All Forum Posts by: David Krulac

As William Bannister has said it is complicated and unless you follow the regs to the letter, the 1031 can be disallowed.

1. You must identify the property you're acquiring with in 45 days.

2. You must settle on the acquired property within 180 days, not six months, as sometimes six months is more than 180 days.

3. You can't touch the funds from the relinquished property, and these funds must be held by a qualified intermediary. The QI can't be a relative, a business partner, your attorney, your CPA, etc. One famous real estate investor uses his neighbor as the QI, for a very small fee. Sometimes he even acts as the QI, himself for the neighbor.

I've been doing 1031s for 26 years, and the most recent exchanges were handled by a QI, who is a CPA, but not my CPA, for less than $2,000, sometimes a lot less.

The out of pocket expenses therefore should be less than $2,000 and make a 1031 exchange feasible anytime you tax bill would be more than $2,000, if you didn't do the exchange. With the short term rates as high as 39.6%, it doesn't take much to get a $2,000 tax bill.

"Like Kind" as defined by the IRS means any real estate that is used as an investment. You don't have to exchange apartments fro apartments, you can do hotels for vacant land, strip center for timber land, etc. The only real estate that would NOT qualify would be your personal residence, your vacation home, or your second home, since these would all be for personal use not investment per se.

So how do you do a 1031 as a wholesaler. well maybe you can work out an exchange between somebody that has one proeprty for sale, who would accept at least partial payment in the form of another piece of real estate.

I like:

SFR to hold, rent, rehab, flip
Multi to hold
Not buying much land or lots now, prices are more depressed than houses, but no income, and bad short term outlook. If you can carry the costs and wait it out might be a good long term play.
Retail is still way off, lots of long term vacancy
Its a buyers market look for the beter prime stuff to buy, forget marginal properties.

Usually I'd say more bedrooms are better, but not in this case. The more bathrooms does help. In general more bedrooms rent for more and sell for more, but not always. There are other factors:

neighborhood
price range
age of property
cost of the reno
whether you are flipping, renting or occupying.
how long you plan to own the property.

In general I look to increase the number of bedrooms if there are less than 3, decrease the number of bedrooms if more than 5, and increase the number of bathrooms to 2 or 3.

But there are exceptions. Once had a flip house with 3 bedrooms, that I turned into a 2 bedrooms, it made the room sizes better and the flow better, and we made money, bottom line, which is the answer to your question. If it makes money do it, if not don't.

NOT READY FOR PRIME TIME?

In the parts of the country with four seasons, there is a season for Real Estate. The prime time for selling Real Estate is April to September. During these months it is a seller's market. There are a number of reasons including:

1. Longer daylight hours mean more hours particularly after the work day to see houses for sale. Not only are the days getting longer but Daylight savings Time increases the daylight hours in the evening. More buyers means more offers and more sales and more rentals.

2. Warmer weather means that you don't have to fight snow, ice, and frigid temperature to go outside and look at houses.

3. Buyers with school aged kids like to move over the summer vacation months of June, July, and August. With a typical 60 day settlement signing a contract to buy a house in April will mean a settlement in June.

4. Sellers with school aged kids also like to move over the summer vacation and often hold back listing or advertising their existing house for sale until March or April. So even buyers without school aged kids, get pulled into the buying/selling market by the influx of new listings/available house in the prime months of April to September.

5. Often times the seller's market will fuel price increases. I have found that with the New Year, sellers raise their asking prices more than other times in the year. Here they are testing the buyers with new prices at higher levels than before. In one development that I'm familiar with, last year's prices were in the $100,000 to $110,000 price range. This year the price range is $117,900, $118,900 and $119,900; which are price level higher than any house has sold before. These sellers are going where no man has gone before! The sellers ask higher prices in the spring, just like Daylight Savings time, they spring forward.

By the start of the school year in September, not only are the temperatures cooling but also the buyers in the marketplace. September is better than October, and October is better than November, and November is better than December.

The worst time to be selling is the months of December and January. Besides the cold weather, short days, snow, and ice, there are the holiday seasons of late November and December. One professional investor says that the real estate buyers take off from Thanksgiving until Super Bowl, which is very true. But if the buyers are staying home during those months, its an opportunity for the seasoned real estate buyers to take advantage of the buyer's market.

Now I'm not saying that if you want to buy wait until December 24th, even though I personally put in offers both last December 24th and December 31st.
I'm sure that there was not a lot of competing offers written on those two days. If you're buying then you should always be on the look out for a well priced property, whether it be Spring, Summer or Winter.

But if you are a seller, you should aim for the prime time for sellers in the Spring. In my experience the Spring fever starts when there is that first day in February, where the temperature reaches 60 degrees. People are ready to forget winter and a ready for Spring, and that means they are ready to buy and rent again with the better weather. And if you have a property for sale in the spring and its not selling, the very first place to look is at the price. No matter the condition or the location, if properly priced and well advertised any property will sell in 90 days, especially in Prime Time.

David Krulac

Joseph Roberson

Buy and Hold is an excellent strategy, as it eliminates selling transaction costs which are relatively high, consider commission, transfer tax, selling help etc. which can total maybe 13% or so of the selling price not counting Federal and State income taxes.

Number 1 evaluator for buy and hold is that it muct be positive cash flow, if not posiitve forget about it.

Forget about appreciation, if it comes its all good, but if it doesn't with positive cash flow you're still good.

Market fluctuations, buyers market, sellers market all really don't matter if you are buy and hold and not selling.

And tax advantages are the icing on the cake, figure on positive cash flow BEFORE tax advantages not after.

I like 30 year fixed mortgages for rental properties, and borrowing as much as you can for as long as you can, to reduce the monthly payments.

Besides my book, the two best books are:

William Nickerson "How I Turned $1,000 into Five Million In Real Estate"

and David Schumacher "Buy and Hold"

I would:

Start buying real estate sooner
Buy more real estate sooner
Keep more of the good real estate
Quit my job sooner
Have written my real estate book sooner
Gotten out of land and lots before the crash
Started subdividing and land development sooner, long before the run up
Set up my own business sooner

I would NOT:
Buy cheap properties just because they're cheap. I bought a $1 lot and a $50 house.
Waste my time on gut job rehabs
Work as hard nor as long

Marc Bodinger
There is no set percentage off for either functional or external obselesence, it really depends on the servity of the situation.

Personally I don't like:

Houses on streets with double yellow lines
Next to commerical use
No off street parking
Either too few square feet, like less than 1,200
Or to many square feet like 3,000+ for a rental
Goofy designs
Flood zone, been there done that, last year had my office flooded with 4 feet of water and a residential property flooded with 13 feet of water at the same time when we got 2 hurricanes in a week.
Low ceiling heights, looked at house with 6 ft ceilings and another with 4 ft basement ceilings, thanks but I'll pass.
Roof line below street level, friend bought house like this people would drive by on the street and not see the house, which was below the street level.
Too many bedrooms, recently looked at 6 bedroom house and once looked at a 12 bedroom ex-convent. When Shakespeare said "Get thee to a nunery." I don't think he was talking about real estate investments.
3 or more story buildings with no elevators
Houses on dirt roads/private roads
Houses or additions not built to professional standards, looked at a house once that 2x4 floor joists, it was like walking on a trampoline.
house next to interstate

John Chapman

yea, I agree, even within markets there are good pockets for condos and not so good. Factors include:

1. Age of the condos, old worn out units are still old and worn out whether they are condos, SFH, or MU.

2. %age of rentals versus o/o in complex. More o/o usually raises all boats. Just like the one I sold in December, only 1 out of 88 was a rental, guess who owned that one.

3. Amount of condo fees, nothing drives the desirability down like high condo fees, whether you're look to o/o or rent out.

4. Amenities at the complex like swimming pool, tennis courts, golf courses, fitness center and club house all add value to SOME people, whether renters or o/o. Key word is SOME.

5. Effectiveness of management and curb appeal go together a place that looks good gives the impression of being well managed and vice versa.

6. There's a condo project that I'm familiar with that sold 1 unit for over $1mill. Obvious a deluxe unit and high end. Movie stars have stayed there and the place has a high appeal. Some rentals there are $5,000 month. Is in a whole different category from your average condo.

7. Another place that I'm familiar with was built originally as an apartment complex and later converted to condos. Most of the units are owned by LL and as such don't qualify for certain financign for o/o because of the majority of non o/o. But there is on site management M-F 8 AM to 6 PM. The tenant complains come to the PM, the PM shows all the units, answers phone calls and emails, makes recommendations to the owner and does all the PM type stuff and is on site most times. And the PM has an emergency off hours number and maintenance staff for off core calls. For the non o/o owners this is about as hands off as you can get. certain things are the condo responsibility lke the roofs, and all the tenant contacts go through the PM. The owners like the set up and have no dealings with their own tenants. Most of those owners own multiple units but could not afford to buy an entire 186 unit complex themselves. They get to play in the 100+ unit field without having to buy 100+ units. It appears to work for them, the owners, the PM and the tenants. Occupancy is 99%.

John Chapman

I've owned many condos, as rentals and I even developed a small condo project. They are appealing to people because at least around here are fairly newer products. We have many older properties, just settled on a property that is over 160 years old. There are no or few condo that old except for redevelopment of existing buildings.

There is a market for condos, people like the no exterior maintenance, though i'd have to admit that snow shoveling and grass cutting can be easily contracted out. In December I sold a large 3 bedroom condo with first floor master and garage to an 80 year old buyer who was looking for no steps and no maintenance. I had the unit as a rental and was the only rental in a development with 88 units.

There is a market for condos here, though i realize that some areas are over built with condos and they flood the market. Some people like the carefree condo living and the amenities like swimming pool, tennis courts, fitness center and clubhouse that a single family house may not have.

Deals in 2013

I've never stopped buying and have been consistently been buying double digit properties for something like 21 years in a row.

MLS
FSBO
Courthouse foreclosure sales
Solictation
Abandoned properties
Not for sale properties
Referrals
Word of Mouth
REOs
HUDs
Neighbors of existing properties
Subdividing to create new lots

All properties must have positive cashflow, I look for properties in good neighborhoods with low crime and good schools. That hasn't changed.

Doing less land subdivision and less non-residential due to the economy.