All Forum Posts by: Greg Harriman

Quick update for you guys while I'm somewhat trying to get out of my 2 week long hibernation. We listed the home for rent at a higher price and have gotten a lot of interest. The extra $150 a month will be nice but I don't think it was a big factor in why we decided to keep the home (at least for now). Some of those reasons are that the home is new and maintenance costs have been manageable, the area is booming and renters are easy to find, we have never had vacancy (also in any of the other homes we rent) and we haven't see any options that are clearly better. We considered a 1031 exchange but all those transaction costs are scary. Also, if we were to find a solid opportunity we already have the cash to invest a solid down payment. So, for now, we have decided to rent out the place. Thank you to those who provided insight and wisdom to our clouded minds. I'll likely have to re-read this discussion again 14 months from now when the new lease expires!

2 weeks it is! The clock starts now! Thanks Patrick Britton

Originally posted by @Louis Chan:

@Greg Harriman, it all depends on your strategy.

Depending on how long you've had that property in Bothell, you may be able to refinance to take a lot of your equity back out of your property to invest in something else, possibly lowering your mortgage and increasing cash flow at the same time.

Obviously, if we had a accurate way to time the market, we'd all be rich. You could sell now and take your profits elsewhere if you're happy with that. However, I don't see the market dropping anytime soon in the area. There is a lot of urban growth in DT Bothell, Totem Lake, Canyon Park, and Lynnwood.

 Hey Louis, I've only owned the property since it was built in November 2014 and I'm sitting at a 3.99% rate so I haven't considered a refinance.  I don't see a lot of opportunities that make me want to sell and use this money elsewhere so I'm just pausing and looking at my situation to see if I have better options.  I've thought often about selling this and other properties and going the multi-family route but I think I'll go that route if the market corrects and there are good buying opportunities.

Do you invest here in Bothell and if so, are you holding, buying, selling, panicking, celebrating, contemplating, or procrastinating?  I seem to do it all and the paralysis by over-analysis has set in!

Originally posted by @Patrick Britton:

@Greg Harriman Looks like you have a (good) problem :)  

Couple of questions:

1.  is current fair market rent much higher than what you are currently charging?  If so, perhaps it's worth increasing rent when the lease is up?

2.  is the current, or future fair market rent, covering your mortgage and/or all other expenses?  (are you cash flow positive?)  

3.  do you have enough equity to pull from the property and use that for another investment?

4.  how do you know what the home is worth?  

I've been in a similar position and I must say that kicking yourself in the butt for not holding your investment longer is a lot better than saying, "I knew I should have sold!"  And please keep in mind that your ability to sleep well at night and your quality of life might be worth more than making a few extra bucks.   

However, there isn't any evidence supporting a market decline anytime soon, especially down in King CO.  One metric I like to look at is closed sales and percent of list price properties are selling.  It will be worrisome when properties begin to get well under 100% of asking price AND the number of homes that sell is in decline.  And we are simply not seeing that.

Thank you for your solid feedback and questions, Patrick. So, here are my answers:
1.  I believe I'm charging full market value for the house.  I know this because I know the local market.  The reason the rent is low compared to the value of the property is a combination of the local economy as well as the type of property.  It's a 5 bedroom, 3k sqft single family home that is 3-stories and on small amount of land.  Rent is over $3k and the value of the home is between $650-675k.
2.  Yes, my out of pocket is about $2.5k ignoring maintenance costs.  The home was built in 2014 so maintenance is minimal.  I realize this will change in the future but for now I'm generating over $6k annually in cash flow.  Up to this point, I have not had a vacancy.
3.  I have cash elsewhere so while I could pull money and invest elsewhere, if I had a good opportunity I'd just use my extra cash to pursue it.  This home was my primary residence for about 1 year so I'd have some benefit of the Homestead Exemption if I were to sell.
4.  I spend a lot of time on various sites and analyzing sales prices and know the area very well.  I know it would sell between $650-675k right now.  The schools, area growth, local economy, etc are all contributing to big changes here in Bothell.  If the price somehow pushed above $675k I wouldn't be surprised but my gut tells me that's the range if I were to sell now.

Thank you again for your feedback!

I own a home that I rent out and the lease is almost over - my gut is telling me it's time to sell.  My options are to either find a new tenant or sell the sucker.  The home is located in Bothell, Washington (Seattle area) and my rent is less than half of one percent of the market value of the home.  There's enough equity in the house to divest of the investment and invest elsewhere but what if this market continues to appreciate like it has the past 3 years!?!?

I know at this point I'm trying to time the market and not lose out on a possible gain but I can also lock in my profit now and be patient to find a better option elsewhere.

Are any fellow Seattle-based people running into this same situation?  If so, what option are you going with?

@Jennifer W. There are many factors to consider in a situation like this.  I'm in a similar boat and I always consider the following:

1)  Do you need the cash now?  Many times people need the equity in their current primary to buy a new primary.  In your case, it seems that you don't need the cash, so move to #2.

2)  Do you expect there to be a large correction in the market?  If you expect the market to tank and you can lock-in your profit now (especially in your case, because your entire gain on the sale is likely tax-free - see homestead exemption IRS rule) you should sell.  If this wasn't your primary residence and you had a gain on the property, you'd either have to use a 1031 exchange to defer the gain and decrease your cost basis in the newly acquired property or you'd be taxed by the IRS on the gain.  Most likely that gain would be at a capital gain tax rate, but still, that's a substantial amount of money to just hand over to the government.

3)  Are there other investments out there that better align with your goals?  Many times people just try to make as much money as they can on their investments and they take on too much risk.  I'd take a step back and see if holding the property aligns with your short and long-term goals.

4)  How old is the property and what maintenance do you foresee on the horizon.  You mentioned you'd have $400-500 leftover after paying the mortgage (and I'd assume that includes an escrow account with taxes and insurance), but what other stuff could come up that eat into that?  The older the house, the more likely you are to have something big happen.

5)  How attached are you to the home?  If you have a lot of memories there, it will be harder to part from.

In the end, you can't time the market and if you could predict the future, you'd be able to tell which choice would work out best in relation to your goals.  Since this was your primary residence and the gain would be tax-free I'd just go ahead and sell it and look for other options.  But, that's an outsider's point-of-view and based on opinion.  Best of luck with your decision and I'd love to hear how it all plays out!

Chris Vair you and I are almost in the same boat. I'd say I'm a few years ahead of you BUT I'm not any closer to where I want to be! My problem is that while I've made a lot of money on real estate in the last 5-7 years, I've done a very poor job of measuring my successes and failures. 90% of my success has been pure luck. I own multiple SFRs, none of which would have been cash flow positive if I hadn't put 25% down up-front. The appreciation and rise in rents is the only reason I've made a dime on these investments. If the market had stayed flat and for some reason I had to sell, I would have actually lost money because of transaction costs. It's time I open my eyes and use the "BRRRN" method - BACK AWAY, REALIZE my mistakes, RE-ANALYZE my situation, RESTRUCTURE my portfolio, and NOT REPEAT! (Brandon Turner isn't the only one who can come up with catchy acronyms!) I know my current investments are not in line with my goals yet I do nothing about it. I continue to get rent checks. I continue to stare blankly at my net worth on mint.com but not think what steps I can take to build a steady stream of income into perpetuity. I know if I don't act soon, that number will decrease 10-25% the next time we see a correction AND if rents go down I'll end up with negative cash flow from my rentals, essentially leading to a unstoppable downward spiral. All this and I'm a CPA and CFO. I successfully control millions of dollars on a daily basis and yet a handful of SFRs could be my downfall. Heck, I've gotten away with this ho-hum attitude for 5 years now and it's increased my net worth 5 fold. I realize, now, that I'm going insane (in a good way). I know that soon, if I continue to do the same thing over and over I'm going to get different results. Maybe it's time I did something different. I live just a few towns over from you so if you ever want to meet up and chat, let me know. Best of luck to you and your future!

@Michael Vallee @Darwin Crawford I ended up going with a guy named Bill Morin at VIP Mortgage in Scottsdale.  I've used him many times in the past as well and his rates ended up being a tad better than what Caliber was able to offer through Washington Federal's program.  The majority of the mortgages I've done with Bill have ended up with Wells Fargo (not my favorite considering their recent troubles) but in the end, I focus more on the true cost of the notes more than I do anything else.  This is the first portfolio loan I've done with Bill so I'm not sure where it'll end up.  It typically takes a few months before Bill's mortgages end up at the final mortgagor.  Hope this is helpful!

@Julie Marquez I think the whole 15 vs 30 year mortgage argument is similar to the Roth 401k versus Traditional 401k one... I think there are benefits to each and it really depends on your goals.  I have a mix of 15 and 30 year mortgages on the properties we own and that's because I just can't make up my dang mind.  One year I'm all gung ho about getting things paid off and the next I'm all excited about cash flow.  I think in the end, as long as I'm measuring where I stand in relation to my overall goals, then I'll be just fine.  To me, it's really a matter of just getting the properties under my belt and knowing that they're getting me one step closer to where I want to be.

I can tell you this though... I like seeing my mortgage statement for a property that I've own 2 years with only 13 years remaining much more than the property I've owned 8 years and still have 22 years to go.  I save enough from my W2 income to not worry as much about cash flow but I totally understand why the argument is made that you should free up cash to acquire more properties.  For me, I think we're nearing a top and I'm not as interested in acquiring new properties (at a higher cost) as I am paying off the ones I already have.

@Julie Marquez That sounds like a great plan and very similar to what my wife and I are doing.  Since you asked for feedback, here are a few things that come to mind:

1)  Most lenders that I've worked with will want you to put 25% down on an investment property.  If you plan on buying 1 property each year with $50k down, you may be able to find properties for $200k now but will that hold true 15 years from now?  I'm sure your $50k annual savings will increase over time as well, but this is just something to keep in mind.

2)  The lenders I've dealt with typically only lend up until you have mortgages on 10 properties.  Once you're past that number you'll likely have to deal with lenders that have higher rates.  One thing you could do is save up in year 11 and then payoff property #1.  Then when you save up in year 12 you'll have mortgages on 9 properties and be able to get another mortgage.  However, just keep in mind that lending practices change over time and it's anyone's guess what that'll look like a decade from now.

Hopefully this is what you were looking for and helpful!