All Forum Posts by: Elliot Fuller

@Daniel Kahler

I bought my first home in Oceanside when I was stationed at Pendleton in 2013 for $353,000.  We moved to NC in 2015 and have rented it out for decent cash flow since then.  We could probably sell it for $650,000+ right now, and truthfully there is more that we could do to build cash flow with those capital gains than we could by holding on to a single property that is "only" cash flowing about $450/month.

Also, yes, there is a rule that if you have lived in it for a total of 2 of the last 5 years, your capital gains are tax free.  BUT!!! If you are Active Duty and you are moving on orders, that 5 year limit can be suspended for up to 10 additional years.  This means that you actually have to have lived in it for 2 of the last 15 years if you are active duty and sold it or moved out due to orders.  This is based on my own research, so please fact-check on your own, or maybe someone will correct me if I'm mistaken.

So... if you are of the mindset that "Bulls make money, bears make money, but pigs get slaughtered" and you think the current run up in the SD market is enough for you to take your profits off the table, then I would say sell it.

You'll free up your VA loan for use on a new primary residence that can turn into an investment property down the road if you find the right place. Or just rinse and repeat by buying for "value," and selling the profits when you move out or PCS every time.

If you think you could stomach holding on to it through the twists and turns of the rental market for several more years, know that you should still be able to sell it tax free later on down the road without having to resort to a 1031 Exchange or anything.  You don't know if it will appreciate more by then or not, but you'll have to weigh that with what you stand to gain through cash flow by renting it and mortgage pay-down in the meantime.

We held on to our Oceanside home for a while because I was expecting that I would get re-stationed at Pendleton or Miramar at some point down the road. Even if that were the case now, our family has grown and we likely would not return to this particular SFR (in fact we'd probably just rent unless the housing market made a correction before then), so selling it is kind of a no-brainer for us right now. We hope to list it as soon as our tenants (hopefully) leave in August.

On that note, keep in mind some of the ridiculous stuff that has happened in the last year in California, with tenants basically able to legally squat in your home w/o making payments as long as they can justify hardship due to COVID.  In our case, we can't even notify our tenants of our intent to evict them based on the legal expiration of their lease.  We can't sell the house with them in it, we can't move back into it, and we can't kick them out.  We have to hope and cross our fingers that they will just move out on their own when their lease is up.  We have been fortunate that they've still paid rent this entire time... but they don't have to, technically.  And they don't have to move out either, technically.

COVID, and that State & County's reaction to it, has made my attitude toward SoCal housing sour completely, and I cannot wait to be out of that market, even if it has been a cash cow for us over the years.

If you'd like a recommendation for a property management company, please message me.  Our management company has been amazing, and I'd be happy to recommend them to you (I get nothing out of it, they have just been a godsend).

@Dave Foster, thanks for the reply.  I like your strategy, and it's something I was leaning toward.  Not to make excuses (but kind of), but I'm overseas for most of this year and don't think I will have the time to be present and active enough to take advantage of the 1031 - I'm concerned I'd miss the window to purchase like properties, and it sounds like a fairly active and intensive process.

However I might be able to pursue a similar option anyway, given something I discovered after my initial post: I may be eligible for a capital gains exemption due to having lived in the CA property for 2 of the last 15 years (military status extends/suspends the "2 out of 5" rule for up to 10 years).  Actually we lived there for 22 months, just 2 months shy of 2 years, but I'm working with a CPA to determine if we qualify for a pro-rated exemption based on that.

Selling, rather than refinancing, opens us up to use another VA loan, which is great, as well, especially if we can exempt the capital gains.

@Jason Shackleton - were I to cash out refi, that would raise payments on the property, and eat into, or negate my cash flow, right? As far as a long term hold, I wouldn't be too concerned about a market correction in this case, but I would be concerned about no longer cash flowing on it, and also would not be able to take advantage of a renewed, easy, zero-down VA benefit that selling it would provide.

"No one ever went broke taking a profit." - great philosophy.

Thanks gentlemen!

Hello BP, it's been a while since I've been on here.

Bottom line up front: How might you proceed if you had a cash-flowing property that had appreciated significantly, and wanted to take the next steps to expand your portfolio?

Longer version:

San Diego SFR Rental - Purchased 2013 for $353,000
Financing: VA loan $0 down at 3.25%
Refinanced: 2.25% in 2020
Remaining: $292,000
Approximate Value: $650,000 (no major improvements, just market appreciation)
Cash Flow: $425 after the refinance and several years of hiking rent.

North Carolina Primary Residence - Purchased 2018 for $192,000
Financing: Conventional 5% down at 4.25% (PMI rolled in)
Refinanced: 2.75% in 2020
Remaining: $182,000
Approximate Value: $240,000-$260,000 (added bedroom & bathroom ~ $50,000 reno)

We are considering selling the CA SFR to build additional wealth. Should I even be considering this, if it's cash flowing $425 a month, and giving us about $9,200 annually in principle pay down, with an "almost free" interest rate? The build-up in equity is making me salivate.

1.) Thought about 1031'ing it into a small apartment complex, but I am unfamiliar with financing options for that, and since we are, at this point, accidental amateur RE investors, I'm thinking a jump straight into multifamily apartment complexes probably isn't the right choice.

2.) More beginner-friendly, thought about selling it and using the proceeds for down payments on several duplexes outside of CA. We would eat the capital gains tax losses and fees from the sale, but we could hopefully match or beat the cash flow from CA property, diversify into several units, and have more room for appreciation.

3.) Selling it and paying off our primary residence would be an emotional win, allow us to pocket more of our income ("virtual cash flow"), leave us a little extra cash to purchase another SFR or duplex investment property, and allow flexibility for potential job transitions in the future.  Selling would also renew our VA benefit eligibility, and we could buy a new primary residence with zero down, opening up our current home to tenants.

4.) Instead of a sale, do a cash-out refi?  What would happen if we took enough equity out to invest in several other properties, and then the market corrected?  Wouldn't we be at risk of being underwater on the home if the market swiftly corrected?  On that same note, a cash-out refi would raise our mortgage payments on the home and eat into our cash flow, is that correct?  Maybe I'm not looking at this aspect of it correctly.

Although I understand the basics of these options, there are a lot of scenarios for me to wrap my head around from a wealth management standpoint, and I'm struggling to find the one that makes the most sense.  Dave Ramsey says to pay off your mortgage... Brandon Turner says to use leverage to build wealth.

From Brandon Turner's book, there are 3 ways to accumulate wealth with RE: Appreciation, cash flow, and loan paydown. Right now I feel like the CA SFR has run up so much with appreciation, that it would be wrong to not at least consider taking profits and finding a new opportunity(ies) that can capitalize on all 3 methods of wealth accumulation.

How might you proceed here?

There are some value add opportunities popping up here and there but it is a race to grab them. Many of the fixer uppers are listing and selling for nearly what I'd assume is their ARV so I'm not sure how someone is making profit from them, but I guess I'll wait and see if they pop up back on the market in a flipped state to see...

I work 90 minutes away, and trying to coordinate contractors is a full time job in itself out here... so until I get some experience and some reliable networking done, I think I'd only lose money and time trying to coordinate a flip or BRRRR.

I'm happy with a 9% CoC return for the most part, as long as it's secure and stable.

Solid advice, thank you.

Kevin, I am working with a property manager now to try to feel out how reasonable the $950 is.

Richie, I feel the same way. It seems like $900 is a major rent plateau in this area, and generally speaking I've had a difficult time finding trends from area-to-area and house to house. So I am trying to put in the work now estimating fair rent price before even making the offer.

The place has been listed for only about a week, but this is a strong seller's market and some really unusual deals are selling pretty quickly at unusual prices that I have a hard time understanding how they'd be profitable.

The lenders I've spoken with were offering anywhere between 4% and 4.88% loans with between 20% and 35% down. The 4.125% @ 25% down yielded the strongest CoC return.

We also have a LLC which we tried to get quotes for financing but all the rates and terms are considerably worse for it.

Lastly, this is a pretty lively college town with a large hospital.  On the same token a good portion is low income, typical east North Carolina, without much growth.

What do you think would cause that kind of disparity in 3 bedroom rents in particular year over year?  That's probably a pretty broad question but worth a shot...

Hello all, looking to take the plunge and pick up our first (intentional) investment property. The logistics of BRRRR are a little too daunting for us right now, having not built a very robust network (particularly in the way of contractors); we've had a hell of a time finding people to work on our own home, much less on a property we are on strict timelines for.

So for now, we are looking predominantly for cash flowing rentals that are mostly turnkey, and we are hoping for, but not relying on long term appreciation/equity as our main focus.

3/2 Townhouse - Zip Code 27834
1496 SqFt

Asking price: $92,000
Comps:  $86,000 - $90,000
Offer: $83,000
Repairs: ~$3,000 - $4,000 -- just needs paint as far as we can tell during our walkthrough

Rent: Currently not rented, but should rent for $900 - $950 based on comps.

P&I: $301
Taxes: $73
Insurance: $32
HOA: $27
Management: 8%
Maint: 5%
CapEx: 8%
Vacancy: 8%
Holding/Repair Time: 1-2 months (approx $600 - $1,200)
Closing Costs: ~ $3,300

Financing:
25% down
30 Year Fixed @ 4.125%

Total Cash in (including repairs): $28,837

Operating Expenses: $407.50
NOI: $542.50
Cash Flow: $240.81

Cash on Cash: 9.8% - 10.02%
Cap Rate: ~7.15%

Notes: The property is a townhouse (1 half of a duplex) in Greenville, NC. Class B/C as best as I can tell with my limited experience. Well kept with new floors and carpets, siding looks good, fixtures in good condition, and no overt signs of major repairs needed. We find some comfort in the townhouse and the HOA in that hopefully it will limit some CapEx over time.

A lot hinges on the $950 rent. $900 drops us to 8.5% CoC, and anything lower would better be put into the stocks as far as I'm concerned, unless maybe I'm missing something? I have a mental block for figures under 10%, but I'm not really clear on what's considered reasonable in this respect... I come from a heavy dividend stock portfolio background

And of course it ALL hinges on getting our offer accepted... Increased purchase price to $86,000 takes us almost below 9%.

Happy to receive input, and thanks for taking the time!

@Kevin Sobilo - thanks man!  All good advice.

A trend I've noticed here (example): House lists for $91,000. ARV about $120,000 based on comps. Needs 100% new floors, 100% new paint, new roof, termite treatment, all new kitchen, 2 all new bathrooms, all new windows, electrical work rerouting, crawlspace work due to plumbing leaks in bathrooms, among some other things. I'd guess $30k-$50k at least, and that's without upgrades... just to get it marketable and livable again. House sells for $91,000 in probably less than 15-20 days.

I'm tracking a few of them to see how much they list for a few months from now... maybe that'll help me understand how people are making money on these types of homes. I don't know how well the place would sell if they suddenly created a home with $170k-$180k ARV in a $120k neighborhood, but maybe that's what their end goal is.

Thanks again for the detailed responses and for putting some time and thought into it.

@Nathan Norway: The home out there is pretty minimal already as far as what we feel we can trim down.  We have a contracted lawn/landscape maintainer who I've thought about nixing in favor of requiring the tenant to perform the upkeep, however I've found some benefit in having the landscaper there a couple times a month to point out things and keep an unofficial eye on the house for me.  That cost is only $70 a month on average, with occasional added repair costs.

The month-to-month drain isn't felt in the month-to-month operation of that rental.  Where I get hit is during tenant turnover (which is rare, so far), and with the usual upkeep and occasional disaster (slab leaks, broken appliances, irrigation/sprinkler issues, etc.).

@Kevin Sobilo: I have thought about losing the management company as well, but I think they have been well worth the expense up to this point.  They've seamlessly managed a couple large repairs/disasters, and I truly have peace of mind knowing they're on top of things -- managing that kind of stuff myself with the 2 to 3 hour time difference wouldn't be practical in my opinion.

For your info, I budget 8% to management, 10% to maintenance, 10% to capex, and 8% vacancy.  8% vacancy is probably a stretch and actually much lower most likely.  But that's where I came up with the dollar figure above.

I hadn't really factored in depreciation into the figures, so that's a good point.

Your description of the ideal BRRRR seems like what I generally hear. Maybe I just haven't been looking long enough.

The C class properties here all seem to list and sell for around $45,000; anything under that is likely storm damaged from Hurricane Florence from 2018 still (major flood, mold, rot, etc.) and the repair estimates would exceed the ARV of the house -- i.e. new roof, gutting entire interior, mold mitigation, new windows, new floors throughout, beautified kitchens and bathrooms (not necessarily upgraded)... in other words, the ones I've found in the $20k range usually need to be rebuilt as new houses. I wouldn't want to spend $20k on the house, $50k on the repairs, and still have a ARV of $50k because the entire neighborhood is around $50k.

And after all that, good luck getting $800 rent... closer to $450 or $500 if you're lucky.

How do you tackle that situation? If all the houses in that class C neighborhood are $50k and the only places listed for less require more money in repair than the house will list for ARV? Just find a new neighborhood or what?

If you're curious, I'm looking around Greenville, North Carolina, which is home to a decent sized university and a popular hospital.  It's about 90 minutes from a major Marine base as well.

Hello everyone, short time lurker, but long-time listener to the BP podcast.  Figured I would introduce myself and my situation as a case study to solicit advice.  I'm an accidental investor, in the sense that it was never my goal to have tenants, and I have almost no actual investment experience in real estate: everything I've done has revolved around my primary residence(s) that I've generally just gotten lucky on up to this point.

About me:  

• Job: Active duty military, 11 years in, planning to do 20
• Location: Eastern North Carolina.  
• Family: I'm 35 and married with a kid.  
• Finances: Net worth including equity in two homes is about $745,000.  No debt other than mortgages.  Making about $115,000 annually after taxes from two full-time incomes, and saving/investing between 30-40%.  We have about $60,000 in cash we can tap into right now. 

Primary Residence: Greenville, North Carolina.  Purchased 2018 for $192,000 at 4.25%.  Owe about $179,000.

Rental Property: Oceanside, CA. Purchased 2013 with VA loan (zero down) for $353,000 at 3.25%. Owe about $300,000. Rented out with a management company for $2,350 and have been able to consistently raise rents about 2-5% annually. Would most likely sell for around $510,000 - $520,000 if listed today.

The California House

We've kept the house in CA due to the chance of being re-stationed there at some point.  Having a foot in the door with a low payment from 2013 rates has been a nice fallback -- military housing allowance has gone up dramatically to match market housing costs, so if we moved back into that house we would pocket about $1,000 monthly of extra tax-free housing allowance, give or take.

Unfortunately, after taking vacancy, capex, maintenance, etc. into account, the house is not currently cash flowing.  In fact, looking at the numbers unemotionally, we're probably losing $500-$600 monthly on it: PITI ~ $1,986 / Landscaping and maintenance ~ $70 / Mgmt, capex, maintenance, vacancy ~ $893. Factoring in paydown of the loan, we're still probably up around $2,000-$3,000 annually though.

Some have called the California house my "retirement plan" on other forums, and told me I'd be crazy to sell it with a locked in 3.25% rate. I'd also take a significant tax hit on a sale, and lose the long-term equity accumulation potential.

Eastern NC

There are only about 350 active listings in our current area right now. Most are priced at about market value, making them not great candidates for flips. Low income, stagnant rent, and a lot of Section 8 housing makes BRRRR challenging as well, and make it difficult to find properties that would yield cash-on-cash returns and cap rates over 5%. I know those unicorn deals pop up now and again, just haven't had any luck so far.

Plan of Attack

I'd really like to try out BRRRR, flipping, or just finding a good solid cash-flowing property. More than that, I'd like to do what's best with my money in my other house. I don't like having a bunch of untouched equity that could otherwise be earning me more money, and after reading up on BP, I definitely don't like the idea that I'm actually NOT cash flowing on that property the way I thought I was. Month-to-month everything's great, but as I've seen first hand on several occasions, those one-off expenses really cut into the bottom line.

Curious what other peoples' thoughts are on this.  I can provide more info if needed, but it was already getting pretty long-winded and wordy.  

If I have the means of obtaining capital elsewhere, would you suggest I hold on to the negative cash-flowing CA house due to its long term potential and "overall profitability?"

Or would you tap into its equity with a refi or HELOC in order to buy more properties?

Or would you sell to take profits and use the cash elsewhere?

If you read this far, thanks!  Appreciate what a great resource this is, and look forward to learning more!