All Forum Posts by: Pete Harper

I'm investigating if I qualify as a RE Professional for the IRS. I'm retired with no W2 income. Primary income is from real estate, investments, pensions and IRA. We currently own 38 units held in LLCs and privately. We just turned over the day-to-day management to PM. We turned one the management to allow more time to acquisitions and renovations. Even so I'm involves with setting rents and approving repairs. My wife and I do our own renovation work and make readies. We do our own repairs except were we need licensed trades ie Plumber or Electrical. I'm currently working on a duplex renovation. We took the kitchen and bath down to bare studs and are rebuilding. We easily meet the 750 hr requirement. I have a meeting set up with a CPA, what other things are they going to be looking for?

One work of caution HURRICANES! It's not a matter of if Galveston will be hit by a Hurricane but when. We used to own beach property in nearby Surf Side Beach. We had a SFH and a Duplex. The duplex had a ground floor unit that we rented long term. The upstairs unit we used for ourselves and as a short term rental. My long term plan was to own ten beach houses and retire as a full time beach bum. In the span of 9 months we were hit first by a tropical storm and then Hurricane Rita. The ground floor unit was flooded with minor damage to the upstairs unit. It took us about 6 months of work to rebuild the downstairs unit. Meanwhile we had some money coming in from the upstairs STR. We finally got the downstairs unit finished and a new tenant placed. Then Rita hit. The downstairs was a total loss. All that hard work under 5ft of flood water. The upstairs was damaged too. SFH lost power and water. We were devastated after spending every weekend the previous summer rebuilding only to be set back to square one again. Before Rita we were 5th row from the ocean. After Rita we had been upgraded to the 4th row. An entire row of homes were lost to the ocean. You can still look on zillow and see lots out in the ocean. These folks lost everything. Their homes were gone as well as the land it sat on. They had no ability to rebuild. Many were uninsurable after the previous tropical storm. We know folks who lost their entire retirement savings. Thanks to FEMA we were able to rebuild for a second time. As soon as renovations were done I sold everything. Years later my wife stopped by and took photos of our old place. At first I didn't even recognize it after subsequent storms.

Austin,  Here are my thoughts.  I lived in Round Rock for 13 years and currently own investment property in Killeen.

Georgetown:

Pros: You are in the path of progress from Austin.  Better opportunity for appreciation, close to high paying jobs, more diverse employers, better schools, lower crime, and better amenities.  Austin is coming off a housing boom, might be able to time the dip.

Cons: Higher cost. Longer commute to Ft Hood but you are going light traffic direction since most folks are commuting the other direction.

Killeen:

Pros: Lower cost, easier commute to Ft Hood, greater inventory of investment properties, and good deals if you can find them.

If you are open to house hacking you could by a 4-plex for $400k that will generate $3200/month. Live in one side while you are stationed at Ft Hood. In four years when you tour is over you can either sell it for $500-550k, or do a cash out refinance and use your VA loan to buy a place in Georgetown keeping the 4-plex as an investment.

Cons: High crime, poor schools, lower rents, one company town (Ft Hood), property taxes are going up faster than other Texas markets.  You really need to pay attention to neighborhoods, a block or two makes a big difference.  We have friends who live in Killeen that had a fatal shooting next door.  Stay out of old town, Harker Heights or South Killeen are better.  I don't believe any of our current tenants are military or ex-military.  Low rents primary draw with some commuting into Austin Metro.  We own property throughout central Texas and Killeen is the lowest $/sqrft despite being the newest/nicest property.  Prices shot up in the last couple years, lots of out of state money.  Price/Rent ratio is upside down right now with rents not keeping pace.  A year ago we were shopping for more property, placed multiple bids but didn't get anything.  Prices were negative cashflow.

Temple/Salado might be a better compromise for a private residence.

You can absolutely buy a property without an agent.  You can download your state approved contract and make the offer yourself.  Just make sure you have an attorney involved to review the paperwork.  Most charge $250 to do so.  Some of my best deals have been where I represented myself using an attorney.

I had one recent purchase where I used an agent and she was a train-wreck.  She was totally intimidated by the sellers agent and was getting bullied into poor terms.  When problems arose during the inspections she disappeared on my.  I finally ended up dealing directly with the sellers agent to get what I needed.  

A bad agent is worse than no agent.

Our insurance is coming up for renewal on a 10 unit apartments in Conroe.  The price has gone up and I'm looking for competitive quotes.  

Single 2-story brick building, 10 units all 2BR/1BA, 1984 construction, updated 2017 and 2023, new roof in 2017, no flood zone.

Quote from @Eric James:

Quote from @Pete Harper:

Quote from @Rakesh Balavanthapu:

I am a new to REI and trying to find my first deal. Have been listening to BP podcast episodes from 2020 and earlier and the numbers were no where near what they are today.

I have analyzed about 30 deals in Atlanta, Dallas and Columbus markets. Couldn't find a single property where it is meeting the 1% rule. Agreed that I looked at only MLS listings, but still.

Am I looking in the wrong place ? Or am I making any mistakes in my analysis? Not sure where to go from here.

Also, is there a place on BP where we can find market analysis? I am a pro member. 
Please let me know how you guys are dealing with this

1% rule is not dead, you are looking in the wrong place.  I just purchased a 2% rule property in Central Texas in March.  My portfolio average on 38 units is 1.6%.  I still screen at 1%.

1) You need to dig much deeper. All the easy stuff on MLS has been snapped up.
2) Look for small multifamily; duplex and foorplex. Much easier to cashflow with multiple units.
3) Look for off-market deals. I send out "yellow letters" using the county tax website.  I also target tax auction properties. 
4) Look in the secondary and tertiary markets outside the large metroplexes.  
5) Be prepared to do renovations.

 Purchase price from tax auctions would get more than 1%, but the problem is you can't invest money in repairs or refinance them for an extended period of time. 

In Texas only six months on non-owner occupied.  During the 6 month option period you can still charge rent.  I purchased a property for $27k that rented for $500/month as-is.  Still a 1.85% deal.

Quote from @Joe Villeneuve:

Quote from @Pete Harper:

Quote from @Rakesh Balavanthapu:

I am a new to REI and trying to find my first deal. Have been listening to BP podcast episodes from 2020 and earlier and the numbers were no where near what they are today.

I have analyzed about 30 deals in Atlanta, Dallas and Columbus markets. Couldn't find a single property where it is meeting the 1% rule. Agreed that I looked at only MLS listings, but still.

Am I looking in the wrong place ? Or am I making any mistakes in my analysis? Not sure where to go from here.

Also, is there a place on BP where we can find market analysis? I am a pro member. 
Please let me know how you guys are dealing with this

1% rule is not dead, you are looking in the wrong place.  I just purchased a 2% rule property in Central Texas in March.  My portfolio average on 38 units is 1.6%.  I still screen at 1%.

1) You need to dig much deeper. All the easy stuff on MLS has been snapped up.
2) Look for small multifamily; duplex and foorplex. Much easier to cashflow with multiple units.
3) Look for off-market deals. I send out "yellow letters" using the county tax website.  I also target tax auction properties. 
4) Look in the secondary and tertiary markets outside the large metroplexes.  
5) Be prepared to do renovations.

Using the 1% rule died a long time ago.  Just because you happen to be able to satisfy it doesn't make it alive...or a good deal.

Just because you said its dead doesn't mean it is dead. Too many folks are too lazy to get out and hustle and find good deals.  

Quote from @Rakesh Balavanthapu:

I am a new to REI and trying to find my first deal. Have been listening to BP podcast episodes from 2020 and earlier and the numbers were no where near what they are today.

I have analyzed about 30 deals in Atlanta, Dallas and Columbus markets. Couldn't find a single property where it is meeting the 1% rule. Agreed that I looked at only MLS listings, but still.

Am I looking in the wrong place ? Or am I making any mistakes in my analysis? Not sure where to go from here.

Also, is there a place on BP where we can find market analysis? I am a pro member. 
Please let me know how you guys are dealing with this

1% rule is not dead, you are looking in the wrong place.  I just purchased a 2% rule property in Central Texas in March.  My portfolio average on 38 units is 1.6%.  I still screen at 1%.

1) You need to dig much deeper. All the easy stuff on MLS has been snapped up.
2) Look for small multifamily; duplex and foorplex. Much easier to cashflow with multiple units.
3) Look for off-market deals. I send out "yellow letters" using the county tax website.  I also target tax auction properties. 
4) Look in the secondary and tertiary markets outside the large metroplexes.  
5) Be prepared to do renovations.

Jon and Carlos, Thank you for your detailed replies. I was missing the step of UPREIT DST. I'll read up more on tax code 721. I'm also looking at investment options using REIT.

I'm not ready to kick the bucket just yet. ;-) I'm doing some advanced tax planning and wanted to plan out the life cycle for the 1031s. When the time comes a REIT might be a good option. Meanwhile I'll keep building my real estate portfolio.

I'm doing some estate planning. My kids are in horror of inheriting and managing our real estate portfolio that includes multiple 1031 exchanges. These exchanges have almost no cost basis so they face substantial state and federal taxes if sold. Speaking with an advisor he mentioned doing a 1031 exchange into a upREIT. The advisor said I could sell the property and do a 1031 exchange through an intermediary into a qualifying REIT. When we die the REIT would get a step up in cost basis so our kids would not be liable for the original taxes. They then have the option of collecting dividends from the REIT or selling shares at the step up cost basis. Since my kids are all live tin Texas they avoid state taxes associates with original 1031.

Is my understanding correct?