All Forum Posts by: Joe Facenda

Your time line is very interesting.  No one has mentioned taxes.

Remember if you have lived there 2 out of the last 5 years, there are no capital gains.  As of today, it looks like you have. 

Now, granted there may not be a lot of gain with the numbers you have and you still may have recaptured depreciation but it is worth thinking about.

Check with a tax professional to review whatever I am writing.  I'm just a Realtor, not a CPA.  However, I can give you the questions to ask the professionals.

So, if you rent another cycle, you will likely lose that option.  Now, you can sell and hold the funds for another investment(s) down the road without the time constraints of a 1031 exchange.

I have a large network of investor oriented Realtors throughout the country so I have a bit of handle on various markets.  My guess is that you might be able to buy 2 doors in upstate NY for the amount of your one door in FL.  If not in upstate NY, certainly in other market like Fayetteville NC, Kansas City or others.  If you are not buying NY does it matter whether you have a rental in FL, KS or NC?  All would have the same logistics.

Anyway, the way I look at whether the cash flow is "good" is to compare it to an opportunity to purchase a similar quality home in another market with the same appreciation potential.  There are markets with high appreciation and low cash flow like mine in Northern Virginia and there are other with great cash flow but less potential for appreciation.  You need to decide where on that continuum you want to be.

Last point, just because you own something doesn't mean you should keep it.  

I do lots of estate work helping heirs decide what to do with inherited property.  Some say they want to keep it as a rental.  If it is for emotional reasons, that is fine.  But if it is for financial reasons, I ask them if someone gave them $550,000 (our average price point) to invest in real estate, would they buy their parent's home?  Would that be a smart investment?  Often they say no and realize, just because you own it doesn't mean you need to keep it.  Put your money to work in a way that best matches your goals. 

Hope that helps

I see the need turnkey providers and value their services. 

I am invested in several markets outside of my own market. None were purchased from a turnkey provider but that doesn't mean I won't in the future.

Early in my investing career, for my 3rd property, I considered a well respected turnkey provider that I met at a national convention. The concept was intriguing.

I looked at their portfolio online and the numbers made sense.  But I wanted to see what I was getting.  

I always enjoy visiting other cities particularly in the summer when I can catch a baseball game, either major or minor in the nearby area.  So I hopped on a plane to visit this city.  At the same time I made an appointment with a local Realtor to show me other options.

The turnkey provider had very little available currently but gave me address of recently sold homes.  I drove around the city and looked at the homes and neighborhoods.  I was impressed with the quality of their work but I was not always impressed by the neighborhood.  I got concerned that I could potentially purchase a great home in a lousy neighborhood because I was from out of town and did not know the area.  

Then the Realtor showed me around and explained pusses and minuses of certain areas.  She showed me several properties and I actually bought one from her.  Did it need a little paint?  Sure.  But even after a few thousand in fix up costs, I was way under the cost of turnkey and knew I was in an area I like. Plus the  management company  she recommended was 2 points lower than the turnkey provider. 

The turnkey provider has only their inventory to sell And, yes, it is often very good inventory.  But the Realtor can sell any home that meets your criteria.  And any investor oriented Realtor knows that most investors are not one timers.  They have a vested interest in giving you a high level of service. 

Just one guy's thoughts and perhaps biased since well.... I am a Realtor. 

I like the analysis of  @Aaron Zimmerman.  

But there is nothing like actually doing a deal and getting one on the books.   We can work the paper all we want but there comes a time when you need to take the plunge.  

In my opinion, the first deal does not need to be great or even very good - just good. Make sure it cash flows and don't worry about all of the other metrics - IRR, tax analysis etc. Just make sure it cash flows and is in an area you like.

This first one is sort of an experiment to see if you actually like being a landlord.  You may not.  On the other hand, you may find it very fulfilling and want to do another.  That second deal should be better than the first and looked at more rigorously.

In any event, projecting future stock market gains or housing appreciation or rent increases should not be the critical part of the analysis.  Does it cash flow now?  Does it cash flow enough to make it worthwhile?  Is the neighborhood stable so your investment will hold value with the rest of the market?  And so on.

Last thought - want to eliminate concerns about taxes both current income and future capital gains? Buy it in your IRA but that is a discussion for another day.

@Gregory Cudzilo  Refinancing and selling later is simply a math problem.  The costs of the refinance can be rolled into the loan so there is no cash needed.  And the refinance will reduce your payment by $x per month.

Closing costs/monthly savings = payback period.  Going to hold longer than that payback period?  It may be worth it.  Going to sell within a year? Never worth it. 

@Gregory Cudzilo  I think I know the exact condo near the hospital you are talking about.  Prices should be up but how much depends upon when she bought it.  And knowing that condo and the high condo fees, my guess is that if she didn't buy it long ago for much less (like $100,000 below current prices) you will have a negative cash flow if you go to rent it. 

Last little piece of advice.  If I am wrong and it does cash flow currently, have your girlfriend check her mortgage rate and if appropriate, refinance now BEFORE she moves out.  Rates are really low right now.  And as of today, she is an owner occupant.  When she moves out she will be subject to investor rate which are 1/2 point higher.  So it may make sense to lower your payment which, of course, will increase cash flow if you rent it. 

That said, I am still pretty sure it will be a negative cash flow for that building at this time. 

@Gregory Cudzilo  I am a Realtor in Northern Virginia.  I am not licensed in DC or MD so can't speak to the their markets.  It would be virtually impossible to find a cash flowing investment inside or close to the beltway in this market.  (I am assuming 20%/25% down and a traditional 30 year mortgage at investor rates.)

We are at such a low point in inventory that anything - turn key or run down - that is priced anywhere close to value frequently gets bid up above value.

Could you find an off market deal where a seller is desperate to sell? Perhaps but on the MLS you will not find anything that cash flows.

But say you do find something that cash flows, I can almost guarantee that if you spent that same money in another market your cash flow would be substantially more even after factoring in property management.

Now, our market has historically been one of the best appreciating markets in the country.  And even in 2008, Alexandria and Arlington held up much better than other parts of the region. Of course, no way to anticipate the future.

So, whether to hold the condo depends upon your goals.  

1st question - does it cash flow from day one?  If it does not, sell it. In my opinion, it is silly gamble on appreciation when you you could be making hundreds of dollars a month in another market. 

2nd question - Is you investing goal maximizing cash flow or long term gains?  If cash flow, again, sell it, and reinvest in another market.  If appreciation and it currently cash flows, perhaps it is worth waiting things out.

ONE CAUTION AND DEADLINE - Your girlfriend is moving out this year. Remember that capital gains comes into play when you can no longer say you lived in the home 2 of the last 5 years.  So, if you want to test renting and see what Amazon impact is over the next few years, that is fine but you need to really think things through about 2 1/2 years from now.  If you don't want to pay capital gains on the sale, you need to settle by the 3 year mark.

LAST - Want a less expensive way to the play the Amazon game?  The lower level Amazon employees, support staff and those working service businesses in the area will not be able to live in Arlington or Alexandria.  Where will they go?  One possibility could be the outlying stops on the VRE line (not metro - that is too close).  Perhaps Dumfries to Fredericksburg? There you can cash flow with minimum down payments. 

Hope that helps.
 

I am a Realtor, investor and one who works with many investor clients.  I have yet to figure out how a relationship with a wholesaler is mutually beneficial.  There is no compensation for the Realtor on the front end and the back end (rehab) will be handled by someone other than the wholesaler so no guarantee there either.

Sure, you may want to engage a Realtor for a small fee to give you advice and input on whether the particular property is priced right for a wholesale deal.  And the Realtor may know people interested but I really don't understand how it is worth their time to get deeply involved.  Happy to have someone correct me and explain how they see working with wholesalers as a valuable part of their business

A wholesaler is doing a part of the Realtor job which is advertising a property to a group of potential buyers but doing so privately and not on the MLS or other online platform.

Wholesalers should be aware for a new guideline for Realtors that has recently been issued by NAR, the national association of Realtors. If a Realtor advertises a property to the general public via social media, flyers or some other public way including putting a sign in the yard, that property MUST be listed in the MLS within 1 business day. Absent of that, the Realtor is subject to a fine. The amount of that fine will vary by MLS but in mine it will be $5000. That is not a number I want to mess with. Yes, I can talk about an off market property to my clients one on one but I can't promote blindly without being subject to that new rule.

My standard is licensed at least 3 years and has personally invested.  

I think asking how many investment properties they helped with in the past year can be misleading.  How many is a good number?  It could be zero because the market in the last year was not investor friendly. (Currently the case in my market for the most part.)   Or is could be 15 because they came across a retiring investor who needed to sell his portfolio (happened to me in 2017.) Neither one alone would demonstrate whether an agent is or is not investor friendly.  

However, if they are both an experienced investor and Realtor, you are off to a good start. Even if you are a fix an flip person and your Realtor is a buy and hold investor, that is fine.  Vice versa should also be fine.  If they play on one side of the fence, they likely know about the other side.

I may add a third question to the interview.  Which investor meet ups do you attend?  The name, quantity, frequency of attendance is not important.  Is is simply important that they know of these and attend on a semi regular basis.  If they are plugged into REIAs at some level, they are plugged into the investor community.

Hope that helps

I know you would like that 10% in your pocket but if investing out of town (I have personally invested in 5 different out of area markets) you need a property manager.  Just make sure ift cash flows with the management fee factore din. 

That said, I have yet to find one property manager that is firing on all cylinders.  Some are good at getting things leased.  Others are great at reports.  Others are good communicators. Others keep the tenants happy so they stay.  Some are super responsive to maintenance needs and others a little slower. Some are big and some are small.  But none are perfect. I wish I had a solution but regardless, you need someone local to manage if you are out of the area. 

Agree with @John Warren. Use your Realtor for recommendations.  Personally, I am biased toward local direct lenders.  These are loan officers who work in your town and underwrite locally.  They are people you can build a relationship with.  For some of the larger banks or online groups you are building a relationship with a company, not a person.

While every dollar matters, I would not suggest you decide to go with one lender or another for an 1/8 or even a 1/4 of a rate difference.  In your price range, that will amount to just a few dollars a month.  (For a $100,000 loan the difference of a quarter point is about $14 per month and 1/8 is$7 per month.)  The service you receive and the confidence that you will settle and settle on time is more critical.  And the ability to talk to someone past the transaction as you contemplate other moves is quite important. For a professional I can consult with, I am glad to pay $7 to $14 per month.  That said, you can always ask the person you like best to match the lowest quote and often they will. 

Also when comparing lenders, look at fees as well as rates.

Hope that helps.