All Forum Posts by: Matt Mason

@Stephen Masek

How do you figure your $115k deal with $1200 in rent is a much better deal than this duplex at $170k with $1600-$1700 rents? I suppose a little of this may be that he initially presented it at a purchase price of $190k not $170k, but now I see little to no difference.

His property taxes are a little over 1%, which is pretty low and his property is new and yours is over 15 years old. He also has the ability to self manage if he chooses.

The only real difference i see seems to be that you used all cash. Most people don't want to dump all their capital into one house or two, which is what most people would have to do unless they have 7 figures sitting around.

Have someone else look at your ad on Craigslist. Make sure, it has great pictures and a good description and of course, be sure you are competitive on price. If the above are true, you shouldn't have any problems getting rented unless your market is suddenly weak.

Do you need to kick her out to show the property? If she keeps it in good condition and it shows nicely with her there then maybe just put her on a month to month.

Is the 30% rent above market. I would assume so. If she is a good tenant, I would probably risk it and wait until early 2014. A property in Sherman Oaks should go very quickly if priced even semi reasonably so that should give you plenty of time to get it done by the end of 2014 even if a sale or two falls through. On the other hand the safer play is to sell now as prices in SoCal have appreciated considerably.

Just curious how you got to a loan that you couldn't afford as adjustable rates are still low now, although I wouldn't bank on that in the future?

@Brett Russell I'd say in my limited experience it is more beneficial. I have a property manager who has several of his own small buildings. He has the property management knowledge from an owner's point of view and does the tenant screening to a higher level in my opinion than someone who never owned income property (generalization, but I think true for the most part all around). My two properties are his only other properties, so it is more natural for him to keep the same standards rather than someone who manages a bunch of rentals for others.

I tend to like the smaller managers who don't operate a ton of buildings, especially for smaller buildings (would be different if you are talking a 50+ unit apartment building). In either case, I think it is important to asset manage your properties or manage the manager. Be involved and ask tough questions and strategize with your manager.

@Ben Skove , funny, they were supposedly hiring like crazy maybe 6 months ago at least on the finance side and maybe they still are.

@Nicole Pettis , thanks for posting. I think it is an important topic.

I believe too often people are too rigid in their thinking of throwing all their eggs in one basket to either RE or equities. Real estate people will often bash the stock market and vis versa.

There are positive aspects to both. I like the off hand approach and liquidity of stocks and other financial products. Also, it is relatively easy to invest in index funds by dollar cost averaging (and then not panicking during market sell offs like much of the public). The returns over time using this approach are not bad at all. I think everyone who works a corporate job should have a 401k for tax deferral reasons, and can't believe it when I hear some RE gurus say don't bother even if you get a company match.

With that said, there are great things about RE in that it is an imperfect market, you can use leverage more easily, a little sweat equity and strategy can improve returns and so forth. Also, it is just more fun and interesting than dumping a quarterly amount into an index fund (although more work too).

I grew up mostly in California, so there are not as many people like you Father in Law, because people that age who invested in real estate even if it was just their own home generally made a ton of money, although just about everyone realizes that performance can't be repeated now.

@Derek Faller

The concerns I would have about Chicago are that it is starting to look like other Midwestern cities with lack of population growth in both the City and Cook County and its high violent crime rate (45 people were shot a few weeks ago in just 48 hours as an example). Of course, the crime issue is highly segregated, so it is a matter of neighborhoods, but you really need to do your homework especially if you are in the city at your price points.

Finally, the state of Illinois is a complete mess fiscally and the city of Chicago is as well (although not quite as bad as the state). The sales tax is the highest in the US, and they have already raised the income tax quite a bit a few years ago, so I imagine they might look to property taxes next.

Given that, it may be a good time to get in on a dip in outlook there (as it has always been the jewel in the Midwest and attracted a lot of college grads), but there are challenges.

@Stephen Underhill ,

Welcome to BP. I am a Purdue grad and a former Lafayette resident. Good luck on your journey and keep us updated.

@Doris Logan

Welcome. Since you are in El Segundo, you should check out the FIBI meetings next door in Manhattan Beach as an educational resource and place to meet local investors and real estate people in the know.

@Alex Baev

There are lots of reasons. One, there is a high replacement cost for construction of new homes, because it is all in-fill as there is no land left. When you buy a b class multifamily property, there is really very little competition going forward, because no one can reproduce that property. Places like Texas don't have that issue, which is why property there hardly ever increases in value even though the economy has done well. Somebody just builds a nicer, newer place farther out (although eventually this may change as people will tire of driving farther and farther).

Also, property taxes are the second biggest expense after mortgage and at roughly 1.25% of purchase price with a 2% capped yearly increase, CA taxes are much more favorable than say Texas, which are roughly double and have no cap or even Indiana, which charge investors a much higher property tax rate than homeowners.

Finally, costs can be a little lower here. HVAC systems are much simpler (none of my rentals even has air con). You can also say international appeal in our more global economy plays a role too, especially with the rise of Asia. The Chinese are starting to buy much like the Japanese did in the late 80's (although this can be a warning sign too). More advanced college institutions (I went to college in Indiana, but got to admit not many places have Caltech, Stanford and the top rated public system UC, which is 10 schools all in one state) and ability to tap into the brain economy (i.e. tech) can't be discounted either.

You definately have to buy only in certain times here though and it is tough to find cash flowing deals. With turnkey guys, I'd be wary of their costs. Most of the pro-formas I have seen from them don't even have a line for repairs and maintenance much less capital reserves, which is almost criminal in my mind.