All Forum Posts by: Patrick Thomas Dickinson

@Greg R.

I here what you have to say and its a good thought process and I know there's a camp out there that is doing exactly what you recommend. A few concerns I see with your thought process. 

1. Rent is going up year on year consistently, less people are buying homes at least right now because well values are still somewhat high and rates have risen substantially within the last year thus pricing a lot of people out from even being qualified, to add to this there's somewhat of a widespread belief that home prices are going drop in the future ( no one wants to buy a house and then have it drop.) so a lot of people are sitting on the sidelines. 

2. I am not an all cash buyer, so whatever purchase I would make in the future would be with leverage at a much higher interest rate than what I have right now. My point is that if I sell my current place ( where rents have gone up significantly ) and wait for prices to drop ( which may not drop significantly) , i still need to qualify for the next loan to get the next place. So basically my point is, is that prices would have to drop substantially in order to offset massive increase in interest rate lenders would give me on the next purchase. I crunched a few numbers on a mortgage calculator to illustrate. Keeping in mind that conventional lending usually cuts your dti percentage at around 45% (DTI)

This is basically why so many people aren't qualify for houses anymore. ( There jobs probably give them like a 3 percent raise a year and the rapid rise in interest rates over the last few months, changed there qualification dti percentage) thus having them only qualify for lower loan amounts ( basically telling people you have to buy a cheaper house if you still want a house.) 

Just to illustrate how much of a monthly hit on your dti you take by doubling a interest rate

700000 house price 

Loan amount ( 10% down ) 630,000 loan amount 

Monthly payment (PITI )with 3.5 % interest = 3495$

700,000 house price 

Loan amount 10% 630,000 Loan amount 

Monthly payment (PITI )with 6% interest = 4443$

thats almost a 1000$ a month increase in payment 

So you better hope that values go down a lot to offset that massive change in interest rates 

any thoughts? 

@Becca F. I’m cashflowing about 250$ and expect more cashflow year on year with rent increases. I’m leaning towards keeping it like you said 

@Jason Gillock

When you say flip and rent, do you mean buy a property that needs a lot of work, rehab it and then rent it out. Sorry just trying to clarify 

@Matt K.

If you walked alway with 200k in liquid money to use as a downpayment what would you buy in Kansas City, what could I buy that generates 6500 to 7500 in rents that doesn’t require large amounts of Lending keeping in mind that rates are at 6 to 7 percent interest rates. 

Would you buy a apartment complex or just put a bunch of little down payments on multiple properties? 

@Matt K.

I hear you Matt, if you have more money in your obviously going to make more. The thing that scares me  is that Kansas City as well as other areas in the Midwest are clearly not a California, Californias like one of the biggest economies in the world with several high paying jobs. 

Just to clarify your opinion is that I should sell, and roll that money into a cash flowing property out of state. ????? Id be curious to see what appreciation was like in all these Midwest areas prior to covid. Good jobs , good weather , tech , really do drive real estate and I think California leads the pack in many of those areas . 

@Carlos Ptriawan

I like what you said here it’s kind of what I was thinking already, i feel like holding my home in Brentwood will pay off better in the long run, cash flow is great but I have to look at the bigger ( aka cash flow that goes up year on year from rent increases as well as probably long term appreciation) California just seems to be a good long term investment if you look at historical performance 

@Matt K.

2)Also, for clarification KC is by no means the only place to make money... but it is one place I know well and can easily compare it against the east bay which I know well also because I live here.

3)If you're up to it, post a bit more detail about the property you're looking at getting rid of and that could help others give you better scenarios of what a replacement could look like...

4)My strategy is simple: Build wealth through a primary home in CA (so I can use the 121 exemption+ 1031 if needed), and use OOS rentals to reduce my cost of living in CA (mostly by paying the mortgage of my primary). This allows me to have a backup property to move into if CA/Economy tanks, but also spreads out my exit strategy on rentals across the properties so I can have multiple exit strategies instead of everything being tied up in a high-value single property....

If I was to buy a property in an area with rent control, I would one make sure that the current rents were up to market rent or two make sure leases were up for renewal so that I could remove the tenant and replace with someone that would pay market rent. I hear what your saying. Some landlords allow there tenants to pay way below market rent but not this one.  My thesis is that long term wealth comes from appreciation, not cash flow. Ive heard so many people say cash flow is the icing on the cake or its what prevents you from losing your properties in a downturn, I agree .but unless you have tons of doors or properties producing tons of cash flow its pennies compared to what appreciation can do for you. Think about one major expense like an hvac, roof or something robbing you of years of cash flow.....

 My goal would be to 1031 exchange in the future provided the irs doesnt change the rules on it drastically with the hopes of obviously avoiding depreciation recapture. I get everything else will be higher but one thing to mention is that id have principal paydown for a number of years from my tenants paying my mortgage off thus I would be in a better position and probably need less of a loan to move to the next property in theory 

My property is a sfh in brentwood worth about 700K, loan payoff is 455k  should sell fairly quickly i would think, with rates being higher (probably above 6 % for investment property) and my rate in brentwood being 3.38 Im thinking its better to hold and rent. The property currently cashflows about 300$ a month. 

As far as your strategy is concerned 

1.((((( I don"t think you can 1031 a primary residence))))), it has to be an investment property but you will be able avoid capital gains taxes on the first 250 or 500k if married  

2. So its seems that California realestate  ever dropped, you would move to kansas city or wherever you own, not sure if im understanding that correctly. I personally dont like that option as I like living here in California but thats great if you have that kind of flexibility in life. 

direct message me when you get a few maybe we can hop on a phone call for a few. 

@Alex Olson I would love to see those case studies. Can you plug 6 to 7 percent investor mortgage rates into those, im sure those were underwriten with lower rates sub 4.5. I know you can make money in a lot of places and that is why I own property in other states but my point is simple appreciation although not gauranteed is the true wealth builder, cashflow is good but it doesn’t really change your life heavily, unless your seeing a lot of it.  Rents in California have almost doubled in the last 10 years, places like Kansas texas , the Midwest generally speaking don’t have the highest paying jobs, you can only charge what people can afford to pay and in California especially metro areas that is a high number especially with a population of 40 million and a housing shortage. Drive down one of our freeways during traffic time and tell me we don’t have a population issue.  This a long term play for me and although I can’t predict the future I have to look what things have done in the past. I would love to see your thoughts on Kansas though please send 

@Matt K.

I make sure to keep my properties up to market rents year on year by making sure I increase rents year on year it’s the people who haven’t raised rents in years that have the problem your talking about, I’ll look more into kc but certain places make me nervous I’m sure there’s a lot of decent places to invest but I’m trying to sell California property and do something better with it, so I probably need something that will provide cash flow and appreciate because that’s what I have already right here in California, it seems to me that although the barrier of entry is higher in center places as far as money is concerned it’s better to invest in higher end in markets for long term wealth creation. People do a good job hating on California for various reasons but if you look at peoples balance sheets a lot of people are millionaires from California real estate. 

@Matt K.

I hear what your saying I own property in Texas as well where homes are 1/2 to 1/3 the price of my California properties. Raising the rent 100$ dollars on someone in Texas is a big deal and probably in Kansas as well. Raising the rent in the Bay Area that much most people don’t bat and eye and if they do 10 more people are applying for your property after the old tenant vacated. I see that you might be from Walnut Creek or have lived there at some point so you probably understand me my local market. You seem to be very pro cash flow which I understand because we all like money but I think California has made way more millionaires in real estate than Kansas City mostly because of appreciation,  I know it’s not gauranteed but seems to be pretty reliable if you look at history, I mean just go ask your 70+ year old neigbor what they paid for there house 45 years ago. This is a long term decision for me. It seems like true wealth is build from appreciation not a couple hundred dollars of cash flow every month at least that my two cents.