All Forum Posts by: Matt Mason

You are probably better off selling and taking advantage of the $500k tax free capital gain exclusion for living there 2 of the last 5 years. If you don’t want to sell it doesn’t make sense not to raise it to market or very close to market. Tenants in SoCal expect rent increases. You can’t be scared to raise the rent otherwise you are imposing rent control on yourself for no reason. Since it is in a solid area it will be easy to re rent to a quality tenant unless you are truly terrible at tenant screening. Sorry to be harsh. I’d be friendly to you too if you were giving me over $4k a year.

0 Votes

Originally posted by @Joe Splitrock:

@Account Closed Apple announced it's third site, so in addition to Cupertino and Austin, they are adding a new location and 20,000 jobs. Apple isn't going to have a public competition like Amazon.

@David Zheng The 50,000 high paying jobs will transform any city. People forget that it is not just those jobs. It is all the construction jobs. It is all the businesses that benefit from those 50,000 people spending money with them. Those businesses need to hire more people. The schools need to hire more teachers, city hires more police, etc. It becomes more than 50,000 jobs.

One think people aren't discussing is where those people come from. We can expect some talent migration, so some cities will lose people. It will have an effect on the Seattle real estate market. It will remove pressure which could mean prices stabilize or even drop. The point is, if you were planning to sell in Seattle, now may be a good time. If you are looking to buy, maybe hold off a little bit.

As far as insider information, I just have my hunches. I am predicting it is in the Southeast. Atlanta, Austin, Raleigh or Miami. My reasoning is that it only makes sense to locate further to the east and south for warmer weather. My top prediction is Austin then Raleigh then Atlanta. Total guess, but I am an Amazon Prime Member, so I do have certain Amazon credentials.

Ha, I wonder if being an Amazon Prime Member would help land one a sweet job too. :)

I agree with most of this, except I don't think it will have much of an effect on Seattle. Amazon is growing like a weed. They aren't going to be downsizing in Seattle. The 2nd HQ is due to the fact that Seattle just can't handle that type of growth from Amazon as the Company already has 20% of the City's office space. Growth may moderate or stabilize like you say.

Also, I think people need to understand the cloistering effect of a major tech headquarters like this has on an area. This isn't like opening a factory. These big companies tend to result in other companies opening satellite offices to do business with them and share in talent sometimes too. Also, new tech companies tend to be started by people who leave out of bigger companies, and Amazon already has a reputation as a very demanding place to work. Finally, tech flourishes in tech hubs where people interact from different companies and groupings. That is why you don't see tech companies move to smaller cities or off on their own somewhere.

One example is the comparison of Albuquerque and Seattle when Microsoft moved the company from Albuquerque to Seattle in 1979. They had very similar economies at the time and Seattle could be quite depressed depending on how Boeing was doing. Today, Seattle looks more like a San Francisco economy than Albuquerque. A lot of that is due to other companies opening up satellite tech offices in the area and new companies like Amazon forming.

6 Votes

Originally posted by @Matt M.:

We'd have millions of industrial sqft almost instantly available if the feds came in. Not to mention jobs lost, retail real estate, and thousands of acres of farmland. If Gov Chickenlooper had a spine, then he'd have the Sheriff's keep the feds out.

Not much a state could do to deter the Feds if they decide to go after MJ. It is illegal under federal law and federal law ultimately trumps state law. Local sheriffs can't interfere with federal agents without risking arrest themselves.

I looked at a real estate syndication in CO that had a industrial MJ building about a year ago. I passed for a few reasons one of which was Sessions as I knew he wanted to crack down. Who wants their investment so easily affected by the AG. The risk is why the return on the real estate is so high, but it is too much risk for me.

0 Votes

Of course this only takes into account people already in the country, while ignoring immigrants. You’d get a different story by not ignoring immigrants and overall population growth is a more accurate indicator of things. Just the fact that Washington is in red illustrates this. Seattle is booming like no other place and had the biggest price increase of any city I believe last year. A lot of foreign born tech workers though. This is why NY, SF, Seattle, DC, and LA are called “The Gateway Cities”.

1 Vote

This is one area where CA doesn’t have high taxes (and also if you don’t make much money as the high income tax rates are for high earners). It is about 1.3% of assessed value, but assessed value can only increase by the yearly inflation rate or 2% whichever is lower. Over time this represents a big difference from market value. I’ve had my primary residence for 19 years and my property tax rate is now about 0.4% of market value. If I sold the buyer would pay three times what I pay. Oregon has a similar property tax cap, but not sure about any other states.

3 Votes

Keep in mind that it would be very doubtful that the people in the original example would be able to take all of that income and property tax deduction because most people in this situation would have already lost their deduction because they pay alternative minimum tax. Once you get into certain upper middle class tax brackets in CA, pretty much everybody pays AMT, so increasing the exemption limits on AMT is a nice boon to CA taxpayers at the same time that the limits on SALT deductions is a negative. The Bush tax cuts of 2001 and 2003 weren’t as big a tax cut for NY, NJ, and CA taxpayers because the AMT wasn’t changed and it ensnared a lot of more these taxpayers. This wasn’t publicized as much at the time. Overall, the SALT deductions are negative to high tax states but might not be as bad as reported because so many of the taxpayers affected are already in AMT.

4 Votes

Originally posted by @Thomas S.:

@Joseph M.

"Rents have also gone way up as well"

I understand the high level of appreciation however it is extremely rare (practically unheard of) that rents keep pace in those markets and as such cash flow decreases it does not increase as a result of appreciation.

In the example value at $890K rent to break even would be about 8K per month. With appreciation making the value 3M rent would need to be 27K per month. Pretty sure we all know that is not the case.

The opportunity value alone on a property with high appreciation is costing most investors far more than any property could produce in rent. When a property has high appreciation and you do not pull out the cash you are losing not making money from your investment.

Truth be told speculative investors do not understand the value of money. All they ever see is the dollar signs created by appreciation they seldom ever actually see any money.

Appreciation is only a word until the money is accessed which most will never do.

You really think most people in appreciating markets never sell or refinance their properties and just die with them?

You also make the mistake that others do in low value markets and assume expenses inflate at the same rate as rents. A refrigerator costs the same for an apartment in a low rent city as it does in a high rent city. You can't generalize using simple formulas.

You have to be able to reasonably underwrite for commercial real estate even small multifamily. There is a lot more to consider for an investment than the expected initial cash flow and it does a disservice to potential investors to blindly push them into the perceived highest initial cash flow investment as the sole factor to consider.

2 Votes

Originally posted by @James Wise:

The majority of people in BP are mom & pop investors or those just getting started. So we can assume that $200 Million Dollar developments are not being built by those participating in this discussion. With that said it's important to note the following.

Nurses start out at $26/hour & up. Nobody buying C-Class assets in the Cleveland area should be expecting to rent to Nurses. Also very unlikely they will be living in B-Class SFR or duplexes. Nurses for the most part are going to be home owners in B or A-Class suburbs or they will be renting in the huge multi million dollar A -Class complexes very close the the Hospital campuses.

Nurses assistants are a tenant base that most of you are going after. That is roughly a $12/hour job. Nothing wrong with these folks just want to make sure investors reading this thread have the most accurate info. Potential investors thinking they will have a $70k college graduate living in their $650/mo duplex that they bought for $75k would be in for a very rough ride.

Very much agree. I think a lot of CA investors get in trouble with distant investments not realizing this. They get in love with the numbers. They look at the property and say hey that duplex looks pretty good and probably better than the place I rented when I started out and was making $50k in my first professional job. Never mind they have no idea if it is in an up and coming or declining area.

2 Votes

Cleveland, Ohio

It really depends on your local rental market. You need to understand if rents are increasing in your market and by how much. How does your rental compare in price to similar units. If you don't know realize your tenant may research himself.

Whether your expenses have gone up is irrelevant as that has no bearing on your market rental price. Sometimes it may make sense to keep rents flat. I've been a landlord since 2011 and have always raised rents every year. However, if we have a big economic slowdown that time may come.

5 Votes

Originally posted by @Jay Hinrichs:

Originally posted by @Matt Mason:

I think the blogger is spot on about quality in demand real estate winning out over time. I do think newbies focus on day 1 paper cash flow and not enough on exit strategies, ways to add value and increase income, property management, and tenant quality.

Back when I joined BP about 5 years ago, there didn't seem to be many people with West Coast properties and there was a pretty big bias towards turnkey investments. I took a cursory look at some of the product. Right away I found the pro-formas questionable at best and the business more reliant on marketing than anything else.

I also thought the whole turnkey pitch was way too short term focused. What is the exit strategy after 8-10 years with most of these properties? They may be beat up and need some capital work after that time. If you are thousands of miles away that sounds like a disaster. If someone tries to sell, many of these properties only appeal to investors. What investor wants a property that hasn't been rehabbed in 10 years? Maybe a local investor wanting a nice discount. Combine selling costs and a discount and the fact that the turnkey was probably bought at retail or even slightly above and there probably is no capital gain or very little at the end of the day.

I just don't see the scalability or the long term profitably in most turnkey product. It is all marketing to convince people their home market is too expensive and difficult and this is an easy cheap alternative with great numbers.

Matt does not have to be turn key to have the scenario you describe.. its virtually any rental property anywhere in America that does not appreciate .. and I mean not appreciate on paper but appreciate in the market place.. IE what someone will actually pay for it .. not a refi appraisal. from my perspective if your going into the land lording business you need to get some scale and its a long play.. to hold 5 to 8 years and exit.. unless you have appreciation that covers your sales cost your going to lose money.. does not matter where it is. West coast included..

I bought brand new construction in 2005 post Katrina for Gozone tax bene's so I made my money the day I bought them with the hope I could sell them for what I paid for them.. that is basically what's happening I held them what 13 years now and selling for what I paid and a little less.. although being new construction my maintenance has been nothing really.. but its taking 5 to 7k per home to get them ready to retail to homeowner plus you can't sell to home owner with a tenant in it.. almost impossible so you need the tenant out so you can do the rehab to sell for retail.. so you also have 4 to 6 months negative cash flow.. the only saving grace is the tenant paid down the mortgage and since I don't need cash flow everything that came in went to pay down my mortgage and cut down interest expense..

Even now as markets in many areas have basically peaked .. if U go to sell in 1 to 3 years you will be lucky to break even that's west coast mid west east coast does not matter.. if you have no appreciation in a given time frame you are going to lose money when you sell a rental .

At least that's my conclusion.

I agree Jay. It is a long game and people looking for a quick payoff often get burned. I do feel for people trying to get into the game now as multifamily is expensive all across the country. Doesn't make much sense to plan to hold or refi for less than 5 years with selling costs and price risk unless you have a strong value add play.

I was a newbie not too long ago and was talking with another local investor the other day who got in around the same time and we both agreed we should have gone into slightly better neighborhoods with worse cash flow back then. Our neighborhoods are gentrifying nicely now and only a few minutes from more prime areas, but it is a longer process.

I don't know if I could deal with a poorer tenant class, especially if it involved multiple evictions or a tenant trashing a unit. That would certainly burn someone out sooner. I know it would for me.

I got into the game back in the Great Recession knowing I would be in for the long haul, which is why I went with 3-4 unit properties to get the 30 year financing. Nothing wrong with 5+ units, but for my first few properties I was comfortable with not having to refinance every 7 years or so.

2 Votes

All Forum Posts by: Matt Mason

Matt Mason has started 4 posts and replied 229 times.

Post: Should we Raise the rent?

Post: how many millions are you saving for Amazon HQ

Post: Is the Deparment of Justice going to get tough on marijuana?

Post: Americans Are Ditching These Five States In Record Numbers

Post: Property Taxes where you are or invest?

Post: 10% Correction in Bay Area market after Tax Reform?

Post: Proponents for appreciation strategy?

Post: Cleveland Population Decline... Why?

Post: Do You Raise Rents Every Year? Why Or Why Not

Post: "Biggest mistake" was to do out-of-state turnkey investing