All Forum Posts by: Greg Harriman

@Dallas Jacobsen I think you made a wise decision.  We bought a place in Bothell one year ago near the future North Creek High School for $295K, put $12K of work into it and put it up for rent on Craigslist for $2k/month.  We had a waitlist of people wanting to rent it for that and we were able to pick the best renters for our situation.  The lease for those tenants is about to expire and I'm not sure what to quote them for the next lease.  I think I'm going to offer them 1 year for a certain price or give them a 2 year option that is $25 more per month.  I have a feeling that because of the rising rents in this entire area that they may want to lock-in the 2 year rate.  I've heard many stories from people in King/Snohomish County whose rents have increased 10-20% annually the past few years so I feel giving them this option would not only benefit them but me as well.

Until you have a signed lease with anyone, I would not feel bad about raising the asking price and seeing who is still interested.  People can do that, but retail stores tend not to.  Imagine if all the Apple stores charged more for iPhones on the day of release.  I'm sure they could charge a 50% premium.  But since they don't, you get the people who go and buy at retail price and then resell and capture that 50% premium themselves.  I would raise the asking price just enough to weed out a good chunk of people but still have a pool of tenants who meet your criteria.

@Dallas Jacobsen Just wanted to throw out another article that may assist you in making an argument for a partial exclusion if you decide to sell outright (https://www.nolo.com/legal-encyclopedia/the-partia...).  I know a lot of people want to throw the 2 out of 5 years rule out there and say that's the hard and fast rule, but there are many exceptions.

If you do decide to sell, it might make sense to see if anyone here is interested in buying because it could potentially benefit all parties involved.  I see the following benefits:

• It would cut down on realtor fees, benefiting both parties.
• If you decide to do a 1031 exchange, you'd be able to better time the sale.  An investor won't care as much about the timing as much as someone who wants to buy now and move in by a certain date (i.e. - people with kids who want to get in before school starts).

I'm sure there are other positives/negatives but I see those two as really sticking out in my mind.  Once again, good luck!

Dallas Jacobsen I didn't mention this before, but I'm a CPA and I threw publication 523 on the table knowing you'd dig in and make sense of the calculation that's necessary to justify the exclusion of the gain if you decide to sell. Just keep in mind, if you don't sell in the next 12-18 months that exclusion will disappear. I'm not recommending you sell just to buy back again but the transaction costs of doing so will likely be less than the tax savings you will indirectly realize via the exclusion. If you were to sell in 2 years you'd have a taxable gain based on the net proceeds minus your cost basis plus capital gains on the recaptured deprecation. However, if you sell now you basically get the first part of that equation as tax free, however, you'll want to know your transaction costs and do a cost-benefit analysis. If you're not emotionally attached to the house, I'd sell the house now and find an investment that aligns with your goals. It appears you could sell and buy something in cash and have a little less stress. If you go that route, you'll have much better cash flow but not as much of an increase in your net worth b/c of lower appreciation. I'm a big fan of parts of Lynnwood. I would think if the home is worth $350k you should be able to get $2,000 to $2,200 a month and that will only increase over the next few years. However, selling now to get a (mostly) tax-free gain is a huge win. Then you can buy and have a new basis in a new property. It's not an easy decision but I'd be interested to hear what you decide! Good luck!

@Dallas Jacobsen Just one more thing, you may qualify for the Homeowners Exemption under Publication 523 of the IRS code (https://www.irs.gov/publications/p523/index.html) but you'll have to pay capital gains tax on the depreciation recapture that the IRS requires you to take as part of your annual tax filings.

So, let's say you've taken $15k in depreciation since converting the property to a rental.  When you sell, it'll trigger a $15k capital gain which, depending on your tax bracket, will result in an additional $2,250 to $3,000 in federal income tax.

@Dallas Jacobsen It sounds like you've thought this through and are making the decision based on solid facts.  Are you looking to list the property soon or wait for a bit?  Since you're not forced into a 1031 exchange as a way to deferred income taxes, you can time the sell of your existing property to take advantage of the summer rush and time the buy of the new property when there's less demand and competition from other buyers.  Best of luck to you!

Just curious Dallas Jacobsen are you charging market rent right now or do you think you could raise it $100-$200 a month? Also, just curious what area you're looking into for $125k homes? My gut tells me Lynnwood will only become more desirable as the population and employment boom continue in this area and your possible appreciation over the next few years will outshine investments in $125k houses that are made to achieve the 1% rule. If you do decide to proceed, may I suggest a 1031 exchange? Although, there may be a better option for you. If you've lived there in the past 5 years you can likely avoid tax on the gain using your homeowner's exemption.

Hi @Chris Ahlemann

Are you referring to a rental for yourself?  If so, I'd recommend a few different groups on Facebook to reach out to for assistance and also search on Craigslist.  If you look at the "Bothell Housing" and other similar groups on Facebook you'll typically get some good insight on if what you're looking for is possible/available.

Hope that helps a bit!

Apparently I'm also learning how to use a smart phone and not post before I'm done writing... But anyway! Im sure you'll find a lot of incredible info on BP. I think it's important to know your goals and then look for insight that aligns with those goals. In the few days I've been on BP I've read so much but I'm looking for a Buy/Hold and appreciation type strategy and to me it appears that the majority of people are looking for opportunities that create short term (less than one year) income. Good luck and welcome to Seattle!

Hi and welcome Christopher Hu I'm new to BP as well but have a few investments both here and back in Arizona where I'm originally from. I'm doing some soul searching and trying to determine if I need to adjust my portfolio to keep in line with my long-term goals

@Alex Chin Thanks for that insight!

Would you happen to be familiar with the exact calculation that lenders use for the DTI calculation when factoring in other properties?

Specifically, do you know if both the Gross Proceeds from rentals goes into the Income number and debt related to those rentals goes into the Debt number?  Or, is the debt netted against the Gross Proceeds and then that amount is added into the Debt number (in the case of negative cash flow)?  I'd assume it would be the latter since most lenders are going to already discount the Gross Proceeds 25-30% as part of their calculation.

Sorry to put you on the spot because I can probably ask a lender this question but figure you may know if you're already using the BRRRR strategy.