All Forum Posts by: Jack B.

The rental market in my area is strong. I was able to rent within DAYS of posting this and two other units. As in, the first or second person that came to look at it was a good candidate and very interested. Also unlike another rental, this place doesn't need any real turning as I mentioned in another post (you probably skimmed the rest of the thread that the post was in). 

But guess what? Even though the other rental needed paint, flooring, new doors, locks, and cleanup, I was able to rent it in no time even while it was occupied (20 days notice before end of the month) AND get it ready for the new tenant to move in without any break in occupancy. This house is much much easier to rent. 

Another poster asked why I rented it so low to begin with. Keep in mind at the time I leased it out I was renting about $150 below market. The rental market has become really hot over two years and now the market rent is $1,750. 

Plus I was due to move into a new house I had purchased in two weeks and I wanted to avoid getting stuck with two mortgage payments at the same time. that were nearly 3K total a month. Yes I had reserves, as well as paid off rental income on top, but I figured it was better to get the house rented to this family that planned to stay in the house a long time, four years of high school. Whether they do that is really up to them, as I never made any promises not to raise the rent, just that it's something I consider if finances allow it and I like the tenant. I like the tenant but finances no longer allow it. My turnover cost will be almost non existent, as I have an air tight property condition inventory and pics of the ceiling, walls, carpets, doors front and back, EVERYTHING. 

At best I spend a couple hundred bucks out of pocket. Actually, even that is coming out of their pocket from the $200 a month I've set aside for 2 years for vacancy and maintenance. Luckily the mortgage on this one is real low...

 Knowing her income I know she can't afford it. When she leased the house it was a two income household. Now it is just her with two teenage kids.

I think I will just explain that as much as I love having them as tenants I must increase the rent by $50 this year, and that they would still be $350 a month below market. I will time it for end of August since that's their two year mark. They are on a MTM lease by my choice.

 I'm kind of thinking the same thing. If I just keep the rent low, they are the ones profiting from the cheap rent. I'm doing this to help myself out, not other people. After all, it was my income, education, credit and sacrifices that made this rental possible. I take all the risks. 

If I just leave the rent like it is and never go up and they live there for another 2 years, I'm really going to be hating life.

I think I'm going to raise it $50 and if they ask me to waive it I will decline. As much as I like having them as tenants, I don't like them so much that I'm just giving away 5K a year to keep them. Plus it's not like the place needs major work to turn, just some cleaning, maybe the usual move their excess crap they left behind out (outsourced and paid for by their deposit). I'd frankly like to just charge the market rent but I know they can't afford that kind of increase. I figure if they move out it will be an even bigger win as I can charge market rent. 

Had the same tenant two years now at $1,350 a month. Current market rent is $1,750, so I'm leaving about 5K profit on the table each year...They are for the most part taking care of the place, a few stains on the carpet but looks like carpet cleaning will get it out. Other than that, they don't bother me and seem to keep the place up.

That said, on paper the house is a loss. It shows up on my DTI ratio because at 70% of the rent being counted when I buy new houses, it shows up as something that isn't generating profit and thus hurts my DTI ratio.

On top of that, all but $100 a month goes to budgeting for expenses. Luckily it's not really a really time consuming tenant, and the house is in pretty good condition so minimal needs. I do need to put a new roof on it soon but with such low rent, it's a hard pill to swallow.

I may move back into the house in a year or two. It would be nice to use the extra rent money to fix up the roof, paint, etc. At the end of the day, I'm leaving roughly 20K on the table over four years by renting so low. As much as I like having a stable tenant, for 5K a year extra profit, it seems worth it to me to start raising the rent by $50 each year on this tenant. They won't be able to even get an apartment at what I'm charging.

If the tenant moves out, well, it's an easy property to turn, doesn't need a ton of TLC, just some cleaning and back to being rented. Even if it sits empty for 2 months once I get it rented I'm still 3K ahead first year, 8K ahead (total) second year, etc.

I saw a post on Zillow where the realtor tried to settle the realtor fee argument in expensive markets by just increasing the asking price by that much. OK, but there is a flaw in that logic. You are assuming that they are willing to pay 8% over it's value and you're forgetting that if they were willing to pay that much more, you are still giving that extra money away instead of pocketing it...So yes it saves you money in a way, but at the end of the day, it also means you could have made and pocketed even more money if it were not for these fees.

 In WA state you pay just over a 2% tax (depending on where you live) when you sell property. We have no state income tax here, so real estate investors subsidize the economy...I say that in jest, but come on, it's a wealth tax and they know it. They know you have to have money to buy a house so "Ding!" you need to pay us 16K transfer tax each time you sell your 3/4 million dollar home...

 I've considered that, I have hundreds of thousands in gains, but selling all the houses I'm paying about 1/3 of the gains in fees, not counting capital gains taxes. Eight percent in fees counting excise tax, on a leveraged investment, comes out to about 33% of the capital gains in my situation. That's ridiculous! And it doesn't even count capital gains tax!! 

As far as scale, I think you're missing the point as you are using different numbers (one house in Seattle vs 10 in Tampa); I could sell four houses in Tampa that were funding my retirement so well I would be able to save 60% of the cash flow and then some and pay less than I pay for a used car in fees when I cash out. 

I could sell four houses in Seattle where I'd be living off Ramen out of a Van and pay hundreds of thousands in fees. Exit strategy is exit strategy. Just because someone has 4 houses in Seattle doesn't mean they'd have 50 in Tampa and that the transaction costs would be therefore similar. In fact, since Tampa is a cash flow not equity market, it doesn't make sense to sell properties to tap equity and buy more. Just the cash flow savings themselves would allow me to buy a house once a year, and I'm not paying the transaction costs as a buyer...

Again, in your example, you're comparing apples to oranges. One house in Seattle vs 10 in Tampa. When you compare 10 houses in Seattle to 10 houses in Tampa, the difference really becomes noticeable. Exit strategies are expensive in equity markets. You pay much of your gain in taxes and fees. In Florida I really only need 3 houses to retire, one paid off to live in, and two for income. In Seattle I need 8 houses to produce enough cash flow to retire...Of course when I exit and sell, I pay hundreds of thousands in fees and taxes, about 30-50% of my net worth gains. In Florida, I pay about what a used car costs when I want to cash out put the money in an index fund and go sailing around the world...

If I sell just one of my properties in King County, WA, such as my latest house, I'm paying 42K just in realtors costs not to mention excise tax, which would bump it up to 56K. Again, that's just ONE house, and selling a year after purchase. The longer I hold the worse it is.

Contrast this to the people who are buying a house in cheap markets, then selling it and using the equity or cash flow savings to buy 2 more, etc. This strategy works great and you could even exit easily with little impact from depreciation recapture, etc. On typical houses in those low cost markets you'd be paying about 3-4K per transaction.

Yes, I could lower the cost of selling a house in King County, WA by becoming a realtor, but the fees are still heavy on the buyer and excise tax side.

Point? Exit strategies seem to work better in low cost markets where houses cost less than cars. They don't work so well in SF, NY, Seattle, LA, etc. from what I can tell. The fees alone eat up a huge chunk of profits. Add capital gains taxes and depreciation recapture and you basically gave most of your profits away to realtors, the state and the federal governments. Cash out refinancing isn't much of an exit strategy, so that leaves only selling FSBO, cutting the buyers agent out of the transaction, which of course makes it really hard to sell because of the way the system is set up.

 Actually the 200% rule doesn't confuse me, as you will note in my OP I already knew the 200% rule, and I also know the 45 day/180 day rules, etc. My question was whether I had to exchange property that has a mortgage for a property that also has a mortgage and the same for paid off property and a mix and match scenario. 

You wouldn't in reality have to buy with a mortgage if you already have one. I can sell a mortgaged property here in Seattle and buy another house paid in full also here, within a 20 minute drive. In my situation, I'm actually considering exchanging for property in the Tampa Bay/Lakeland Florida area, where just one of my houses here would buy 3 four plexes there.

The confusing thing is I read that you can't trade a mortgaged property for a paid in full property, that it had to have a mortgage as well, on at least one of the blogs about 10-31 exchanges some time ago and wanted to see if anyone else has any other credible information. Do you have a source for your info that specifically states that you can trade a mortgaged property for a paid in full one and vice versa? I've read a few FAQ's on some of the broker sites and they have conflicting info. The only thing anyone seems to agree on is the 3 property/200%/95% rules...But that's just the usual info already readily available on every site on this stuff. Few people seem to know the detailed rules or have any credible sources discussing this scenario. I'll see if I can find one of the places I read this.