All Forum Posts by: Michael Swan

Hi again Justin,

I have lived in San Diego since 1978 and have seen this roller coaster act before.  They are beginning to give loans to people with subpar credit scores (600).  We are only about 15% from the peak on the condos I own here in San Diego.  All of this equity could vanish in the next 2 years again.  That is another reason I am 1031 exchanging these properties in San Diego.  What area of San Diego do you hold rental properties?  Have you been down my road or are you just hypothesizing?  I need to get advice from people that have already been on my path.  Let me know.

Swanny

Hi Russell,

You have the right idea about finding lower entry points with significant cash flow and much higher Cap Rates in other parts of the country.  If you go right into Multifamily and keep 1031 exchanging, you can't go wrong.  Education is extremely important right now for you.  I choose to stay in sunny San Diego and invest in North East Ohio presently.  My advice to you is to make your home in a nice area, rent in that area, buy out of state for cash flow.  Then, defer, defer, defer, defer, and die.  Ultimately, your kid(s) inherit at stepped up basis and depreciation starts all over again.  Multigenerational wealth is created this way.  Sorry.  I don't want to live in the areas your speak of.  I just want to make money and be financially free and renting anywhere  choose to live.  Your home is a liability anyway, not an asset.  It takes money out of my pocket every month.  In less than a decade I will sell my liability (personal residence) and buy an apartment complex with tax free proceeds. That complex will help to fund my lifestyle in sunny San Diego.  Cash flow for liabilities is my game now.  When rich dad's prophecy comes true in the next 1-3  years, you will be glad that you move 70% of your net worth into hard assets.  Specifically, assets that give you passive cash flow in your pocket every month.  You do realize they are beginning to give mortgages to people with 600 credit scores and fed's printing money out of thin air, indicates more opportunity for us!!

Can you feel it!!

Swanny

Hi again Steve,

Yes.  I am self managing my condos in San Diego.  I will be glad to trade all these properties in soon.  One thing I don't want to be is a burnt out landlord.  The worst long term property manager is the owner.  You get jaded really quick like.  I want to work on the business, NOT in the business.  Besides, I am a teacher in San Diego!!  I could travel to visit my properties or PM in the summer if I like.  It would be another write off.

What a country!!

Swanny

Hi Steve,

At this time, my little mom and pop PM are doing a great job.  They also do they get units ready to rent, rehab, and do all.  I meet with them by phone a few times a week and get email reports.  They are my eyes and ears.  So far so good.

Swanny

Hi Justin,

Each of these pricey properties in San Diego were traded in by a 1031 exchange.  We are only putting down 25% down and depreciation, starts all over again, upon purchase.  We can take straight depreciation, or accelerated depreciation on certain components in the complex too.  Our loan on these new complexes are 20 year amortization, 4.8 fixed for 5 years and then we could do another 5 years at the then current FHLB, or payoff loan then.  I want to reposition and sell after 2 to 3 years with a 1031 and use that money to buy a larger complex.  The plan would be to defer,defer, defer, defer, getting to $1,000,000.00 in cash flow and then die.  Then kid inherits, at a stepped up basis, starting depreciation all over again. If he sticks to the plan, he can do the same.

A little background first. In 2011-2012 purchased with 20% down loans 10 condos in sunny San Diego. Averaging about $48,000.00 cash flow. Life was good. Then I calculated my return on Equity and noticed San Diego property values escalating rapidly in about the end of 2014. The return on equity was barely 3%. Sooooooo, decided after educating myself, decided to begin 1031 exchange these 2 and 3 br condos in for Apartment complexes in North East Ohio. I traded in one Condo in June of 2015, that was cash flowing $4,000 a year for a ten unit apartment complex in Cleveland Heights, Ohio. Back up a little and the end of 2014 I started buying with cash, duplexes and half duplexes, along with one 4bd/1bath single family in Euclid Ohio that cash flows $3,200 a month presently on a $240,000 investment. I am using the same property manager for the apartment complexes too. They are a small mom and pop property management company. They are parent's of a colleague of mine and I trust them. So, back to the 10 unit in Cleveland Heights, Ohio. I only put down $30,000 on the property in San Diego, that was cash flowing about $4000.00 a year. I bought that property for $125,000 and sold it for $215,000 in Feb of 2015, two years after purchase. The Cleveland Heights 10 unit, after 3 months of repositioning is break even and by Jan I expect it to cash flow at $15,000 for the next 12 months and then with rental increases, cash flow will increases to $20,000. We purchased this property for 420,000. We only put down about $100,000. Then, in August we traded in a condo that we purchased for $120,000 in 2012, that was cash flowing $4500.00 a year for a 15 unit in Painesville, Ohio. We expect after 3-6 months of repositioning to be at $25,000 cash flow. Then, since most tenants are on month to month leases and 100 dollars under market rents, that NOI will rise dramatically. This property we purchased for $592,250.00. Now, presently we are exchanging a property here in San Diego that we purchased for $152,000 in 2013 and just sold for $270,000 for a $500,000 8 unit in a really nice area of Shaker Heights, Ohio. Rents are significantly higher and the tenants earn a lot more money, practically double what Cleveland Heights and Painesville tenants earns. We are signing final loan docs on Oct 3rd. Nice cash flow almost right out of the box. Just have to rent out old owner's unit and one vacancy. Of course at market rent of $975.00 for a 2bed/1bath. Right now all units are at an average of $890.00. Finally, we are selling another property and will 1031 too. My goal is to eventually have $1,000,000.00 in cash flow each year. If you have been where I am going, your suggestions would be greatly appreciated.

Swanny

Hi Brandon and all on this debate,

I cashed in all my IRA money a few years back and bit the bulleti and never looked back. We now have accumulated over $4,000,000.00 in apartments and single family residences. The big problem you talk about is the taxes at 20%. This will occur if you take this money at 30, 40, 50, 60, 65, or 70 years old right? Could taxes be higher in 10, 20, or 30 years? Who knows what the tax structure will be then. That argument is thrown out right there. Now we are left with the BIG TABOO 10% penalty. I now have $4,000,000 in total worth due to taking a measly $400,000 and cashing in my IRA. That money is in my control now!! No speculative stocks, mutual funds, risky ponzy schemes that even the financial planners that manage your money are snookered to invest your money due to the high returns tauted. Last, what an illogical argument to put real estate in an IRA or 401. Don't even get me started. I Now have over $100,000.00 in tax deferred cash flow coming in every year and I know where every quarter, dime, knickle, and penny goes. I feel so aware and in control, you can't even imagine the feeling, can you? My investments are all based on tax deferred cash flow and I never sell without a 1031 exchange. I will just defer, defer, defer, and die. Then, my child will inherit at a stepped up basis and deferral will start all over again and he can defer, defer, defer, and die and give it to his kids some day. I am in the process of 1031 exchanging all my pricey San Diego real estate after a short 5 years of investing and finding higher cash flowing Apartment complexes in Northeast Ohio presently. You gotta love this life!!! Don't be fooled by such illogical arguments. I don't want to wait 20-25 years at some unfulfilled promise and have other people control my money. There was a 10 year period recently where the stock market stayed virtually the same. The financial planner say to diversify. I call it deworsify. That means put one dollar and place in one pocket (small cap), another in other pocket (mid cap), left back pocket (large cap), and right back pocket International, and then bonds, cd's safe supposedly in shirt pocket. Then If two go up in value then two may go down in value and they say that adds safety. I say, logically if you take 2 out of one pocket and place it in the other pocket, then you are still at zero. That's what happened to my IRA or 401k for 10 years. What a joke!! I will put all my eggs in one basket from now on and then guard it with my life. I have done all of this, while keeping a full time teaching gig making currently $70,000.00 taxable. Of course, after 4 short years, I am earning over $100,000.00 tax deferred, while daily growing my total value of all real estate owned and increasing the value of my Apartment complexes by using the best product, best price, and best service business model. I am finding ways to increase NOI daily, ultimately increasing the value of my apartments, according to the banks. Summarily, I can 1031 exchange or refi if I prefer and take all money out, that I invested, TAX FREE. My refi loan would not be taxable. Another option is to 1031 exchange into a much larger complex that cash flow at a much higher rate than I traded it in for. Last, I can do a value/reposition deal and get the best of both worlds. Where else can you take a measly $400,000.00 and in after 4 years travel where I have traveled and in the next 5 to 8 years have under control nearly 50 million of real estate cash flowing, tax deferred over $500,000.00 per year? That is my new Grant Cardone like 10x Rule goals!!! What a country!! When I learned that my ladder was leaning against the wrong building (financially speaking) four years ago, I put the pedal to the metal and after my son graduates college in about 4 or 5 years, we will be financially free. Now that I think about it, we are making about $100 tax deferred per year presently (that is like $130,000 taxable) and $90,000 taxable W2 earnings with my wife's job as an instructional assistant for special Ed, we are financially free!! Tell me any other vehicle that could do this, and is perfectly legal, besides winning the lottery. Challenge you to do so!!

If you change the way you look at things, the things you look at change right before your eyes!!

Is your ladder leaning against the wrong financial freedom business model building? I know mine was. Feel free to reach out to me and discuss how you can do it too. I sure do love this stuff. Below is my go to cell number. Do you need a solid mentor that doesn’t want anything? I have always been a teacher and would love to see you succeed. I believe in abundance for everyone, not a scarcity, mentality. Everything I have accomplished in Real Estate and will accomplish in real estate is available. Seek and you shall find!!

Swanny

Hi Nathaniel,

I have been purchasing using a buy and hold strategy in Santee and Lakeside since 2011.  It has been an incredible ride.  Right now I have over $60,000.00 cash flow and between $1,200,000-$1,300,000 equity sitting in these properties.  I have invested $680,000.00 in total down payments and rehab expenses. Two of our ten properties are paid off and 8 have mortgages totaling approximately $700,000. My lowest cash flowing property cash flows $400.00 before taxes every month.  Not to mention the equity in my primary residence.  That equity is around $150,000.00.  We amassed all of this based on a simple goal.  That was Cash Flow.  Our goal in the next 5-10 years is to replace all our W2 earned income with cash flow.  I don't think I could risk on speculating that prices will continue to increase.  I have lived in San Diego since the 1970's and have seen the dramatic changes up and down and up and down in price values.  With your strategy,  what is your fallback?  Do you have a significant emergency fund or reserves.  I'm not into speculation.  If the deal doesn't cash flow, Murphy will inevitably rear his head.  Water heater busts, AC goes out, unit has an expensive plumbing problem.  I didn't see anything in your posts about reserves.  That worries me. This $240,000-$260,000 paid off rental property, where is it located?  You may want to call me for advice.  858 722-7377.

Swanny

Let's look at this deal from investor B's perspective.  Investor B is in for let's go with 50-60 percent of the seed money. Investor B has extensive knowledge of the rental investment business and is clearly not a beginner.  We are assuming that investor has had no connection with investor A, except research online (BP), phone/text,and email communications.  Investor B by proof of 10 rental properties can bring quite a bit more than simply money into the deal.  Two heads are better than one head type thinking.  Think about the risks investor B would be taking, being so far away and visiting once or twice a year to physically assess situation.  This investor B has also performed extremely well with rentals  many many miles away.  Investor B is clearly bringing much more to the table than may be seen by the naked eye.  

Albert Einstein once said, "nothing of great significance was ever accomplished alone."

From what I have been reading here, is that investor A is taking all the risks.  Right? With investor B being so far away, what if investor A makes a mistake and someone takes both partners to court, the risks are the same right?  They are both liable. Right?  Investor B is taking a significant risk not being able to monitor rehab, tenant evaluation, Tenant placement, tenant service once in the property etc... From what I am reading hear, investor A is THE management company and will be getting at least 10% or more to his/her management company fees plus half the tax benefits, cash flow, and what else?  Most of the deals are found on the mls right?  Of course if investor A has a proprietary wholesaler for all the deals, investor A should work out a deal with the wholesaler, that allows him a little more back in the deal than usual and lets investor B know what he will get for saving investor B sooooo much money as his part for finding a deal that investor B couldn't possibly find himself.  Don't you all think that investor B has done his/her homework and is a little more seasoned than the investor Joe Blow on the street.  Of course investor A would get a fee for being the general contractor on the rehabs.  Investor A has also stated he gets one month's placement fee too for finding a tenant too.  Just playing Devil's advocate hear.  Let me know your thoughts.  Anyone out there in investor B's shoes?  We haven't heard from that perspective as of yet.

Swanny

Welcome Ryan!  I'm in San Diego.  Listen to the podcasts.  They are extremely helpful.

Swanny