All Forum Posts by: Corbin Lane

Thanks, that seems to answer my question. I'm reading about this, it sounds like what I would want to do is a 121 combined with 1031. The home has been rented out for about 14 months now so from what I'm reading I'd have to wait and continue renting it for 10 more months for it to be seasoned as an 1031 investment property.

At that point, I can sell it. Assuming a sell price of 620k and an adjusted CG basis of 250k, my gains will be 620k - 250k = 370k. Of that, 250k would be tax free due to 121 and me living in the property prior to 14 months ago. The remaining 120k could be used as down payment on a new investment property using 1031 to defer taxes on that.

Am I on track or mistaken about something in this scenario?

During the 08 crisis I qualified for a HAMP loan mod that included a large principal reduction as my home was 50% below purchase price. I also had filed bankruptcy around the same time, and later found out that the lender who had supplied my 2nd mortgage (covering the down payment) had apparently discharged the loan - either due to the bankruptcy or the HAMP mod, very little information was given to me about why. The home that I had purchased for around 500k was now worth 250k, and I now only owed 250k. Currently the home is worth around 620k, my loan is paid down to 195k, and I'm thinking about selling the home to leverage out the proceeds of that sale into properties that better fit my goals. My question is whether either of the principal reductions would affect the way Capital Gains is calculated on my sale, or would it still only count as a $120k gain? The answer to this question would determine whether I need to worry about doing a 1031 or simply sell.

Redfin and Zillow both have a Multi Family selector in the search criteria.

Edit: I didn't read your question carefully enough. I don't run into the issue you're seeing all that often but as others stated increasing room count should do the trick.

Dumping all of my spare cash into VTSAX has been treating me well.

Wow these are all excellent replies, I'm so grateful for your help.

The common thread has been that I need to get a job, and I could not agree more.

It is extremely frustrating to not be bringing in income.

Tech can be a difficult industry due to the turnover both of jobs and skill sets.

I have been using this time to update my skills by working on several new code projects, as I always do when I have a break.

Another good and recurring point was my low cash reserves.

It definitely has me feeling nervous.

Maybe I could cash out some equity as a last resort, hopefully it will not come to that.

The main reason my reserves are so low (aside from the layoff) is that I had to extend myself in order to get the home ready for rental.

I did a lot of upgrades in a short time and then moved out of state, which was also somewhat costly.

All in all I have few regrets given the way the timing of everything worked out.

@David Zeek The house does not have an HOA, and since I'm self managing it (so far) PM is also zero.

I had taken Vacancy into account in my initial calcs, but with Cap Ex you have touched on a blind spot in my calculations.

I will work on a spreadsheet to get a better handle on that, but to summarize:

Most interior systems, water heater, appliances are new enough that I'm not worried about them.

The roof was replaced in 2006.

The central AC system is the biggest liability on my mind due to the fact that it uses the old coolant and will have to be redone when it finally fails.

I've mitigated this by recently replacing capacitors in the outdoor AC unit as well as the blower motor and its capacitors inside the furnace.

Correct me if I'm wrong but it seems like the price of this home may actually be an advantage in terms of capex because the cost of a given repair isn't as large of a percentage of the value of the property as whole.

In other words if I have to spend $10k on a new furnace, it seems like I'd rather be putting it into a $500k house than a similarly sized $200k house somewhere else.

Your point about my stagnant equity is exactly why I'm posting here.

As soon as I feel that it's relatively safe to do so, I'd like to start leveraging out.

In the mean time I will self educate and plan.

@Whitney Hutten You make some very interesting and unexpected points.

At this point I'm intimidated by non traditional financing but I do plan to learn a lot more before I make my next purchase.

I've been thinking quite a bit about partnering with more experienced investors as it seems like a great way to gain mentorship as well as to maximize the success of the investment.

At this early stage my portfolio is fragile and I can't afford to make big dumb mistakes.

At the very least I do not want to make another RE purchase until I'm feeling really solid on my network and education, not to mention the recovery of the economy.

The question of whether to sell or hold has tormented me for years.

There is one other factor I neglected to mention in my OP that made me decide to hold the property, for at least a year or two longer:

This home is within throwing distance of a major city overhaul project that is drastically improving the area immediately surrounding it.

It's been transforming a creepy downtown area that previously you would not want to walk at night (or even the daytime) into a bustling mixed use community.

The project has been going on for years and right now is finally in progress in the blocks visible from my house.

Also the house has easy freeway access, and is positioned within 10 minutes of an extremely expensive beach area.

It's within easy commuting distance to a small but growing tech/industrial hub, and they're running out of open land to build fancy developments nearby.

(My renters work in that hub.)

Whether all of this will actually pay off is far beyond my ability to guess but based on what I've been watching happen in the neighborhood I've been hesitant to let it go just yet.

My hesitation has grown my equity by around 35k over the last year, though I suspect that could soon be erased due to covid.

Admittedly this is all speculative but my gut feeling is that this home could appreciate significantly in the coming years.

Your point about tenant friendliness is interesting to me and one that I've been reading and thinking about.

I have not yet come across any specific laws in California that I felt were difficult to comply with.

My home is inside the limits of a smaller city with a deverloper-friendly local government, which is part of the reason for the massive redevelopment of downtown.

Admittedly I'm not as informed as I could be on this so if you're aware of specific laws that may become a problem for me in that region please clue me in.

@Theresa Harris I agree, I definitely want to have a job before moving on to my next investment. As far as contracting, that's always been part of my diet and I am putting myself out there for freelance work as well. Due to changing tech my major specialization is going out of favor so I am once again looking at reinventing my career.

@Chris Wilson I'm not sure if I'll ever be a MS/FAANG employee but I guess it could happen. My background and job prospects tend to be SMB SAAS.

Sammamish itself is far beyond my price range but in general I do like the areas surrounding the eastside tech hub (Bothell, Mill Creek, Redmond, etc.) Given my price range and desire to buy a duplex, more likely I would be looking at the northern end of the region I mentioned (Marysville, Burlington, Mt. Vernon, Bellingham etc.) These areas are more accessible for me but more dubious in terms of local economy.

@Mark Frattini Thanks for the warm welcome and excellent advice. I will definitely keep you in mind in case I decide to make any moves in SD.

@Forrest Faulconer I agree about timing, and it seems to me that the major impact of the pandemic to the RE market is still ahead of us.

The question on my mind is whether (and to what extent) the impact can (or will) be mitigated by government intervention.

Hi BP, this is my first post.

I am not a smart man, and I'm looking for some advice to help direct my thoughts and research toward my 2nd investment property.

From a high level, what would you do if you were in my shoes?

Here's my current situation, in excessive detail:

Earlier this year I rented out my home in southern California and moved to an apartment in Portland, OR.

I was working remotely and was laid off a few months ago.

Since then I've been receiving unemployment benefits and looking for my next job.

When employed I normally make around 100k doing database and software engineering.

My rental home has been a godsend during covid as it is cashflowing almost enough to cover my rent here.

So far my tenants have not brought up any finanal troubles due to covid.

They are mature and skilled, and most likely are working from home.

With the addition of the unemployment benefits and my already mininalistic/frugal lifestyle, my bank balance has been depleting but not too quickly.

It seems clear that my first priority needs to be getting employed, but there's only so much job hunting that can be done in a day and I'm not really sure what's going on in tech hiring right now - one recruiter signaled that companies are not really hiring much yet.

I've been taking this opportunity to learn and plan so that I can be ready to purchase my next rental property when the opportunity is right. At this point my strategy is simple buy and hold, and self-management of rentals. I managed and DIY'd several improvements to my first house so I'm comfortable working with most systems in a home, and comfortable with hiring and managing helpers, handymen, and subcontractors. I would not consider myself skilled enough to manage a significant rehab, but kitchen and bathroom remodels are within my comfort zone.

I'm still undecided about whether I think the fallout from covid will cause a major correction in RE prices but I've been getting some real heavy 2006 vibes from all the sellers markets, not to mention the unprecedented load of uncertainty we currently face. As eager as I am to expand my rental income, and even though I'm cashflow oriented, I'd hate to ruin a good thing by making a poorly timed buy.

Since I'm currently renting (lease ends in June,) and since I have family in NW WA that I'd like to see more often, I've been thinking about buying a duplex in that region (specifically, the swath between Sammamish and Bellingham) and possibly house hack it a bit. I understand that this area can be less than ideal for investing due to high prices and low cashflow potential. I'm not really sure about the reliability of the local economy either, at least in the areas that I could afford.

I'm not set on any one area or even on investing locally, but there would certainly be some benefits in that I wouldn't have to rent a place, and I could directly manage and work on the home instead of trying to manage it from across the country. At this point I have no interest in moving away from the West coast states.

Financial stats:

Credit score: 750

Other Assets

Cash $15k

IRA (VTSAX): $12k

Car value: $10k

Stats for my rental property:

Location: San Diego County

Size: 3bd/2ba 1200sqft

Current value: $510-540k (according to Zillow, Redfin)

Loan Balance: $200k

Rent: $2850

Interest Rate: 4.0%

Loan type: FHLMC Afford Mod (HAMP mod)

Principal + Interest: $1005

Escrow (includes sewer, prop taxes and homeowners ins): $545

Total mortgage payment: $1550

Yard maint + Handyman: ~$100/mo avg

Thanks in advance for any advice that you can spare. I don't personally know anyone who's into real estate and am fairly introverted so I'm hoping to break out of the vacuum and gain perspective as well as a sanity check on my numbers and goals.