All Forum Posts by: Robert C.

@Account Closed, I'll also add that while there's a bunch of debate here about the speculative nature of buying for appreciation, there are many folks in the Bay Area who believe in the value of longterm appreciation due to local circumstances. So, that's another reason someone might not mind sitting on a negative cash-flow property out here.

@Mary L., People buy for different reasons. Maybe you wouldn't buy at top dollar, but there are other people who would. It might be because they don't want to deal with a run down building so they're hoping for turn key, or it may be they're just looking to park their money somewhere. Or they may also be bad investors!

If you're on BP it likely sounds like a stupid idea, but many of the people here are more hardcore investors who want to juice as much as possible out of the deal. If real estate is not your main gig, then you may have great income from your W2, where you'd love to take some tax write offs while the tenants help pay off the building over time. 

@Matt R., @Bart H., @Nate R., @Amit M., @Joe Scaparra, @Account Closed, I've been so impressed so far that BP has been able to avoid most of the political junk given that real estate is the background of our president. This back and forth between Texas and California somehow seems like a microcosm of what I would have expected to see more of. Can't we all just shake hands, and both our states can secede from the union?? (I know it's come up in both places!). Heck, maybe we can form our own country and get something done by balancing each other out. Opposites attract they say!

I'm sure there are plenty of people who have lost they're shorts in Texas, just as they have lost their shorts in California. And there are also mom and pops who've made plenty of money in places like the Bay Area, especially over the last 7-8 years, just as I'm sure there are speculators in Texas who made plenty of money in areas like San Antonio. For all the talk about investment fundamentals (which are important), there's still an element of luck and timing that people don't talk about all that much. I'd also like to suggest that Texas and California are in different points of their market cycles, so doing a direct present-day comparison may not apply. 

Let's hug it out everyone! (Or at least stick to the topic)

@Beda Yang, Would holding onto the two properties keep you back from investing in Dallas considering the likely lower price points? Given your situation, it sounds like you may have the luxury to try things out and see. 

You can start by holding the properties which you bought at a good time in the market in Oakland. After you move, you can see how you like managing them from afar, and whether you are finding good opportunities for investment in Dallas. You will still have 3 years to take advantage of the tax-free capital gains on the Fruitvale location should you decide to sell. Oakland might still have some more upside during this cycle.

That's the way I would do it.

Also, if you do sell, I would definitely 1031 the Lake Merritt location if you haven't lived there before. 

@Jameson Sullivan, Actually, I did this once with an apartment complex. The building ran between two streets that were parallel with a front entrance and a back entrance. I went to the city recorder and had the address officially changed to the street with better curb appeal (better maintained neighbor buildings). Every situation will be different, but it really helped with the marketing and I got my price. It was a pretty inexpensive switch to make, so might be worth your time just to try it out. 

@Brad S., I believe you can get away with a salesperson realtor's license as long as you have somewhere to hang it so you're technically working under a broker. A contractor license cannot substitute. 

As far as the business model, I've often thought that the profit margins are pretty thin as a property manager. I manage all my apartment myself, so this is just from doing all the work of a property manager and thinking about whether it would be worth it for 5%-10% of gross. You definitely need a high volume of rentals. I think many brokers use property management as a way to get additional income that will help during downturns, and to also take advantage of a pipeline of clients from sales. 

@Debbie Rumsey, I reread your initial post a few times, and I keep getting stuck on your first question, "how can you look forward to cash flow for retirement when the debt has increased as well?" Maybe I'm reading it wrong, but that seems to be a false correlation. Just because you have increased debt doesn't mean you would have worse cash-flow. Most people buy with debt for the opposite reason.

Cash-out refinancing and purchasing more properties can get you a couple things:

1.) Increased cash flow through positive leverage. This is how you "live off the cash flow at a high debt", because each dollar you invest is making you a higher percent return.

2.) Increased appreciation by owning multiple assets. This will depend on your market, and probably does best with SFRs. 

Certainly, going from a paid off property to taking a loan will always increase risk, but there are some ways to mitigate that. For example, if you like those duplex/triplex/fourplexes, they allow you to lock in 30-year mortgages. Your interest rate will never change and as long as you buy with positive leverage, you only have to make sure your rents are steady (but hopefully going up). Larger MF doesn't get you that, but you can still get up to 10-year fixed loans, plus more tenants means less worry about vacancies. And as others have mentioned, not over-leveraging will also help.

Small note: one thing a 1031 exchange can get you that I don't think has been mentioned is resetting the clock on your depreciation expense. 

I also agree with some of the comments regarding how spread out your investments are. It's probably better to focus on one area. 

@Adam Treboutat, Scanning craigslist or other rental sites for rent comparison is still a good option. At least you know where the competition is at and how to price so you get a lot of traffic. 

The more I think about your situation, the more I would slow your roll on the idea of selling (sounds like you've already reconsidered). You're in a really enviable position. You might have already read some of the other BP threads where people are desperate to just have a small anchor in the Bay Area. Lots of people are priced out! 

Sigh... this is gonna make me sound so uncool, but you're still on the younger side when it comes to being proactive about this investing stuff. I was 29 when I started, and remember feeling like I was still ahead of the curve (I'm still only 37 now!) - mostly because people around me are very preoccupied with their W2 jobs. My point is just that you have the luxury of planning long term, and more time to make mistakes. I get the feeling from your original post that you were hoping to make a big move to maximize returns. But just by juicing this one property, and investing the proceeds thoughtfully you can be in a whole different arena compared to your peers in the next ten years (probably sooner). 

@Adam Treboutat, I wouldn't be surprised if your market value estimation is off. Have you looked at comps in your neighborhood? 

Here's the thing, if you sell and don't 1031 exchange, you're looking at a pretty big tax hit in California when you add federal plus state plus depreciation recapture for the last 6 years. It will be a while for you to recover that capital even if you do well with the syndication/index fund strategy. 

If this were 2011, I would have told you not to pay down the mortgage, maybe refi on a 30-year and use the cash-flow/cash-out for investing elsewhere. It also seems like you didn't get the benefits of Prop 13 transferred during the inheritance? But since you're already on the pay down strategy, I think you should at least look at some refinance options. If you don't cash out, you may be able to increase your cash-flow. Then, you can take that plus any extra income you have and put it towards other investments. A more aggressive move would be to refinance, and pull your equity back out so that you can invest a larger chunk of money. Doing a 1031 Exchange is an option, but I'm not sure I would suggest that for you given the current market conditions.