All Forum Posts by: David Kramer

@Alexandra Fisher - I would start my research in areas where you have close family and friends. They can serve as a sounding board for different neighborhoods and be a sanity check. Since real estate is a local game, being wrong by a few blocks over can have a huge impact in your profits. 

@Craig Curelop - My first house was a house-hack in Pensacola, FL. I actually had not heard of BiggerPockets at the time, and my analysis has definitely matured since this first purchase. However I still hold on to it today (now its a full time rental as I moved to San Diego, CA).

Location: Pensacola, FL

Property Description: 3/2 1250 sqft new construction home in a cul-de-sac neighborhood north of town. I was moving down to Pensacola for the military, and I knew real estate would be a great long term investment. 

Price: $139,000, Financed on a 15 year VA Loan - I put $20,000 down and got a rate of 2.25%. PITI comes out to $950/mo.

Strategy: While I lived there I rented out two of the rooms to buddies from work. I was able to get $1000/mo in rental income which offset the entire mortgage. After utilities I paid around $150/mo to live in the property. 

Outcome: I got orders to move after about a year and a half. The Pensacola realty market has appreciated significantly since I purchased the home. It looks like I would be able to get high $140s if I were to sell today (although that is just a "paper gain"). I still hold onto the property and I rent it out for $1200/mo. After expenses and a reserve for future repairs I about break even. However, since the home is on a 15 year note, my principal pay-down is about $8000/yr. 

What I would have done differently: If I were to do it again, I would have looked harder to find a multi-family that I could control with the same down payment (or lower - utilizing the VA loan) and amortized it over 30 years to increase my margin of safety for unexpected expenses. Although I don't get a huge amount of cash flow from this property, it provided a great education in rental property investing and spurred me to find BiggerPockets and continue down this path.

Is this a single family residence or multi? If it is just a single family, then the income it produces will have less of an effect on the sale price as your primary consumer will be an owner occupant. They are not concerned with the income it could produce as it won't produce any if they live there themselves and don't house hack. 

That's not to say the income potential and purchase price are not inter-related. Typically, a nicer house in a nice neighborhood will both command a higher rent and a higher purchase price. But the higher purchase price isn't because of the higher rent. 

@Mitchell Luban - that's awesome! You mentioned adding a new roof - did you refi your mortgage to pull out some of the additional value or did you leave it in as equity and collect that added value on the sale? Are you doing a 1031 exchange for the 2 multi-families that you are rolling the sales proceeds into? If so, are you going to owner-occupy one of those? 

Yeah, I read that article. But if things are indeed as bad as they say they are, it creates an awesome opportunity to normal investors that are able to provide a level of service and a higher quality product that will be able to easily compete with a larger, more clumsy, competitor - especially after their issues are brought to light with increased publicity. 

However, this article (and similar ones like it) have the potential to direct a lot of negative emotion towards ALL RE investors and not just the ones perpetrating the issues presented in the article. 

I do not have a whole lot of experience on the LLC front, but from what I understand the main benefit of using an LLC is for asset protection. It adds an extra layer between your rental property and your personal assets in the case of a lawsuit. If the LLC is a single-member LLC, I do not believe there would be any tax benefits to even routing your income through it as single-member LLCs are treated as "pass through" assets and the income is taxed on the same level as your other personal income.

Again, this is just from a cursory understanding, there may be some benefits that I am not aware of. 

@Eric Long - the idea being to take a loss on cashflow every month to lower taxable income while banking on appreciation and the favorable tax treatment of long term capital gains when they sell? 

@Cecile Poyet And seconding @Michael T., that's why the cash flow is so important. It buys you the ability to hold on all the way through a recession cycle. That is the biggest reason seeing negative cash flow rentals bought on hopes of "appreciation" in some of the hot markets is some scary stuff. 

@Andy Ramdeen I am just starting out as well. I currently live in CA and I have one SFR in Florida and one under contract in MI. If you do decide to go straight to the out of state strategy, find something that gives you a leg up in the market that you choose. For me, I lived in FL when I bought that house (and house hacked for over a year while I lived there) and my in-laws live in the town in MI where we got our second one. It is definitely an advantage to have someone who intimately knows the market helping steer you out of the not so savory areas. However, that is not to negate the fact that an extremely solid investor friendly agent can help with that too.

It comes down to having a solid, trustworthy team in place. For me, it was my agent, father in law (additional boots on the ground) and property management company. Since each do investments themselves the could point me to contractors in the area, and good title companies/lawyers to round out the team. 

@Marisa R. I've been trying to crush as many podcasts and webinars the last couple of weeks. Sometimes it takes hearing a strategy/technique a few times for it to really sink in and become part of my own analysis and decision making progress!

Calculator's are great mainly for the aesthetics of the results page/showing friends and family.