All Forum Posts by: Ryan Lam

 That’s another really good point with the loan but down. I haven’t done the math on it, but we purchased in 2019 so we’re still very much in the earlier years of the amortization schedule so payments are light on the principal pay down. 

We were looking for more space. Originally we figured if we were going to spend the money, might as well also get into a nicer neighborhood and better school district. The current area is far from bad, so the back up plan would be to stay and build up. The hard part with staying is that we don’t see ourselves living here forever; we could, but will always think in the back of our minds “i’d rather live here or there” although I know that is something that is always going to be the case to some degree. 

 $1.7MM would be the lower end, where we could swing it at ~6.5% on a 30 year fixed without any lifestyle changes. 

The closer we get to $2MM, doable but there probably needs to be some sacrifice on the lifestyle side. 

Keeping both properties and using our existing heloc was a thought, but the numbers didn’t work out. Assuming our current is worth $1.4MM, we’re at about $600k in equity. We have a heloc from a little while back, I’m trying to remember but maybe $250k range. The problem is that market rents aren’t enough to cover the mortgage as we would be about $1k/month short. Then you throw the heloc interest on top, that becomes more challenging. I could make the argument that it is an investment so that $1k/month isn’t entirely lost in the long run, but I also feel like finding cash flowing properties would be a viable alternative. 

Also the big kicker is the capital gains exclusion. That comes out to ~$400k that would be excluded from capital gains tax, which would account for about $60k. If we held it beyond 3 years as a rental, this opportunity goes away. 

We’re in a good neighborhood in San Jose. Median sale price ~$1.7MM. The appreciation play is there. 

Have you found any ways to work things out if the rents aren’t enough? 
we thought about renting by the room, but that may not even be enough extra to be worth it. 
we also thought about only selling some equities (stock) and using some HELOC, with the intent of further selling equities if needed. But that is a lot more unknowns, heloc rate, stock market performance, tenants, etc. would all be variables difficult to control at once.

no specific timeline, but within the next year sounds reasonable. 

 That’s a great point about securing a lower starting point for property taxes, especially if I’m bullish on real estate here long term. 

Curious to get other perspectives on this topic. I’ve been throwing around the idea of buying another primary residence (upgrading), but the current mortgage rate makes it a little tougher of a decision. 

Background:

Young family living in CA (Bay Area). 
We own our current primary residence with a 30 year fixed mortgage at about 3.25%, purchased ~$1MM, worth ~$1.4MM.
We want to upgrade homes, planning for a growing family. 
Looking at ~$1.7MM-$2MM (interests rates do have some influence on this). 
We invest in real estate (buy and hold) out of state. The only real estate in CA is our primary. 

Options:

1. Sell the current primary residence, take advantage of $400k tax free (capital gains exclusion), use the proceeds to fund the down payment (20%) on the new house. Downside is that the new house is probably going to be just over double the current mortgage rate. 

2. Keep the current primary residence as a rental, liquidate other assets to fund the down payment on the new house. The positive side is that we hang onto a historically low interest rate, and would eventually cash flow sooner with rents rising over time (who knows how long). The downsides are that we aren’t too keen on owning rentals in CA given potential tenant issues, the lack of cash flow, etc. Appreciation, while nice, would also come into play on the new primary residence. 

I understand the part of the discussion which comes down to staying more invested in real estate versus other assets (primarily equities). 

The real question comes down to whether or not it makes sense to give up the low interest rate. So far, more signs are pointing to yes. 

- We would be able to upgrade our primary residence. Of course there is a non-financial aspect to this decision. 
- We stay invested for future appreciation on the new primary residence. If all goes well, we probably would live there another 5 years or so and hopefully upgrade again. 
- We take advantage of the capital gains exclusion. 
- We stay a bit more liquid, given it is easier to sell out of the equities we hold versus having to tap into equity if we kept the current primary residence. 
- We don’t have to be landlords in CA, at least not feeling like we’re stuck in that situation. 

Am I missing anything?

Another one from San Jose!

Sounds like there are a lot of moving parts in this scenario. Not necessarily a negative thing, but it might be a good idea to really narrow down on strategy and tread carefully. I’ve heard plenty of stories of CA investors jumping too quick into out of state investing and it almost seems like most people bite off more than they can chew. Consider in this situation you are new to real estate investing, investing out of state (pretty much across the country), taking on rehab, learning a new market, building a new team, have a full time job outside of real estate, and pursuing medium term rentals (higher rents are nice, but just be mindful it can be pretty different from long term rentals). Not to say you haven’t thought about these things, and not to say it isn’t possible, but that could be a lot for anyone’s first swing at real estate investing. 

I work a full time job, invested out of state as my first venture into real estate investing, started building some teams/connections, really studied one or two markets, and actually unintentionally stumbled upon some MTR. But I will admit I was very cautious when getting started. Being more “disconnected” (at least geographically and knowing the ins and outs locally) from the properties really adds a different spin to it. 

 A bit challenging to advise on the “ideal” out of state location as everyone’s definition of ideal can be very different. As examples: some prefer to invest in areas they may have grown up in and are familiar with, some may choose to invest in areas where they have friends/family that can help keep an eye on things, some might invest in areas they can easily hop on a flight to get to, etc.

Might be a good idea to start by mapping out your goals. Prioritizing cash flow, equity, STR, buy/hold, self managing, etc. This usually helps to start narrowing down what other locations you might consider. At the same time, as you focus on specific areas, it makes the next step a bit easier when it comes to researching a potential team.

With location(s) identified, it is a good idea to start understanding the area/neighborhoods better. Some might even fly out and spend some time exploring. Another helpful piece is starting to build that team. If you connect with a good local real estate agent, that usually helps as a good start. 

 Lots of great resources here. I’m local to the Bay Area as well. Learning and networking a lot here has helped along the way. Best of luck with everything!

@Daniel Pierson

Currently Central FL (Ocala) and IN. 

At first, the thought of buying sight unseen terrified me. Working on another deal at the moment, really trying to get this portfolio built up. I was fortunate on the first one since a friend of mine, who has been investing much longer, was in FL checking out properties so they were able to help me get some eyes on the place. Now that I’m getting more comfortable with the teams of property managers, real estate agents, and lenders, I’m hoping it will be a process of rinse and repeat. 

Sounds boring, but sometimes boring works! I talk to so many new investors, or potential investors, and one mistake I see people in high priced areas like the Bay Area make is thinking the rest of the country should be operating the same way the Bay Area is. They end up searching, waiting, for unicorn opportunities and either don’t take action or take way too much risk than they’re comfortable with. 

Following. Hoping to gain some insight on this as well. I am in a similar situation starting to look at NC from out of state. 

So far it seems like the research triangle is a strong market, the Piedmont triad is a little cheaper, and Fayetteville a little cheaper. Haven’t looked into specific neighborhoods. Cash flow vs appreciation would also narrow down the focus to specific regions. 

One challenge I have run into was trying to locate reputable property managers. I’ve reached out to a few a while back and didn’t hear back from all of them. I would imagine it helps on the property management side to narrow down a specific market because it seems they usually cover  one of those regions, not multiple. 

One big lesson I learned: If you can, network with people who have successfully done it out of state. That helped ease a lot of the fear of operating in different parts of the country. If someone you trust has done well with a certain local team, and you add your own research/due diligence, chances are you’re headed in the right direction. Sounds simple enough but in practice it helped way more than I could have imagined.