All Forum Posts by: Casey Murray

@Bryce Baker Get everything written on paper as if it's a legal binding partnership with your family. List out who gets their allocable share of rental income, expense, depreciation, credits and appreciation. Will you sell after 3 years or is this going to be held a long time? Are you going to refinance down the road to pay them off? Consider the important scenario and get in agreement. Good luck!

@Aditya Namjoshi - see notes below.

1) The BRRR approach is typically used for your primary residence so living in SoCal and investing out of state isn't possible (I don't want to sound negative). Investors still use the BRRR approach on investment properties though. Regardless, the BRRR approach is powerful!

2) The 1% and 2% rules don't apply in SoCal. Assuming you buy a property that needs a lot of work, the rents will be far below these percentages but can potentially be good investments in markets where you can substantially increase rents. I'm sure there are other parts of the country meeting the 1% or 2% rule in good neighborhoods where other properties are in bad neighborhoods. Know your market.

3) People use private money for all deals. If you want to acquire a property using private money, utilitize the BRRR approach to raise the property value, refinance and pay off your investor. And do it again!

4) I only invest here in San Diego but I know @Michael Swan invests out of state and is very insightful. 

@Ashish Acharya @Natalie Kolodij @Jeff Glass @Basit Siddiqi Thank you all for the information! The QOZ and MIS are great strategies but probably too far fetched to use for this client. The best shot they'll have is converting their primary to a rental, rent it out for 1-2 years and then 1031 into another investment property. 

Welcome to BP! I too like the NSDREI group. Nice investors of all levels that don’t pitch you anything.

Hi BP,

I have a question when you have over $500K in gain when selling your primary residence. Let's assume the big concern are the tax implications since the projected gain before the exclusion is $1.2M; see projected gain calculation below. The couple is MFJ and qualify for the $500K exclusion which leaves a net LTCG of $700K ($1.2M - $500K). With being in the highest tax bracket, the LTCG tax rate is 20% with a total tax of $140K ($700K X 20%).

The couple owns their current house free and clear and they're 70 years old and want to live in the new house they'll buy for the rest of their life. They don't want to do seller financing or a deferred sales trust.

The only option they will potentially consider is converting their primary to a rental for 1-2 years then selling the property as a 1031 exchange and buy another investment property in order to defer the $140K tax. Other than this approach (and no selling financing/deferred sales trust) is there any other approach to defer tax on the sale of your primary residence when your taxable gain is over $500K? Thanks in advance for the help!

Projected Gain Calc

• Cost basis = $400K
• Improvements = $100K
• Adj Basis = $500K
• Sell Price (after paying commissions, etc.) = $1.7M
• Gain before exclusion = $1.2M

@Danielle Friberg Feel free to message me. I have a good GC recommendation. 

@Keith Meyer Responding a little late but figured to chime in. I saw Alan Nevin speak at a local REIA back in 2017. His conclusion was that even though the San Diego housing market was hot, he didn't see it as a threat. Reason being we live in a local economy where we have high paying jobs in several different sectors. So even though the median house price is whatever high amount it is (and keeps creeping up), San Diego locals will continue to pay to live in a beautiful city with all the perks. Some locals may reach the tipping point where enough is enough, but most people don't like change so they'll stay put.

I agree price appreciation will calm down but with increasing interest rates and a hot housing market, market rents will continue to increase. No one can tell the future but at this point I'm still actively looking for deals. I don't see any red flags indicating a massive shift in our housing market in the near future so "waiting for the next market correction" is not my play. 

Although all of this makes finding deals harder, finding a property to cosmetically rehab and drive rents to market value is still very appealing.

Run realistic numbers and see if you cash flow/hit your target ROI or cash on cash return. Chances are you won't; which is fine since the best investment is the one you didn't make (Warren Buffett quote). SFR's in San Diego are tough to justify purchasing as an investment property with the overpriced market. I'd still recommend seeing the property so you can confirm you made the right decision in passing and to become familiar with your investment criteria. Good luck.

@Peter Doan I was in a similar position where I had 3 units tapped onto 1 electric meter. The other unit had a separate meter. Our monthly electric bill was $800. We went with the solar option by financing the $38.7K install over a 12 year loan at 5.49%. Our monthly payment is now $367 so our annual savings is ($800-$367) X 12 = $5.1K which gives us a ROI of ($5.1K/$38.7K) = 13%.

A couple of notes. 1) The credit union attached the solar panels as a lien to the property. So the solar panels stay with the property, not with me. 2) A city inspector will need to come to the property and validate the install is correct; it's a quick visit for them.

I can't speak to legalizing a property but I'd highly recommend the solar install. It's way less capital intensive and you can get everything completed in a timely manner. Hope this helps!

@Rob Tartre I also use Zillow in conjunction with Rentometer and Craigslist. You can also have an agent send you rentals being advertised on the MLS. Good luck!