275-300k, because it’s fully depreciated. Should I just eat that $100k depreciation recapture tax and start fresh? Being able to 1031 the full $400k into a larger better performing property while maintaining the $20k annual income feels like a fantasy. Who’s got a great idea?
I also live in Charlotte, NC but have been investing in Cleveland, OH due to their lower price points. I'm able to purchase turn key properties and still cashflow. With the higher rates of a DSCR loan it might be difficult to cash flow here in Charlotte since rent will be lower than your mortgage payment. If your main goal is to supplement working full time I would purchase as many properties you can in a different state instead of paying cash for one property.
I also had issues getting a loan since I haven't been in real estate for 2 years yet but I was told if I file my taxes in early 2024 I would be able to get approved so you could see if that would work for you. You most likely just need another year's worth of work history.
Another good way to start is house hacking here in Charlotte or doing a live in flip, rent it out, and purchase your next house-hack or live in flip. I'm a real estate agent in Charlotte so happy to help you look in to some options or talk more about investing out of state!
Can give an example of your turnkey purchases in Cleveland, with specific figures? Are you including $ for capex?
Yes including 5% for capex, 5% for maintenance, and 8% for property management and still receiving a 16% cash on cash return.
I should mention that this is an apples to apples comparison between 100k in the S&P 500 and 100k SFH cashing both out after 16 years. I did not include the fact that I'm doing a 1031 exchange on this unit nor did I include a scenario where you only put enough down to break even with the mortgage so you can leverage yourself with more properties.
Bills example as my own is a classic early 2000s strategy which in most states today, would not work. You'll be requireing a larger down payment on a higher priced house with higher interest rates. His own example shows his unit at 100k rented for 1k (1%) as my own but is now 400k but only rents for 2000 (.5%) which is worse than mine. That's a terrible investment for anyone reading this and thinking you can do that today. The strategies have shifted from buying turnkey properties to buying distressed properties and renovating them and hustling.
Almost my exact scenario. $100k purchase price back in 1997 for a 1br condo in Dupont Circle, Washington DC. Top location, top neighborhood. Today it’s worth exactly $400k after estimated $300k income over 20 years (I lived in it for first 8 years). Yeah 1br condos just don’t do that great.
Anyway, now I have a window. Tenant just left - I’d love to sell now but feel super stuck because I need to maintain the $20k net annual income it’s providing. Just did the $15k remodel. If I sell now I walk with only between $275-300k, because it’s fully depreciated. Should I just eat that $100k depreciation recapture tax and start fresh? Being able to 1031 the full $400k into a larger better performing property while maintaining the $20k annual income feels like a fantasy. Who’s got a great idea?
I also live in Charlotte, NC but have been investing in Cleveland, OH due to their lower price points. I'm able to purchase turn key properties and still cashflow. With the higher rates of a DSCR loan it might be difficult to cash flow here in Charlotte since rent will be lower than your mortgage payment. If your main goal is to supplement working full time I would purchase as many properties you can in a different state instead of paying cash for one property.
I also had issues getting a loan since I haven't been in real estate for 2 years yet but I was told if I file my taxes in early 2024 I would be able to get approved so you could see if that would work for you. You most likely just need another year's worth of work history.
Another good way to start is house hacking here in Charlotte or doing a live in flip, rent it out, and purchase your next house-hack or live in flip. I'm a real estate agent in Charlotte so happy to help you look in to some options or talk more about investing out of state!
Can give an example of your turnkey purchases in Cleveland, with specific figures? Are you including $ for capex?
The whole point of real estate is to get a higher return then a stock index and this is easily done through mortgage leverage. I see no reason to hold a payed off property which in any decent market would only be a 5-7 cap meaning 5-7% annual return on cash when SPY averages a safer/less work 8-9%. Most of my clients constantly refinance to re-invest the equity and keep their returns well above that 8-9% threshold.
@Bryan H.. This would be perfectly fine as long as you do not take any beneficial interest in the property. You can put your own money down as earnest money. But all you are doing is going into contract to buy a property when complete. It is OK to be under contract for your replacement property before your old property sells. But you do have to wait until your sale closes before taking title to the new property. Your earnest money can even be returned to you if not needed for the sale.
We have a lot of clients that will do this so they can move from a property with high maintenance expenses and into a property with little cap ex exposure. The one mistake that I've seen is when the client believes the time table of an over enthusiastic builder. They close their sale and start their 1031 exchange two months before they think the new property will be available. And then, "whoops" it ends up being 7 more months before the building is complete. And they lose their opportunity to 1031 into it.
So hold your builder's feet to the fire on completion.
Wait as long as you reasonably can to sell your old property.
Don't be scared to put some back up properties that would be readily available (like a DST or a pocket listing from a friend) on your list.
Thanks so much for this detailed response - very helpful! Is what you’re describing a reverse 1031, as others have mentioned? I had not heard of the reverse previously.
Are there any builders where you want to buy that are building more than 1 house every 2-3 months? I did my last exchange for a new DR Horton build and I had at least 6 properties on a street I wanted to choose from. They were being completed about every couple weeks and I had 12 to choose from in 180 day gap not including my 45 day identification period. I ended up closing before my 45 day period had even expired.
I'm not buying just any new house. It has to be custom design forward architecture for my STR strategy.
I want to 1031 out of an underperforming condo in DC, into a new construction single family home. Timing a sale with the 180 day construction limitation is too short for a complete build. The basic theoretical idea is to make an advance contract/deal with the builder so I would be buying the property from him upon completion, rather than using my own funds from the sale to build the new house (because 180 days is not enough time). It would work something like this: I would delay sale of my condo until a couple months prior to timing of the new build completion date, so as to accommodate 1031 time requirements. Is this possible?