All Forum Posts by: David Matthew

@Lee Ripma Thank you for reading my long winded post and providing your opinion! I'll definitely spend some time re-considering point 4 (considering CDs like you mentioned and others) until I'm 100% confident in the right path. Thanks!

Hello everyone! I’m revisiting this thread and updating as things have progressed quite a bit. I feel good about my new plan but always love to hear some other ideas or counterpoints.

So, long story short: Things have come to a head with one of the mountain rentals (“Zell Ct”). 

Essentially, it’s deteriorating quickly, winter was not easy on it. There is quite a bit of wood to replace (It was built In the 60s). I need to scrape, sand and paint literally every exterior surface of the house and large deck along with roof repairs. On top of that, the tenants are turning into real dirtbags, there are six aging vehicles parked in front (some on blocks), sheriff has been called out multiple times, all kinds of interior problems, can’t even get to the deck repairs yet due to the excess amount of junk stored above and below the deck. There is no good management up there and very difficult to find handymen. The great cash flow is just not worth the stress, it has to go! I’ve already given them 60 days notice (holdover tenancy).

The other mountain rental (“Arth Dr”) isn’t so bad, I already finished yearly repairs and it has a decent tenant although I feel I will want to get out of this eventually as well (another huge old deck with yearly wood replacements and deck re-stains).

1. I looked at 1031 into DSTs, Upreits etc and ultimately realized I have no interest in them. I’ve found I can manage my own investments well with excellent returns and don’t want to hand it all over to someone else who I don’t know and have no ability to control things.

2. I’ve calculated every possible combination of 1031 exchanging “Zell” or both mountain properties into other types of like-kind investments and with the interest rates it never makes any financial sense. I’ve felt very “trapped” with these properties.

3. Ultimately I started to consider paying capital gains tax and here are the broad strokes of what I came up with: “Zell” has to go no matter what, my plan is to pay the tax on this (multiple calls with CPA to confirm the details), then with the proceeds I can pay off my auto loan (5.5%, easy win) and then also pay off “Arth”. These moves will actually increase my monthly cashflow a bit (when considering extreme maintenance on “Zell”) while greatly reducing stress. The bigger perk is that with “Arth” payed off, when I’m ready, I can do a 1031 with that into cash offers on other lower maintenance properties as interest rates will not be a concern. Being “locked in” to those properties has been a significant source of stress.

4. So, to summarize, pay the capital gains on first sale (Zell), then I can avoid taxes on the second one (Arth), gain freedom, time, flexibility, reduce stress and gain a little cash flow. Yes, perhaps it's counter-intuitive to pay off a 3.5% investment mortgage on Arth with higher ROI options however these gains will be guaranteed (I have some other paper losses I can utilize to reduce the taxable burden on the increases cash flow) and provides me with paid off 1031 flexibility.

I've done IRR and cash flow calculations on all my options (out of scope for the post I figure) and also considered just dumping taxed funds into SP500, bonds, HYSA, REITs and other options but I want safe, stress free, low risk cash flow with this capital.

What do you think about the general strategy? Thank you ahead of time for any replies!

Good stuff to think about, thank you Sebastian.

It's cool to see extra replies from time to time on this post as I continue with the ideas.

It's interesting, I looked into different DSTs and had conversations but just didn't feel comfortable with what I felt was a lack of control or ability to really know the operators and properties.

I also kept running the numbers and just couldn't make 1031s into other properties make sense with the new interest rates compared to what I have now. 

Ultimately I just raised rents and got better with outsourcing the maintenance in a cost effective way (wasn't doing that very well before). I keep thinking about this though, revisiting it and thinking if there is a better path forward.

@Lee Ripma Thank you for the input! It's good to hear from someone who has been in a very similar situation. These properties are in a smaller town (Crestline) but within an hour of Big Bear in the same mountain range. I agree with that suggestion (if the numbers make sense) as a good middle of the road option to still maintain some SoCal appreciation. Thanks!

Appreciate the info, I now see I was misunderstanding the 1031 NSP purchase requirement. So I'll make a new spreadsheet and re-run my numbers to see what I can pull off. In the meantime I will optimize my SoCal properties. Thanks everybody!

Thank you for the replies and different opinions! It's nice to consider different viewpoints. Excellent point on the IRR, I haven't built my spreadsheet out to accurately calculate that yet but I know it's pretty high for the SoCal properties. The appreciation has been no joke!

I’ll add some details to the mountain houses which will shed some light.

The houses are aging and I’m doing a lot of wood, siding and deck component repairs plus they need staining quite often. There is a lack of good management options up there so I manage myself. There is a lack of handymen as well so I do a good amount of the work myself or using helpers. The biggest issue is that eventually those decks will need replacement (I’m keeping them alive as long as I can). Replacement costs are 35-45,000+ EACH! Ridiculous. The other issue is forest fire risk plus insurers are dropping policies and most insurers won’t write policies there anymore. These factors cause a bit of anxiety and have led to this whole re-evaluation. On a second look, one of the houses I could probably get up to 5% ROE, the other 4% max, not sure it’s worth it though.

The other rental down the hill is a different story. Stucco, no decks, I’m renting individual rooms, 10min away from my house, easy maintenance. If I’m being honest with myself, I just haven’t been keeping the rooms up at market rate. I used to live there myself and know them somewhat personally (one pretty well) so I’ve been soft on price increases (when someone rarely moves out that room goes to market rate though). If I put on my business hat I realize I could really increase cash flow from ~900 to 1400-1700. That could get that house to ROE 6% plus the benefit enhanced appreciation. I just need to give them the tough news about how much I need to increase prices and deal with potentially some leaving. So the performance here is really on me.

Based on the opinions and realization I’m now leaning towards a middle of the road approach - keeping the SoCal room rental house, get that to market rates (~6% ROE) and 1031 the mountain houses. Thoughts?

Hey everyone, hoping to get some opinions on my latest strategy thoughts.

At the moment I have four rentals, all SFHs, and bought starting in 2013. Three of the rentals are in Southern California and have appreciated quite a bit and so I’m starting to look at what I could be doing with that equity. Two of the rentals are located in the mountains where it snows and have large decks, they are very high maintenance so I’d like to get out of those if possible.

In the three SoCal houses total I'm now looking at 703k equity (Split among the houses- 162k, 204k and 336k). COCR is good compared to my original investment on all of them and rents have steadily been increased but If I do a ROE calc, it's really only around 3.5-4% on average. All of them were ReFi'd and have 30yr interest rates between 2.5 to 3.5% (VA Home loans).

I've considered lots of options (all real estate based since I can do a 1031 exchange and avoid the capital gains tax). I've thought about selling the properties and getting something in cash here in SoCal to have it local but the COC is not amazing and it lacks diversification. I do have one house in Memphis bought in 2018 so I've dipped into the out of state game already so I'm not scared to go that route again. I've also considered cash out of state multi-family but doing multiple into one 1031 exchange on my first time sounds risky and stressful.

Mostly I like the idea of selling a house here, 1031, then a cash purchase in the midwest/south etc (Then if successful, repeat). If I can even get 7% COCR with my gained equity out of state it would be a substantial increase in cashflow. I feel like the big equity gains are already realized here in SoCal so there isn't much point holding out for more.

I’m curious what y’all think of my general thought process/strategy so far. Anything I’m missing here? Other ideas?

Thanks!

Ahh, that makes sense. Thanks!  I figure the change of terms notice is what I want as it doesn't require the tenants signature/agreement and can take affect in 30 days as the amendment needs to be agreed on by both parties and is usually used in the middle of a lease period. I think?

Kept reading for a while and I think I found the better solution: Notice of change of terms of tenancy form...

Hey everybody, first post!

I have one property with a tenant who has been there for five years. This is also the first rental property I ever purchased and have never raised the rent. He signed a one year lease and then it just went to month to month after expiration, I never requested a new lease signing. The tenant has always paid the rent but leaves the place a mess (junk around the outside of the house) and there are small damages that accumulate.

I'd like to raise the rent 10% to bring up to market value in addition to modifying terms so that I am not responsible for washer dryer repairs(newbie lease mistake well learned) and for the tenant to pay the trash bill.

Can I just do a lease amendment with the terms I would like or will that not work since the original lease is expired? Do I have to do a notice to quit along with a new lease for him to sign?

I informed him verbally at first before providing documentation as a more personal way of breaking the news as things have been friendly so far in all previous dealings. I'm aware this won't officially count as notice. He has verbally stated that he intends to purchase a property and is not sure about signing a new lease and asked to stay on month to month. I'm totally fine if he stays on month to month but it needs to be with the new terms I'm looking for. I personally doubt he will purchase a house but also don't mind if he moves out. So far we are friendly but I want to make sure I cover my bases in the event he stays and doesn't want to pay the increased rent.

Thanks!