All Forum Posts by: Cody Cook

@Joe Funari I sent you a colleague request. Would appreciate a Texas CPA real estate references. I'm in process of trying to find one to partner with.

@Jasen Miller I'd be interested in your Texas CPA contact.

This is too bad. Was thinking that San Marcos would be a good market for STR.

@Steve K. It's a tax fee gain if I sell within next two years. The property was my primary residence for 2 years. As long as you have lived in the property as your primary residence for the duration of 2 years at any period in the last 5 years, you can still sell your property and get the personal residence tax exemption (250k single/500k married). Technically there would be tax paid on the depreciation recapture.

@Steve K. In response to your questions:

a) What do you project Austin appreciation to be in the future? Do you think "crash" is imminent, as some do? If only I had the answer to this question. 

Here are my thoughts. Austin is the cool place to live to in Texas. Most everyone from Texas wants to live here, but it can be hard to get a job because it's so competitive and there are only so many big companies here. You get paid less here for the same skill set as you would living in Dallas or Houston because of this competition. It has been this way for years. In spite of this, people are still willing to live here because they love it that much more. They accept the COL difference because of the city's attraction, just like people do in NYC and SF compared to the rest of the cities in the US. Companies continue to move or expand here. Housing prices have gone up quite a bit, but relative to California and the Northeast, it is still really affordable for folks moving here. I meet people all the time that move here on a whim because "they heard it was cool place to live." I realize some of these factors are anecdotal but I just don't see a crash coming in Austin. A softening, sure. At some point the market won't appreciate 10% a year and the growth will stop or even drop. However, look at this chart I saw @Dan Burstain post the other day. Austin sales prices have consistently gone up for a long time. Even in the 2007 crash it was only a small dip down and fully recovered after 3 years. Therefore, I'm still positive on Austin (note: more so on SFH rather than MFH-at least on the small scale of 4plexes/duplexes)

b) Do you like BRRRR method with higher leverage?

I love the BRRRR method. However, If I did the BRRRR method in my home right (By the way, I just did one a 1.5 years ago while living in it) now I could probably get out 30-35k. After modeled expenses (vacancy (I never have more than 3 days, but still model it), maint, etc...), I'd be negative cash flow ($100/month) rather than the positive $600 I do now. I just don't feel like exposing myself to that risk. I like having $600/month with buffer if I need to drop my rental rate. Also, the income on the property helps me get approved for other investment loans where as the negative flow would hurt me. This property is kind of my life anchor. If I lost my job, this income could help me be somewhat financially independent as I transition. If I build up my portfolio enough, this income could be a big part of my financial independence.

c) What if you could extract your $122k equity, would you? 

Well I could only extract 30-35k per the comment above (75% LTV for a condo). I could get 122k if I sold the property, but I consider my specific location low risk/high reward in Austin. I'm a $6 Uber ride to downtown, there are new condo developments being permitted and built all around me and Oracle just opened a campus up 2 miles from my house. That office will provide renters and potential buyers for years. I just got two of them for the first time 1.5 months before the office opened. Therefore, I'm in no rush to drop this property. All that to say, real estate is very local. I can't answer the question about all of Austin the same. Different spots make more or less sense for why they appreciate. There are parts of Austin where I can't really understand the price. There are other parts where it makes a lot more sense. I love where I'm located and do not want to let go.

@Steve K. Great summary of the opportunity cost and I agree it is important to look at. However, I don't think COC is a good metric for evaluating opportunity cost. There are intrinsic advantages such as having a known commodity (vs. finding a new property) and risk management (Being less leveraged in case market goes down) reasons to keep a property you already own. Additionally, properties that are getting poor COC are generally properties that have a better chance to appreciate.I don't know @Omar Shahid's specific property, but I do know Aurora has done well and in my opinion, has more room to go up.  

I think you have to look at IRR analysis to make these decisions and get beyond just COC return. In Austin, I've got a condo valued at 330k with 63% LTV cash flowing $7200/year. If you calculated COC on that as a new purchase then I would have 7200 cash flow / 122k (330k - (330k*.63)) = 6% COC. Not great. However, you're missing the fact that my property appreciated by 30k last year. Also, the IRR caculation over the next few years would get a huge boost from the tax free gain (in my case, 30k) and that will really boost the numbers. Just looking at COC isn't enough in Omar's scenario.

@Leo M Christensen That's a generous offer Leo. I may take you up on it! It's been a pleasure!

@Leo M Christensen Denmark is on my list Leo! Would love to visit that part of the world. It's fascinating to learn about tenant laws there. Wow!

I understand your dilemma. You could strike a balance by cashing-out some of the equity (rather than the full 80%) and keep the mortgage to where you could cash flow a reasonable amount (but not as much as it is now). I do understand the risk with higher HOAs. I have a condo with an HOA. Fortunately it is relatively reasonable compared to the market and I feel I get some good benefits with it (pool, landscaping, cheaper home insurance, gated community, etc...).

Good luck with your next step. Your problem is a good one to have!