All Forum Posts by: Martin Scherer

Thank you Michael.

In September we purchased a single family home which with minor changes was easily turned into a home and a studio. They are both STR's. I am wondering should the conversion, construction costs be counted as an expense or added to the basis of the property? The costs were only about $5500. All changes were made before we ever received a guest payout.

I purchased several of these lower priced homes over several years with immediate, but not large cashflow.  Even though I had great tenants and many stayed in place for 5 years or more the properties were not a great investment.

I bought them with the idea of keeping them for many years and letting the rent pay off the mortgages.  All I really accomplished was lowering my tax bills each year which is a double edged sword.  Rents only appreciated 2% a year.

Investors hear about the magic of depreciation.  It is wonderful and perhaps magical IF your goal is to simply lower your yearly tax bill OR you can exchange out of the property and defer taxes.  If during your holding period the value of the home jumps you will be okay, but if, as in many parts of the country, you have little to no appreciation you can find yourself in a bind.

For instance you want or need to sell, you purchased for 150,000 after 10 years your property is now worth a whopping 155,000.  You have depreciated it approximately 40,000 and you likely do not have enough equity to affect an exchange in any other state or location so you are stuck with recapturing all that depreciation and could potentially owe more in taxes than you net from the rental property.

If I were to do it again, even though California is a very expensive market, I would have been better off having negative cashflow for a couple of years and gotten the appreciation of California and not  the practically non existent appreciation of other states with lower prices and small cashflow.

My daughter has moved to Killeen and has been looking in the Temple area for some small acreage with a home on it.  I have emailed several agents in the area and not one has replied!  As an agent myself I am scratching my head..."Hello  I have a buyer for you" and you cannot even reply?  Really?

Here's a gift and even if you are busy you could pass it on to another deserving agent.

Just because you were out bid, whatever the reason, doesn't mean you are doing something wrong.  You know what numbers work for you.  You should stick to them.  Sometimes that's hard to do but trying to force a sale by overpaying is not profitable.  Six offers in eight months is not that many offers though it may seem like it.

Stick to your numbers let them guide you.

@Christina Carey

It is perfectly fine to buy and sell for yourself in my license states but you must go through your broker.  They are responsible for you and all your activities relating to real estate.  And yes all states have their little idiosyncrasies and some states are more buyer protective and others owner protective.

Some states testing is easy and some are very difficult.  Some require several college courses some require none.  

Disclosure is key definitely.

@Christina Carey

I find that fascinating.  Every state I have and have had a license your broker is responsible for what you do. There is no "outside the brokerage".  If you screw up and do something unethical or just plain illegal even for your own account your broker gets nailed as well.  So it is not greedy, or an issue of understanding it has been the law.  

A broker can of course allow you to keep or save your commission if they choose.

@Armando Chavez

No offense taken. New investors ask a lot of questions and that is good.  The most important questions are those you need to clarify for yourself before you begin.

Can you define clearly what an investor friendly RE agent is...to you?  Every time I see that I cringe.

Most newbie investors come into real estate offices and tell the agent they speak with "I will take anything that makes sense". Now if you were a person who only makes their income by making a sale how much time would you spend with that kind of criteria?

Does that mean you can write a check all cash for a resort home? a 100 story building or a granny bungalow?  What makes sense to the agent may make no sense to you or anyone else.

A better question for the agent might be "Do you own rental property yourself"?  If not the agent probably doesn't understand the value in rental real estate or how flipping works.  They are probably not a good fit cause they won't understand your needs.

If you don't have two nickels to rub together or hope of any she likely won't take you seriously.  You are viewed a long term time waster.  They make their money on sales not someone hoping to find that million dollar property owned by a little old gentleman who only needs $50,000.

Your best bet is to call a few offices and ask "do you have any agents that work with investors"/  Than if they say yes I do ask the "do you own rental property yourself? if no repeat until you find some one who does own a property.

When you meet them have a plan mapped out if you cannot explain what you are looking for for yourself you cannot explain it to them.  Are you looking for a flip?  Are you a buy and hold investor? What are your goals for real estate.  Can you explain what you are looking for and the price range?

How much income must the property generate to make you pull the trigger on a sale.  Know these answers before you meet with them because if you can answer them and you find someone who understands your needs and works at it they are worth their weight in gold.  i trusted my out of state agent enough to buy 5 properties from her site unseen.  But then I work with numbers which most agents do not which is something you must get used to in your search for an agent.

Good luck and when you do find someone good be loyal and they will repay you by giving you first shot at deals you may not ever get the chance to do otherwise.

Yes Joel I agree, I keep a subdivision map of a project I was developing years ago to keep me from jumping into seeming "bargains".  We had financing both from a local source and the seller at good terms for the time but as you mention things change and quickly.  We down zoned the property to make what we thought was a slam dunk approval.  

The city kept talking that we needed more affordable housing and we bought it to that idea.  We designed our project around what the city said they wanted but instead of embracing it they dragged their feet for nearly 3 years before approving the project and allowing construction to start. Meanwhile we had to carry the financing and development costs which more than ate up any profit.   I fortunately sold the project after 18 months and before construction started so instead of losing my shirt I made $500 for 18 months of work.  Boring really is sexy.