All Forum Posts by: Fernando Guzman

Quote from @Ashish Acharya:

@Fernando Guzman

For Property 1, the $1,000 monthly negative cash flow could limit your growth, despite the tax benefits. Neg paper losses will save you taxes. Actual -ve cash flow doesn't make sense. If you can't improve cash flow through refinancing or rent increases, selling and reallocating the $40,000 equity into a better investment might be wiser.

For Property 2, increasing the rent to improve cash flow to $500 makes it a solid hold. You could also explore a cash-out refinance to fund another investment. While tax benefits are valuable, focusing on investments that provide both cash flow and appreciation will better maximize your wealth potential.

*This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Thanks so much for the solid advice! I completely agree that the negative cash flow on Property 1 could limit my growth, and selling to reallocate the equity makes sense if I can’t improve the cash flow.

For Property 2, increasing the rent and possibly doing a cash-out refi are good ideas. I appreciate your input—it’s really helping me think through the next steps.

Quote from @Gino Barbaro:

@Fernando Guzman

First thing is to pick an investment and stick with it.  If you're negative can flowing property is going to appreciate, then it may make sense to hold on.

A loss is still a loss, and I would not hold onto a deal because I'm getting a write-off. That 1000 can turn much bigger with vacancy and unexpected repairs. I would not want to run a business and lose money every month.

You have to sit down with a business/life coach and figure out what you want real estate to accomplish, how is it going to fitinot your life. If you don't have that figured out and your relationship with money, moving money around is not going to solve anything. Clarity will set you free.

Gino

Thank you, Gino. Your advice about gaining clarity really hits home. I've always been focused on scaling, but I realize that getting a clearer picture of how real estate fits into my life and goals is crucial. You mentioned working with a business/life coach—do you have any recommendations on who to reach out to for that kind of guidance? I think that could be a great next step for me as I navigate this phase.

Quote from @Basit Siddiqi:

The equity that you mention, is that just the FMV less the loan balance or is that the appreciation on the property?

If its appreciation, I think you did a good job assuming you held the properties for a few years.
If its just FMV less loan balance, i would only sell if you are unhappy with your appreciation / cash flow.

Appreciate your follow-up, Basit. The equity is a mix of FMV and appreciation. I've held the properties for a few years, and cash flow is becoming more of a focus now as I plan my next steps. I'll definitely keep your advice in mind as I weigh whether to hold or sell.

Quote from @Joe Villeneuve:

Listen to your Mentor, hire a different tax guy.

Thanks, Joe. My mentor has shared similar advice, and I'm seriously considering making the switch. It's time to align myself with a tax professional who not only understands my current situation but can also help me scale efficiently.

Quote from @Austin Cheatham:

Fernando,

It could be time to search for a new tax professional, but without knowing your full situation I can't say for sure. I would recommend having someone who not only provides tax advice but also acts as a strategic advisor. Someone who is helping plan your tax situation and your short and long term goals. There are several ways to offset income, even with positive cash flow. There are situations where we could have a paper loss but still be able to show some cash flow, which is ideal.

One of the downsides to selling property 1 is the potential for depreciation recapture and capital gains from any appreciation. However, we can negate some of that with a 1031 exchange which would allow you to take those gains and reinvest it into a better deal. When it comes to my clients, I like to run through different 1031 exchange scenarios to see what we can do to provide the maximum benefit of deferred tax and also be able to achieve what we want to do. Whether that be a partial exchange to pull some cash out or a full exchange to invest into a better deal. It will just be important to identify the new property and make sure you stay compliant with 1031 exchange guidelines.

If you have any questions on the tax piece or need any help analyzing the numbers, feel free to reach out. Happy to help if I can.

Thank you, Austin! I really value your input. A 1031 exchange is definitely in my plans as I look to scale and optimize my portfolio. My focus has always been on growth, and now that I'm in a position to make some moves, I want to ensure I’m making the right decisions without overlooking key factors.

By the way, are you multi-state licensed or able to help with properties in Utah, Nevada, and Guam? I'd love to discuss how a 1031 could work for these properties and ensure I’m staying compliant while maximizing the benefits. 

Thank you for taking the time to reply and for the detailed insights – I really appreciate it!

To clarify, my intention with Property 1 wasn’t to do a cash-out refinance but rather to see if I could lower the monthly payment to ease the negative cash flow. That being said, I completely understand your points, and you’ve got me thinking about whether it’s even worth trying to keep a property with such a high monthly deficit.

I’m also very open to exploring other markets that could offer better returns, especially in multifamily properties. I haven’t invested outside of my local area yet, but I’m definitely considering moving my equity to a market that provides a better purchase-to-cash-flow ratio, as you suggested.

I’d definitely welcome your help in running the numbers to make sure I’m moving in the right direction.

Thanks again for your valuable input!

Thank you all for taking the time to read and provide any advice on my situation.

I’m currently facing a decision with my two properties and would appreciate your guidance. Here’s the breakdown:

- Property 1: This property has approximately $40,000 in equity but is cash flow negative by about $1,000 per month.

- Property 2: This property has around $100,000 in equity and is cash flowing positively at about +$200 per month. I know it's currently under-rented and believe I can increase the rent to generate around +$500 in cash flow.

My questions are as follows:

1. For Property 1: Should I sell this property and transfer the equity into another investment, or should I explore ways to lower the monthly payment and break even or slightly positive on cash flow?

2. For Property 2: Should I hold onto this property, increase the rent to improve cash flow, and potentially pull out some equity for another deal? Or would it make more sense to sell and reallocate that equity into a different property that might provide better returns?

I’ve received some conflicting advice:

- My tax advisor suggested keeping the negative cash flow from Property 1, as it helps offset my current job income, which is around $240,000 annually.

- My mentor recommended that I sell both properties and put the funds to work elsewhere, potentially in more lucrative opportunities.

I feel like holding onto the negative cashflow is limiting my growth potential, but I'm trying to weigh the options carefully. Any tips or advice from those of you who have navigated similar situations would be immensely appreciated!

Thank you all in advance for your help!

Quote from @Andrew Freed:

@Fernando Guzman - Welcome to BP! Have you started investing in SFH? What is your plan to expand your real estate portfolio?

 I have yes, currently have 2 house in the las vegas area and plan to get some more with the equity built in them.  

Hello BiggerPockets community! I'm Fernando from Guam, passionate about real estate investing since 2015. I'm particularly passionate about single family homes.

Outside of real estate, I enjoy traveling and spending time with my family.

Excited to learn and connect with you all!