All Forum Posts by: David Fairall

Thanks for the clarification on the 1031 exchange, @Dave DeMarinis. 

Not sure where that weird number formatting came from in my post so just go ahead and disregard that.

@Austen Sweeten Sounds like you're in a pretty good spot. Let me preface this by saying that you will find a lot of advice on these forums. Not all of it is good for you. I'm not referencing any specific advice up to this point on this thread mind you. When I say it isn't good for you I mean, YOU, specifically. @Account Closed alluded to this when he said he was hesitant to give advice because he doesn't know your market. Because of nuances like this, and the many others unique to real estate, I'd encourage you to take any advice you get with a healthy dose of critical thinking as no one knows your personal situation like you do. And no one is responsible for knowing it either, except you. That being said, here are my thoughts. HaHa. :)

I like what @Amy Kendall said. Option 1 doesn't get you into real estate investing unless the property you're buying is income producing. I guess you could argue that buying a primary residence could be considered a good first step to buying an investment property but seeing as you already own a primary residence I don't think this option helps you accomplish your goal. Plus, the longer you put if off I believe the less likely it is to happen.

In my opinion, Option 3 is not a good idea for a few reasons:

1. 1. If you sell now but don't buy another property (investment or otherwise) you will be taxed on the capital gains. In other words, the appreciation your home has accrued. However, if you put that money into a similar investment within a certain amount of time you can avoid the tax hit until you truly cash out and just keep the money. This is called a 1031 exchange and is what @Rhonda Blue was referring to. I’m still learning about these, so someone can correct me if I’ve over simplified that or if I'm just wrong.
2. 2. This relates to my previous point but if you’re just going to sit on the money for 1-3 years you may as well stay in your current place and let it continue to appreciate and not pay the capital gains tax because…
3. 3. The Salt Lake market isn’t going to calm down anytime soon. At least not in the next 1-3 years. You’re in Utah Valley so you probably know better than most that it’s getting a lot more crowded down there. All the big players in Silicon Slopes have been saying that there is a shortage of skilled tech workers in Utah which is why they are heavily recruiting people from out of state. Not to mention that a lot of the major markets surrounding Utah are way more expensive so in comparison, Utah has some screaming deals for both investors and the working class.

Which leaves Option 2-renting the townhome. It sounds like you may have a decent amount of equity in your home. I would reach out to multiple lenders (think credit unions, local banks first before you go to the big banks) and ask about home equity loans and home equity lines of credit. You may be able to borrow the against the equity in your current home to help purchase your next property. However, I would only recommend that if the numbers make sense. For example, I wouldn’t do that if you are just going to buy a primary residence that doesn’t make you money. Otherwise, you’ll have a new mortgage and you’ll have to pay back the home equity loan as well and it doesn't sound like your anticipated townhome rent amount can do that for you. However, if you buy a rental that you can house hack, and the income from your new rental and the townhome is enough to cover all your expenses and allows you to pay back the home equity loan, then I would explore that route.

Anyway, that’s my humble opinion on your situation. I hope it helps but to echo what I said above, no one knows your situation like you do so do your due diligence and take everything you hear with a grain of salt. ;)

Best of Luck.

@Charlotte M. Varble Attending local real estate investor meet ups is a good way to make those connections. I've been to a couple myself recently and I've found them to be helpful. 

Check these out.

Utah Real Estate Investors Association
https://www.utahreia.org

Salt Lake Real Estate Investors Association
https://slreia.com

Northern Utah Real Estate Investors Association
https://www.nureia.org/

Utah Valley Real Estate Investors Association
https://uvreia.com/

@Daniel Whitmore Since you haven't gotten a response I'll take a crack at it. I only just bought my first home/investment property last summer so I'm not too far removed from being a renter myself. I lived for a lot of years downtown SLC and I can tell you that there are apartment buildings going up all over the place because the demand is through the roof. Naturally, these new buildings will have central air so you will likely have a lot of available units with central AC going up against your swamp cooler. That being said, I don't think you need to worry all that much.  

-While central AC may be important to some tenants, I think your main point of competition and what is likely more important to a potential renter are bigger things such as how many bedrooms, square footage, price, location, is it well maintained. If your units are competitive on those fronts I can't imagine you having trouble finding good tenants because of a swamp cooler. 

-Although there are a lot of shiny new units coming on the market, the demand for housing in Salt Lake is still very high and it's not likely to become a "tenants market" any time soon. So if you've got a nice clean place for rent in SLC I think you could definitely set your asking price to a similar unit that has central AC. Eventually it may return to a tenants' market but hopefully you've been saving during those years so that if central AC becomes a competitive advantage, you can convert.

-As was mentioned above, there is definitely a growing demographic of socially conscious individuals that make up the Salt Lake City population and may very well prefer the swamp cooler due to its lower impact/costs to run. 

-Lastly, just pick your favorite property listing site and look for rental listings that are similar to yours. That should give you a good indication of what you could list your property for.

Best of Luck

@Tyler Labelle I agree with @Jon A.. A property isn't rented until you have the deposit and signed lease. You've said that the potential tenant has agreed to start on the 1st of Sept but has he signed the lease? Without that he can back out anytime. It sounds like you are looking into a legal document that would define the terms of a deposit to hold the apartment. That's probably a good thing to have at some point but with Sept 1 a couple weeks away, I would be focusing on preparing your lease and having him sign that. If I understand the gist of those deposit agreements correctly, all they do is let you keep the deposit if the potential tenant decides not to move in. While you get to keep their deposit for holding the place, you're still left with a vacant unit and you've lost valuable marketing time, which is not what you want. If this guy is hesitant to sign the lease then you should continue to show the unit until you have a signed lease and deposit. Best of luck.

 I know. Maybe you misread my comment. I was saying that some schools of thought are that you pay off high interest debt before you invest in anything and a possible exception to that would be investing in a 401k where you receive some kind of match from your employer. 

@Ashley Gish

No problem. And if you want a more data driven answer versus an opinion just do a web search for "student loan vs investment calculator" or "debt investment calculator". I found several calculators that could help you make your decision, although, most of the sites I looked at still recommend you talk with a financial professional.  I know real estate is a different animal than the stock market (which is what a lot of the calculators are using to compare to your student loans), however, you could likely find out average yearly rates of return for real estate in the area you're looking to buy in and use those numbers in the calculator instead. The thing to keep in mind with the comparison though is paying off debt is a guaranteed savings in interest while all investment is speculative so rates of return may not pan out the way you hope.

@Ashley Gish

Some of the more financially savvy people on here may disagree but it’s my understanding that you want to pay down high interest debt as soon as you can before you start investing in anything, perhaps with the exception of an employer matched 401k. (Don’t wanna miss out on that free money.) And even then it may still be more prudent to attack those student loans as hard as you can because they’ll only get bigger. Typically you want to start by paying off the debt with the highest interest rate. Once you’ve paid that off, you then take the payment you use to make on that and apply it to the payment you’ve been making on the next highest rate and so on. You’ve probably heard of this before but it’s sometimes called the debt snowball. Dave Ramsey talks about it a lot. You could also look into consolidating all your student loans into one payment and possibly getting a better rate. Like I said, maybe it’s possible and/or smart to invest and pay off student loans but for us we wanted to pay ours off as soon as possible so we didn’t invest in anything until we did. Best of luck.

Did you also split the meters to make it a separate unit or are you planning on just using it as a mother-in-law?