All Forum Posts by: David Krulac

Joe A

If all you are looking for is cashflow and you don't car about appreciation, there are small town USA, towns that you never heard of where you can buy houses for $20K and rent for $450 a month. And ten years from now the house will probably still be worth $20K. Theses towns are typically 50+ miles away from urban centers, so that they are at best on the fringe of the commuting areas.

Best, though implies to me growth & cashflow. The above example is a cashflow NO GROWTH investment. For the best areas look for:

1. Population growth
2. Economic growth
3. Increased employment numbers
4. Increased hourly wages/family income
5. Increased school population
6. Diversified employers in the area
7. Infrastructure that supports the current employment and employment growth
8. Good to great educational facilaiites in the area
9. Low crime rates
10. Favorable tax rates

Joe A

There is no "right" answer.

1. Some of the answer depends on your risk tolerance.
2. Do you want positive cash flow but don't care about appreciation?
3. Do you want appreciation but don't care about positive cash flow?
4. Do you want to manage property yourself?

As they say in the securities field, "Past performance is not indication of future potential."

I agree with the above commments that you need to "know" the area. There are a ton of places that are the right place to invest now, but just like all investing nothing is certain.

Jeff Henderson

I would not recommend that you lie about owner occupying.

1. You will sign a document at settlement saying that you will live there as your primary residence for the next 3 years.

2. These documents will be between you and the Federal government, owner of the home, as HUD is a Federal agency.

3. One way that they catch people doing this is via your tax return. And if you were ever audited, it would probably come up there also.

4. The penalty is $250,000 fine and up to five years in jail.

5. To quote "Dirty Harry", Do you feel lucky?

Priscilla Z

A couple of factors include:

1. How long do you plan on keeping the house? The longer hold time helps spread the costs out over a longer period of time.

2. How many windows you have to replace? We did a house that we replaced 37 windows, that was quite a job.

3. How old are the existing windows? The place with the 37 windows was 120 years old and had the original windows, it was time.

4. What is all this going to costs? We used a national company that customer built the windows and installed them for $189 each. There were some extras including disposal, capping, and potential other upgrades. There were 4 guys, 2 trucks and they finsihed the job in 1 day.

5. Maybe you don't have to replace all the windows. We had one house that only had 7 windows, and we replaced 5 of them but kept the other 2. At this place the windows that we replaced were TRIPLE paned, but all the windows replaced either would stay shut or wouldn't stay open? I theorize that the sash weight was much more and the mechanisms were not built for the extra weight.

@Paul Crowson

I would never have a rental house with a pool or a trampoline. I have purchased houses with above ground pools and a really nice large deck, that I put in the contract that the seller had to remove the pool, and add railing to the deck where the pool used to be.

At another house I filled in an ingound pool.

Start with insurance liability and end with pool maintence, I will never have a pool in a rental property.

Also in the NE the pool season is only 12-16 weeks, maybe in FL< CA< AZ or NV I'd feel diferently, but I doubt it.

Cristian Valderas

What if you bought the Good Neighbor house yourself and your spouse bought sunsequent investment properties for the first 3 years?

Or if no spouse what about a parent or a sibling? Significant other?

Raky Patel

I have another angle for you.

1. You both have mortgages on your individual former residences, these mortgages are in your individual names.

2. FNMA & Freddie and all the overlays will limit you to either 4 mortgages or maybe 4+1 mortgages.

3. If your to be acquired new residence is owned and mortgages in BOTH of you names, it will mean that you and your wife will both have 2 mortgages, even though the total is only 3. (Wierd math 2 + 2 = 3) But that's how Fannie etc. work.

4. If your long range plan is to buy other real estate after the new residence, then you might want to consider getting the new mrtgage in only one name.

5. Given current rules you and your spouse can acquire 8 different properties if each is only mortgaged in a single name versus joint names.

6. Back in the day, like 5 years ago, the FNMA limit was 10 mortgages and spouces could then potentially acquire 20 properties all will FNMA conforming mortgages, oh those were the days!

In this state, you need to be a licensed BROKER to manage real estate. Of course you can have agents under a broker managing, but the broker must agree to managing. Most brokers don't want to be bothered, when times are great and sales are fast paced as sales generates much more revenue.

Also here you can not manage for a single entity and be unlicensed unless you are an emplyee of that entity. Being an employee connotes a lot of other things like fringe benefits, vacation, sick leave and mandated government health care.

I've seen in resort areas where PMs charge 12% to 20% fees. Many non-resort areas fees are 6% to 10%. In one resort area the same broker charged 10% for weekly rentals and 12% for yearly rental. I would have thought it backwards, but weekly rentals are much higher, therefore generating more rent, but they also have more vacancy particularly in areas without 4 season warm climates.

Most of the investors that I have met over the years don't like property management. There's the old cliche, "Take away the toilets and tenants and rentals would be perfect."

It also seems to me that PMs do not do as good a job as you would do yourself. If you are the owner and you have a vacancy, you're probably very diligent about re-renting the place, showing it on evenings and weekend. some manager take the weekends off except for emergencies. Want to see a vacant place, come back next week duirng business hours.

Aaron Moore

Just got back from extended time in Caymans. Very nice temps high in 80s, low in 70s. And next to no rain. The real estate prices that I saw, which may or may not be representative seems to be fairly reasonable when compared to other Carribean Islands.

Several advantages to Cayman are that:

1. Its only 400 miles from Miami.
2. There are many flights on big planes to Cayman, unlike some other islands.
3. English is spoken by everybody.
4. The Cayman dollar is stronger than the USD, and $1 USD is only worth $0.80 cents Cayman.
5. There is a strong banking system there, banks are one of the largest if not the largest industry on Cayman. There are over 220 different banks in Cayman.
6. The riches man on Cayman is an American.
7. Tourist there seem to be mostly American, Canadian and British, though I did run into some Chinese and Japanese.
8. American dollars are widely accepted, though change is often made in Cayman currency.
9. There is no Capital Gains Taxes in Cayman
10. There is NO REAL ESTATE TAXES in Cayman

consider this Dave's Top Ten List

Mack Fleming

Fair or not fair, that is not the question, whether tis nobler....

The dealer status question has been around a long long time. Some of the cases go back to the 1950s, and 1960s. I've been to the mat on this issue, so I'm very familar. It was be easy for the IRS to clarify this issue, but they have never seen fit to do so. There are cases where selling only 1 property has been court ratified as being a dealer and other court cases where selling 100 proeprties has not made the taxpayer a dealer.

A simple number would probably be a great thing. "5 sales in 1 year not a dealer, 6 sales in 1 year you are a dealer" but that is NOT happening soon or in our lifetimes.

Being a dealer is also a bad thing in that:

1. You can NOT do a 1031 tax free exchange.
2. You can NOT depreciate property.
3. You can NOT take long term capital gains.
4. You can NOT take favorable installment sales treatment.

Seperation by entities does NOT always work either. In an audit, they will look for reasons to blend your activities. Like do you have seperate bank accounts for each entitites? Do you have seperate EIN? Do you have seperate books, corporate minutes? Do you ever co-mingle funds? etc. etc. etc. There are if I remember correctly 8 criteria, any 1 can upset the apple cart. Are you under capitalized in any entity?
Ask me how I know this stuff?

Bottom line, in the eye of the tax man, you should sell the entire property in one sale. Once you have mutiple sales, you are a developer, a subdivider, and a dealer.