All Forum Posts by: Charles Moore

something to keep in mind is that the market around Seattle  is really hot right now with prices so high it's crazy and therefore hard to find affordable deals. Some folks intent on investing here in WA are looking at Tacoma and south king county - i know Des Moines is more affordable and that senior citizens make up a large part of the demographic there with two major retirement communities. Investors are also looking further north into snohomish, skagit, and whatcom counties. 

Also, are you ok with paying Uncle Sam short term capital gains tax on any flips you do? And then are you ok paying him more with a regular Airbnb  side gig later on, plus any potential hotel/bnb local taxes?

From a tax perspective, doing the brrrr strategy from the get go would minimize taxes the most, and still allow you to get that 4-plex after a while. With enough properties giving you depreciation and other deductions to the max of $25K, they could offset the Airbnb taxes.

any chance your folks would do owner financing for you? That would make a huge difference in your return.

if flipping, you also need to be prepared to pay Uncle Sam his due at tax time in the form of short-term capital gains tax equal to the rate of your job income. You can't defer those taxes with a 1031 exchange, either.

Whereas buy-and-hold rentals are very tax efficient, and if you deduct depreciation, may leave you owing less or no taxes.

You could combine the two strategies in the form of the BRRRR strategy discussed a lot on BP - buy a great deal and rehab it like a flip, but then rent it it out and 6 months later after seasoning refinance for closer to the new ARV to get all your money back out with no tax implications, then repeat the process.

if you're going to skip renting this out and just sell it, are you ok paying the capital gains tax? If you sell it within a year, your rate will be taxed at the same rate as your regular job income, so if you are above the 15% bracket, you'll pay more. But if you are in the 15% tax bracket, it should be the same as waiting 1 year and paying long-term capital gains at 15%, from what I gather. You also can't do a tax-deferred 1031 exchange unless you rent it out first for 2 years or so.

So I guess it comes down to paying more taxes on quick profits, or waiting by renting it out first for lower or deferred taxes.

@Sean Tracey I agree with going for higher returns with real estate over index funds. That's why I am looking at returns of 13% or more cash-on-cash as I myself am researching turn-key options. 

I'm also in the camp of favoring both index funds and real estate. My strategy is to put taxable funds toward RE downpayments, and keep retirement funds in index funds to diversify across both these classes. This way my taxable funds are placed in the best tax shelter available, and index funds that are normally tax inefficient (bonds and REITs) are also in tax shelters. I understand some folks like the idea of putting retirement funds into real estate, but I've also read and agree that it doesn't make sense to put a tax shelter inside another tax shelter, given that you can't take depreciation tax deductions or use mortgage leverage with retirement funds, reducing your retirement returns. 

Since you are looking to spend only $20k-$30k on your first rental and possibly do it out of state in a more affordable market, you may want to consider investing through a turn-key company in markets like Memphis, Indianapolis, Kansas City, Cleveland, Dallas, Houston, Birmingham, or Jacksonville, FL. They acquire, completely rehab, screen and place tenants, then sell you a finished package, then manage it for you afterwards - in effect a one-stop shop to make it as passive for you as possible, since they want to keep you as a repeat client. True, they do sell you the property at or just below market rate, but for busy full time w-2 career folks, it can be worth it to avoid having to vet and then coordinate the realtor, RE attorneys, title companies, contractors, inspectors, and property managers. $20k-$30k can act as the downpayment on a $90k-$130k property, which generally attracts higher quality tenants, hence fewer problems and higher returns. Also cashflows around $200-$300/month.

to add onto what @James DeRoest said, in addition to ongoing sealing you have to do to maintain it (which you probably don't want to entrust a tenant with), granite is porous (like wood or skin), so if a tenant spills wine, or oil, or grease, or meat sauce, or fish guts, or chicken innards, or other liquids that can stain, those liquids seep into the pores and may not come out if not properly attended to, leading to discoloration.

For B class tenants, the ROI is not with it. Stick with non-porous Formica.

If you definetly want higher grade material for appraisal purposes, choose Quartz - it's non-porous and does not need repeated sealing.

some investors living in CA choose turnkey companies to invest out of state due to their dollar buying more house in places like Memphis, Kansas City, Indianapolis, Dallas, Houston, Jacksonville in FL, Cleveland, etc. - and in the comfort of knowing a good turnkey provider has taken care of all deferred maintenance for several years out and is providing solid property management, allowing you to focus on your job to earn more to invest more. Granted, you buy them at or slightly below market value, but you don't have to coordinate contractors long distance for rehabs, plus realtors, real estate attorneys, etc. Less stress at purchase and after. Basically outsourcing so you can focus on what you do best - your job for maximum income to invest.

what strategy are you pursuing? Wholesaling? Flipping? Buy and hold? If flipping or buying and holding, could you just connect with some local wholesalers to purchase from? Or connect with them anyway if you are wholesaling?

if you found something solid if FL to invest in, one of the advantages would be paying no more state income tax on the rent in VA since FL has no state income tax at all.