All Forum Posts by: Henry Perez

@Paul Cabrera

Both @Greg Scott and @Aaron K. provided you with great advice. I would like to add that another option/avenue you can use is to find a partner in which you can invest with and piggyback on their better credit.

The goal for you is to get in the game and to start you path to financial freedom. 

Wish you all the best and hopefully you will be posting success stories here in the BP forums!

@Keisha F. Hi Keisha. Have you done your own due diligence to verify this property is indeed worth $220K? Have you compared the cap rate of this property vs prevailing cap rates in the same area?

How are rents in this property vs market rents? Is it below market rate so you can increase rents and thus increase the value of the property?

Talk with as many banks as you can to get the best loan terms. You should refinance based on appraised value so find the bank that does this for you.

Hence, my questions above regarding due diligence on real property value and additional ways to value-add to increase the properties value.

I hope this helps. If not, let me know.

@Matt K. I hope I answered your question. If not, please let me know

@Matt K. I would ask the question why would one refinance right before selling his/her property through a 1031 exchange? It defeats the purpose of selling a property through a 1031 exchange when you just refinanced it. 

You refinance your existing property in order to 1) keep your existing property because of its post-refinance cash flow (this will only work if the property provides positive cash flow after paying the monthly mortgage on the refinance), and 2) cash out the equity to purchase another property. 

Thus, you will own two cash flow positive producing properties.

One sells through a 1031 exchange because 1) they have owned a property for a long period of time and it may not have many years left to receive the benefits of depreciation expense, 2) they want to sell their existing property for an even larger property 

Both methods are great for scaling. 

As @Chase Gochnauer mentioned, depreciation won't come back to "bite you" if you plan on selling it through a 1031. 

You have two options to avoid paying back the depreciation expense: 1) sell the building through a 1031 (this allows you to buy larger and larger properties each time without getting hit with capital gains tax or deprecation expense capture back, 2) refinance the property  and cash out your original equity (along with some or all of your appreciated equity you earned from the time of purchase) and use that cash to purchase another property.

I intend to use both options in order to achieve my goal of 1,000 units. 

@Spencer Liddic Keep rocking it Spencer!! Stay true to your own investment style and what you feel comfortable doing. AWESOME JOB!!

This is what's great about real estate investing. It allows anyone to achieve their respective goals in the means they choose to do so. Not everyone wants to be a Grant Cardone. Personally, I do since as I have that same type of drive and I want to be become a real estate mogul. It's been my dream and in some sense an obsession since I started reading the WSJ and Forbes magazine at the age of 14 that I want to lease/fractional ownership my goal corporate jet. And I'm working hard every day to achieve that goal.

I don't believe in putting down or criticizing anyone's investment philosophy if it differs from mine. There are great strategies and recommendations that are discussed in the BP podcasts and forums that anyone can leverage and put together piecemeal to match their goals. 

There is no 1 correct and only way to invest in real estate. To each their own because the end goal for everyone is to achieve their dreams, goals, and financial freedom.  

@Chase Gochnauer Definitely do not include depreciation expense in your valuation. This is something you should only include in your personal pro-forma P&L that you use to both calculate your cash-on-cash return and whether or not it meets the return criteria. 

Depreciation expense is the reason why I love large apartment complexes. It's like magic!!

@Amit M. The unit was in the Inner Mission. I was counting on at least one tenant who i thought was low-hanging fruit, but to no avail. He was hip as to what was going on in regarding buyouts in the Inner Mission.

I was told by a couple of the main lessees off the cuff last year before the topic of buyouts was even brought up that their intention was to have their teenage children continue living there as they would not be able to afford housing. I was also told that they planned on living in the flats until they passed away. Once I heard this I knew I had to sell the building. It made no financial sense continue owning it.

And yes, I'm pretty sure in two of the flats the main lessees were subleasing it and making a profit above the stabilized rent.

The other property is a SFH in San Bruno. We lived 4 houses away from the PG&E explosion and were home at the time it occurred.

@Amit M. The rent control on the building was absolutely killing me. The building was four flats, and the entire sq ft. of the buidling was 6,600 sq. ft. One flat was a 4/2 and their rent was over $1,200. The tenants have been living there since 1991. Plus, with the SF Rent Board allowing only 0.5 ppt or 1ppt of rent increase a year, that's not adding much to an already low number.  The other flats were 4/3 and 5/2 and i was only getting $2,200 max on them. These other three floors had tenants who've been living there since 2000. These tenants will end up being multi-generational and have no intention of ever moving out.

I hired a lawyer and very delicately brought up the subject of a buyout. None of them were interested. Other owners in my vicinity ended up forking over close to $250K to buy out each of their tenants. For $50K each, I would have bought out each of my tenants, but not at $250K a pop.

My building brought a TON of interested buyers and investors. But most of them walked away when they noticed the tenants were going to be multi-generational and that buying them out would take significant capital ($750K-$1M). 

Because of severe rent-control, i would not be receiving much in terms of long-term appreciation (especially since none of the tenants intend to ever move out). The building now was valued the same as before the 2008 financial crisis. The very low rent-controlled rents was literally becoming a nail sealing up my coffin.

As a result, I was able to sell the building at a sub-3 cap rate. To put it in perspective, what I will get on a cash-on-cash return basis on a large multi-unit property in the Sacramento-Fresno range will dwarf the gross rent I received on an annual basis from the SF apartment building. 

As a Finance Director at a soon to be IPO tech company, every set of numbers I analyzed told me the same story...sell the building. Add to that the building was built in 1900 (it survived the 1906 earthquake) and it was becoming a significant constant money pit because on-going maintenance required.