All Forum Posts by: Gustave Stroes

Thank you Dave Foster for confirming my thoughts on the 1031 and boot. But perhaps a related question for you and Bill Exeter:

I'll use simpler numbers. Assume I sell a rental property for $1.5M, on which I owe $500k. And exchange it via a 1031 for like kind property to the tune of $1.5M. But I finance $500k of the new acquisitions. Does that yield a non-taxable event?

To Joel Owens, thank you for you input. I like your point that buying a handful of rentals from say Memphis Invest might not be the best choice. I plan to start talking more seriously with lenders once we get our corporate entities set up (we're using NCH for that). And I am always ready to listen to anyone's advice.

To Radhika, thank you. Your point was brought up earlier in the thread also. And my wife and I have struggled with this. Does it make sense to give up a piece of the rock when that rock is Beverly Hills? It seems on the surface to be maybe not a good idea. Counterpoint, yes BH is a nice area, but what does that really mean in terms of RE investing? Does it mean the chance for high appreciation? Maybe, I've not studied it that carefully, but I would guess there are other neighborhoods in West LA South Bay that have appreciated more rapidly of late. Venice and Manhattan Beach are two cases that come to mind. And in any case, is appreciation not just risk with no control (i.e. gambling)? Some would say that.

As a rental, our house in BH is not a great investment. The property is simply worth too much vs. the rental income it can generate. Now for a rebuild it does make sense, since it is admittedly a "distressed property" in a very exclusive area. Don't get me wrong, it's a cute house and anyone who visits it falls in love with it. But relative to what is around it, well the difference is in orders of magnitude.

 Thanks Allan. Here are my thoughts on that. Right now there is a lot of equity sitting up their on the hill, yielding very little cash flow. Appreciation in that market is pretty good, but let's say it takes 5 years for it to gain $200k in value. Can I make $200k in 5 years with say $1M at my disposal? I'd say yes, so that makes an argument to sell. What if the market dips and it takes 7 years to come back up and gain the $200k? Then for sure it makes sense to sell.

I would love to use the money to fund buy/build/sell deals here in West LA. But my wife is not comfortable with that. To her, this is a 401k, her retirement so to speak (she bought it in her 20's). And converting to cash flowing passive income is something that appeals to her.

And frankly we need cash flow right now. To keep us going so we can focus on rebuilds.

Another way to think of it... if someone handed me $2M in cash right now, would I be eager to buy a house in Beverly Hills that cash flows less than $1000/month? Or would I do something else with the money?

Of course there is another possibility. To rebuild the BH house and sell it. Things being what they are on the hill you could build a home on our lot that would sell for $5M I beleive, possibly up to $7M. Our little chicken coop is surrounded by some very expensive homes. Builders are buying lots that look like nothing more than a cliff on the side of the road and building 7000 sq ft homes that sell for over $10M. But this path would require some gumption. It's a hillside home, and LA has some pretty convoluted ordinances on hillside building.

I hope all this makes sense...

 Thanks Dave. For what is is worth, I did some learning out 1031's a while back so the concept of like kind exchange and boot is familiar.

Said property is worth from $1.5M on the low end to $2.0M on the high end. The mortgage is $400k so since we plan to pay that off, that portion of the sales process will be taxable. I am assuming that as long as we invest every last cent of what remains in like kind investment property than that portion will not be taxable. As I have thought about it today during this thread I have concluded that until we can achieve $120k annually in passive investment cash flow, our goals will be to maximize near term results. 

 Thanks for that clarification Bill. That was the impression I got from our tax advisor also.

I think this is the right forum for this question...

I have a rental property with high equity and low cash flow. I am thinking to sell it and exchange it via a 1031 for other rental properties with better cash flow.

The sale of the current property would net about $1.1M to $1.5M depending on what it sells for.

I've been reading about cash flow, NOI, cap rate etc. I'm not a finance expert but trained as an engineer so if something is explained to me I can usually figure it out.

Would it be better to buy several rental properties all cash? Or would it be better to finance some, or all, of each purchase, so that more properties can be purchased?

The current property is in West Los Angeles (90210). I prefer to invest the money in TX, but am open to other areas also. I am also trading SFH rentals vs small multiplexes vs a larger complex.

Any input would be appreciated.

Thanks Chaz. Yes, we have an agent friend who pulled some info on the property. Current owner is Wells Fargo. It was auctioned off for $1.1M in foreclosure. I think that is the right terminology.

I looked on the Wells Fargo REO site and it does not come up as being listed for sale, though I signed up to get an alert when it does. It would have been better to buy it at auction since it is probably worth $1.4M - $1.6M and does not need too much work we think (though we've not been inside). For this area it is a big house as it was built prior to the McMansion law.

Hello all,

Gustave here, just joined Pro yesterday after Brandon's great webinar. My wife and I are just venturing into RE investing.

Question - right across the street from us is a nice house which has been foreclosed on. The house is empty, the people living there have moved out. We are pretty sure that Wells Fargo now owns it. But how do we find out more? Like whether or not it is going to auction, and if so, where and when? We think it has some potential as a rehab.

Thanks - Gustave (El Segundo CA)