All Forum Posts by: Dan H.

My tax man (EA,  Esquire - not a CPA) only discloses his hourly rate which is very high but he is very good (he is the named partner of the firm).  He does not charge for small items like quick answers to questions.  He also typically gives us a break for using quite a few of his hours in one session.  For most items I do not know what the charge will be prior to getting the bill but I always expect the bill to be significant.

example bill may be: 5 hours * (his hourly rate) = $x - $150 discount = $y.

He makes a very good living but he is very good.  Even though his hourly rate is very high (makes the hourly rate my company charges for y time that I think is very high look not so high) I am not looking elsewhere.

In your case you seem to not be happy with the deductions being found, are getting no rate disclosure (at least I know the hourly rate and know it is high), and do not think much of the work being performed.  I think this answers your question.

I do want to point out that sometimes you get what you pay for or not all bargains are bargains.  I highly suspect that my tax man's rate is in the upper 5% but I also think his skill is likely in the upper 5%.  I think he typically saves me than he costs.

A lot of new RE investors either do not know about cap expenses or under calculate cap expenses.

So my suggestion for you is to educate yourself on actual costs to have buy n hold residential REI. There of course is mortgage, interest, insurance, vacancy, maintenance, management expense and/or time, possibly utilities (some of my units I pay utilities and some I do not, possibly gardening (some of my properties I pay for gardening and some I do not), and the easy to miss and fairly large cap expense.

You did not indicate where the properties are located but in San Diego I use $250 to $300/month for cap expense.  Many people think my numbers are high but I suspect the majority of them have spent 0 time actually calculating cap expenses in San Diego and are simply estimating that this high.  The San Diego cap expense will be higher than most other parts of the country because most things cost more in So Cal including labor.

Good luck

If you get a good home inspector you would be wasting your money paying for a second home inspection.  However, the good home inspector may recommend you bring in experts to further analyze potential issues identified such as a foundation contractor, roofer, electrician, etc.

I have a good one (not the cheapest) but I am unsure if he goes all the way to Oceanside.  You can PM if you want his name. 

Good luck

 I do not include depreciation in my cash flow analysis but I do include an estimate for cap expense.  I agree with Justin that in San Diego typically depreciation is larger than even my conservative (I.e. Large) cap expense estimate.  So I would likely be having this property reflect higher cash flow than the $192/month.  Likely closer to $400/month.  I have purchases from a couple years ago with similar numbers but finding such purchases in San Diego today is getting more challenging. 

It is worst than that because my cap expense does not include general maintenance for a maintenance + cap expense at ~$17K.

I have been doing this a while but not long enough to actually be able to have used my actuals to determine cap expense.  Believe it or not I have never replaced a water heater in my own rentals (I have in the family rentals) and I have a water heater in one unit from the 1980s.  But I digress.

I used a spreadsheet for cap expense that I found on this BP site and replaced the numbers in that cap expense sheet with the costs and lifespans that I was experiencing.  Almost all costs were higher than the spreadsheet indicated especially the HVAC costs (things simply cost more in So Cal).  Some of the life spans in San Diego were shorter than the spreadsheet.  For example I find the windows from the 70s and 80s need to be replaced.  The tracks are falling apart.  This was a shorter duration than the spreadsheet. I think the spreadsheet had initially a 50 year lifespan on windows.   However, casement windows from the 50s are holding up slightly better but most of my units are not old enough to have had casement windows (the one unit that did have casement windows I replaced the windows at almost 60 years).  Again I digress.

The spreadsheet revealed that, using my numbers, small attached units in San Diego have a cap expense of ~$250/month. Depending on other factors I could easily see $300/month for a SFR.

When I did this exercise I posted my thoughts in the San Diego section of BP.  Mostly I got feedback along the lines that they had not put forth the same effort as I had and some were surprised at my calculations.  Unfortunately I do not know where the calculations are today.  They are somewhere as I have even the old PCs or drives; I just do not know where.

So I believe my estimate is based on more effort than many other estimates.  I also know that some of the San Diego RE Investors that I respect from this site use similar numbers.

I do not want to discourage you from the purchase. I have purchased cash neutral properties and experienced better that 50% annual ROI on one of those properties. The criteria for a good REI is different in So Cal than elsewhere and cash flow is not as critical as it is in many other locations.

Good luck

If your $5K/annual maintenance is meant to include cap expense you are way low in San Diego.  Without details on size of units, attached/detached, etc. I would place the cap expense at ~$12K if the units are small (no larger than 2/2, 1000') and attached.  Your $5K/annual might be good for just maintenance.  I am at over $100/unit per month on maintenance expenses and none of my units are older than 1950s.  I also occasionally still do some of the work myself (more often than I would prefer).

Good luck

There are so many variables to your question but I always go 30 year fixed in recent times. The interest is so low.  I make that decision even though I have multiple properties that I would have done better using something like a 7/1 because the properties increased enough in value that I refinanced them to take cash out prior to 7 years.  I look at the 30 year fixed as safe and that if a property appreciates enough to warrant the refinanced it is like frosting on the cake and that the relatively small savings I would have gotten with a lower interest loan like a 7/1 is fairly insignificant.  But lets say we hit a down cycle to RE value with an increase in interest rates.  The property has no equity to take out but I am forced to go adjustable or refinance at 7 years.  So my payment goes up without the benefit of appreciation.  If the RE is not appreciating it is likely that rents are not appreciating.  So my expense rises but my incoming rent does not.  So to me the 30 yr fixed at these near historical low interest rates is a no brainer.

The rates vary based on credit report, LTV, number of units, income, house hacking (owner occupied), etc. My lowest loan on REI (not including my residence) is 3.375% on a duplex. Worst is 4.625% (2). The 4.625 was pulling money out to a 70% LTV, one being a duplex and the other being a triplex. This is with stellar credit, good assets, LTV at 70% or greater, # of units on property between 1 and 4 inclusive, all not owner occupied.

I use a mortgage broker.  Find one you can trust and like.  You want them to monitor your existing rates versus the market and let you know if it may be a good time to refinance.  I do not think you can expect the same level of service from a bank (my bank recently started charging me for cash deposits - Ugh!).

Good luck

I think you used good rationale for your purchase and did not purchase just for better cash flow. You have better cash flow and potentially good appreciation which combining the two gives you the best of both scenarios. It appears to be a very sound REI.

San Diegan's salaries are low when compared to housing costs (the infamous "Sunshine Tax").  I was surprised when an engineer leaving San Diego for Seattle informed me that engineers make more in Seattle than in San Diego.   2012 and 2013 were great years for San Diego RE appreciation (I believe both years were above 20%) and so I can understand San Diego RE potentially being tapped out in the short term (but it has not happened yet as 2015 had 8% appreciation).  However, I suspect many people thought the same thing at each quick appreciation time such as 1978, 1990, 2003 but as we now know the appreciation from what seemed like exorbitant prices of 1978 would have been a very good return even if purchased at the height of that market (assuming a financed purchase and at least neutral cash flow).

I look at San Diego residential RE historical appreciation and am challenged to find any 10 year period in the last 50 years where San Diego appreciation has not exceeded inflation.  This certainly does not mean that there are not shorter durations that have not appreciated.   On the more positive there are 10 year periods with multiple years of appreciation over 20%.

Good luck

There is a monthly Meet up at a current REI project put on by some San Diego BP members (@Justin R., @Parker Cox, @Kevin Fox, @Tim G.) that last month was hosted by @Sarah Dumm.

There has been no selling. I have found them to be motivating, a chance to network, and learn something.

I recommend you come to at least one.    It will be worth the time just for the chance to network with other San Diego REIs.

I have not seen the posting for the next one yet.  I have one of my search words be "San Diego".  It usually (but not always) catches the BP Meet up open house post.

Good luck

First I want to say I think your purchase sounds great and that I think you will do well but I am responding to the "appreciation is a guessing game".

I hear forms of this statement fairly regular to justify cash flow over appreciation: Appreciation is not guaranteed (little is guaranteed but you can come fairly close to guaranteeing San Diego residential RE will appreciate over time (there are short down cycles) faster than the national average and faster than inflation (always has), appreciation is a guessing game (there are many indicators of likely future appreciation and it most certainly is not a guessing game), and the most bogus of all: you cannot pay your bills with appreciation (My bank and investment accounts are full of money that some people think I can not pay bills with - it is simple to take appreciation out of a property).

Historically San Diego RE has always gone up faster than the national average in the long term.  You can use any duration you desire.  Last year San Diego residential RE went up 8%.  The year before was a little better than 8% (I forgot exact increase but I think it was just above 10%).   In 2013 San Diego residential RE appreciated >20% (~24%).  For last 3, 5, 10, 15, 20, 25, 30, 35, 40, 45, and 50 years San Diego residential RE has appreciated faster than national RE and faster than inflation.  That is a guessing game with very good odds especially if you cannot identify a reason that history would not continue (I cannot).

As indicated your purchase looks very promising and seems likely to appreciate but appreciation is not a guessing game.  In fact, you use some convincing rationale (Obama library, past prices, purchasing below current unit market price) in justifying your belief that your Chicago RE will appreciate (and I believe I also provided some convincing rationale that San Diego residential RE is likely to appreciate better than the nation RE and faster than inflation).  Guessing would be blindly throwing a dart at national map to purchase in an area and expect that area to appreciate more than the national average (it may with a lucky throw or more likely it will appreciate no faster than the national inflation rate).

Good luck