All Forum Posts by: Rob Golob

@Jason Moomaw

I have no doubt you would have loved to have been bought out and walk with $100k cash. However, I doubt you had 100k equity. 
Let alone not 200, not 300, but $350,000 equity!

So perhaps he offers and buys for 500K. (That may or may not be the magic number) Then one could certainly argue a win / win. 
She avoids foreclosure, pockets $250k, and he profits $100k for his trouble. 

@James Thomas

I hope she has relatives and they come after you in every possible legal way.

Predatory purchase.

Theft by coercion.

Theft by deception.

Screwing an unwitting person.

Making these up, but you get the point.

I doubt you have any type of license, but if you did you should loose it for sure.

I have a farm I would like to sell.

It is an investment property with cash rent.

I would like to “exchange” it for a single family rental but want to take cash out.

2012 purchase = $148,000

Value = $260,000

Current loan balance = $85,000

70% LTV refi = $182,000

Cash out = $97,000

Sell for $260,000

Pay off $182,000

Equity for new purchase = $78,000

1031 into a new $300,000 SFR

(Greater purchase price than sale price)

$78,000 down payment

(All proceeds toward new purchase)

Successfully avoid (legally) Cap Gains tax on $112,000

Successfully cash out $97,000 equity

Is this all good, correct, legal, logical, etc?

Comments, confirmation/denial, advise requested.

Thank you

Obviously when one buys a property to rent, the expenses need to be estimated and accounted for.  Is there a flaw to the logic of buying new construction to "control" the costs?

Buy new construction on a 10, 12, 15 year plan.  Exit strategy is to sell at the end of said period and buy another new construction at that time.

Obviously, one should have ample cash reserves as anything can (and will) happen, but literally budget Zero for CapEx.

Additionally, one should be able to budget a relatively smaller monthly / annual amount for repairs and deferred maintenance.

My real experience closely mirrors this.

We built a house ($155K in A Zone in Dayton, OH area) in 1997.  Settlers Walk for those that know the area.  Moved in 1999 and used it as a landlord by default rental.

We did several things wrong, particularly with 1 bad tenant over a 2 year or so period.   Even with that, we really only lost rent revenue and had very little expenses.

Rental period = 13 years , 9 months

Rent collected = $194,718   Rent should have been $210,750  The deficit was poor management, not vacancy.  But I will count that as 7.6% vacancy.

Repair and Maintenance = $8933 = $54/mo = $700/yr = 4.2% of expected rent

NO Capital Expenditure.

So....  Am I flawed here?  Why cannot I assume a similar Proforma on a new construction rental?

Additionally, lower maintenance costs means lower hassle, call outs, etc.

I'm looking to buy at $300K in and rent for $2200 - $2500 in Class A area

Questions, comments, boos, anything else?

Thanks in advance, Rob

Obviously when one buys a property to rent, the expenses need to be estimated and accounted for.  Is there a flaw to the logic of buying new construction to "control" the costs.

Buy new construction on a 10, 12, 15 year plan.  Exit strategy is to sell at the end of said period and buy another new construction at that time.

Obviously, one should have ample cash reserves as anything can (and will) happen, but literally budget Zero for CapEx.

Additionally, one should be able to budget a relatively smaller monthly / annual amount for repairs and deferred maintenance.

My real experience closely mirrors this.

We built a house ($155K in A/B+ Dayton, OH area) in 1997.  Settlers Walk for those that know the area.  Moved in 1999 and used it as a landlord by default rental.

We did several things wrong, particularly with 1 bad tenant over a 2 year or so period.   Even with that, we really only lost rent revenue and had very little expenses.

Rental period = 13 years , 9 months

Rent collected = $194,718   Rent should have been $210,750  The deficit was poor management, not vacancy.  But I will count that as 7.6% vacancy.

Repair and Maintenance = $8933 = $54/mo = $700/yr = 4.2% of expected rent

NO Capital Expenditure.

So....  Am I flawed here?  Why cannot I assume a similar Proforma on a new construction rental.

Additionally, lower maintenance costs means lower hassle, call outs, etc.

I'm looking to buy at $300K and rent for $2200 - $2500.

Questions, comments, boos, anything else?

Thanks in advance, Rob

ps:  He has no valid unforeseen circumstance.  Just thinks the market will drop.....

@Michael Plaks

Thanks for the response.

Follow up question.  Is the above true if he buys a new residence immediately, within a year, within 2 years?  I believe it is since the 2 of 5 rule needs to be met regardless.

As a note, I agree on not giving advice to "the seller."  However, I'm not a party to this at all.  This is for my nephew.

Please confirm for me.

First time home purchase for primary residence in August 2020.

Owner thinks its a good time to sell and sit on the sidelines. and will sell now and not roll the gain into another residence.  Will rent.

I believe it is NOT exempt from any Cap Gain (2 of 5 year rule)

Furthermore, if held less than 1 year it will be Short term Cap Gain.

If held over 1 year, Long term Cap Gain.

If held over 2 years (and lived in) Exemption applies.

Yes / no / maybe?

Thanks

I didn't know that CAP rates would be different in different geographies. In this case, there is nothing "extra" and the CAP rate is generally considered 3% +/- a tad. Thus CAP rate value would be $360K. The certified appraisal is for $261K and there in lies the rub.

Thanks for the replies and relation to real estate values.  That's really what I was getting at though.  Pretend its NOT real estate.  Just a "thing" that pays a dividend and shows appreciation over the last 10 year history.

My point is that one should be able to sell that "thing" for in the vicinity of $360K.

@Mason Moreland

Thanks for the reply.

Yes, I’m asking for the value of the land based solely on income.

As an analogy, I have an asset that pays a net $10,800 net “dividend.”

The asset has steady although not guaranteed appreciation.

How much would one pay to buy that asset?