All Forum Posts by: Jay Pillalamarri

Having said that, the math for 2/1, 3/2/1 is simple. The cost savings are paid upfront. So, there is no reason private/investor friendly lenders can't offer similar features to investors.

0 Votes

Most lenders these days seem to offer rate buy-downs for primary residence but not investment properties.

Looking for lenders who offer rate buy-downs for investment properties in Florida? Any references.

0 Votes

Quote from @Andrew Postell:

@Drew C Grossman thanks for posting! I started my investing career in Florida and still have property in Jacksonville.

So what you are asking is what some of us have been talking about for many years - cash flow not being that important. Now, in addition to that, higher rates means less competition. Less competition means not as many buyers. Few buyers means sellers are more desperate than they were before. And that's what we are seeing right now - sellers are willing to negotiate. Remember what it was like when rates were really low? It was very difficult to find a deal because everything was going for MAXIMUM price and even over! So now, you have a lot more leverage than you did before. A lot! So you should be getting better deals than you were.

On the other side of this higher rates means less cash flow. And sometimes even NO CASHFLOW. So should you even buy right now? Two things I will say on this subject:

1. Cashflow - If you were expecting $200 per month in cash flow and you have $0 now...well, $200 per month = $2400 per year. So make your offer $5,000 less to accommodate for it. Oh, you want to make it even lower? Fine by me! I feel a lot better about properties when I buy them for less money. That's the mentality to have right now. You have more leverage now than you did before. And as the post above mentions...rates are decreasing. So that leverage might be going away in a hurry! Act now! Just make aggressive offers. Keep in mind that you will be increasing your rents next year...and the year after...and so forth. You will be cash flow positive down the line.

2. Appreciation - Appreciate has outpaced cashflow for at least a decade at this point. So that $200 per month? That's $12,000 over a 5 year period. Your property will earn you $100,000 in equity if you work the BRRRR method halfway correct. So who cares if my cashflow is $0 when I'm making $100,000 per year on my properties? (You can read more on this strategy HERE) Now this runs COUNTER to some "gurus" out there that talk about buying into their program and sitting back and collecting "mailbox" money and living off the cash flow. Investing in real estate has NEVER been about that....well, unless you are a multi-millionaire already. Maybe it works that way for that type of a person. But for the rest of us, we have to work REALLY hard. We have to LEVERAGE our properties. It takes TIME and ENERGY. So to me, the higher rates really show flaws in some of these "guru" teaching methods. I have always preached keeping your day job and investing in real estate part time. It's not as sexy as some "other" techniques out there - but it works.

Anyways, I hope all of that makes sense. Thanks!

Great points. I agree about how an investor should adjust his strategy in this market.

Boils down to demand and supply. And when demand plummets, it creates pressure on sellers, especially ones who are desperate to get out. Long term investor can take advantage of it by taking a short term hit on the CF (which can be negotiated in the price and terms)!

Make sure to research the strength of the local economy and its fundamentals.

0 Votes

Originally posted by @Megan Shay:

@Jay Pillalamarri I'm not sure about Tukwila specifically, but I really like Green Canopy Homes as a company. Great people, and they have built a lot of townhomes in and around Seattle. Maybe worth reaching out.

Thanks Megan. Appreciate the reference.

I'll call them today and see if they will be a good match.

0 Votes

Have a 130ft x 210 ft land in Tukwila (Greater Seattle area). Planning to build townhomes on that piece of land. Any recommendations of local builders who might be a good fit ?

Also - Is there a way to find out active builders who have built townhomes in Tukwila?

1 Vote

I'm doing tax planning for the next year. Looking for strategic guidance from an investments standpoint (of course I'll work with my CPA on the details)-

1. My individual taxable income in 2021 (after all deductions) = 250K

2. Cash $1M (for investments this year)

3. I need to create a loss from real estate investments of 250K to pay zero taxes in my personal 2021 filing.

Here are some questions I've been pondering over-

A. What's the value of the rental RE portfolio I need to buy to create this loss?

B. What's ideal leverage will accomplish this goal? Any other accounting guidelines such as depreciation methods etc. that could help?

C. Any other RE/non-RE ideas which can help me accomplish the above goal.

Thanks!

2 Votes

@Basit Siddiqi

My mom takes standard deduction and isn't able to take itemized deductions like depreciation, repair expenses, etc. That's why the question.

0 Votes

Thanks Basit.

Originally posted by @Basit Siddiqi:

@Jay Pillalamarri

You don't need an LLC to take advantage of deductions. Your mom can depreciate the house whether it is in her name or an LLC. You likely want to connect with a tax professional just to make sure you are doing things correctly.

0 Votes

My mom owns a rental on her name (its 100% paid, no loan). If she transfers title to LLC (owned by her), can someone verify the following pros and cons? Pros are the (1) tax savings (through depreciation, repairs etc.) will be about $500/year. Cons - Does this event trigger a title transfer tax/excise tax of 1.78% (WA State)? Property price = $200K x 1.78% = $3600. That means breakeven is 7 years. I wonder if I've factored all pros and cons and it this is worth it?

Second Question-

As I help manage my mom's property, I have recently created an LLC (property management). This would help me get tax benefits on all the services being provided. (1) Strictly from a tax perspective, is this sustainable? (2) Will I need general/business insurance? (3) Will I need an active RE license to manage my mom's property? (4) Can some of the home repairs be expensed by the property management company?

Looking forward to hearing from you.

0 Votes

Question for all our savvy investor friends out there-

Most of the RE investors use leverage in our deals. Question is - Do any of you try to control your risks that comes with leverage with specific strategies? How do you make sure that you don't over-leverage on your RE investments?

E.g. - Some try to build at least 20% equity in every deal thereby creating a buffer against uncertainties. Some take the above approach at a portfolio level. While others try to avoid loans altogether because of the freedom it gives you.

I'd like to hear different opinions and strategies to tackle this age old problem.

0 Votes

All Forum Posts by: Jay Pillalamarri

Jay Pillalamarri has started 10 posts and replied 25 times.

Post: 2 1 Rate buydown

Post: 2 1 Rate buydown

Post: Strategies with high interest rates

Post: Need local builder for townhome project -Tukwila/Greater Seattle

Post: Need local builder for townhome project -Tukwila/Greater Seattle

Post: Need to show 250K loss. Strategies?

Post: Tax Strategy using property management co. & title transfer

Post: Tax Strategy using property management co. & title transfer

Post: Tax Strategy using property management co. & title transfer

Post: What is your strategy to be safe from leverage?