All Forum Posts by: Nick Salemme

Thanks, everyone. Definitely worth considering a HELOC or cash out refi. Jason Lee this is located in Weehawken, right near the border line of Hoboken.

BP community, I’m having trouble deciding whether to rent my condo or sell it. I’m going to lay out all the numbers here and hopefully some people will chime in with their thoughts. 1 bed/ 1 bath condo in north New Jersey (~10 min bus ride to midtown Manhattan) May 2016 Purchase price: $270k Down payment: $54k (plus 10k in closing costs) Current market value (best estimate): $325k Mortgage remaining today: $205k Cash flow per month as rental: $300 The way I am looking at this is I am deriving my “net equity” (net of selling closing costs) to be: $325k x 94% = ~305k, less 205k (mortgage remaining) = $100k net equity. Therefore, my RoE on an annual basis is $300 monthly cash flow x 12 = $3,600 divided by my net equity of $100k = 3.6% On one hand, it seems like I could use that $100k elsewhere and likely beat 3.6%. On the other hand, the location of this property has seen very consistent appreciation and over the long-term is highly likely to continue going up in value at a higher rate than most other areas of the country. What are your thoughts?

I am in the process of renting my current principal residence out and buying another home for myself to live in. I will have lived in my current home for 2 years on May 26th, 2018 (my closing date was May 26, 2016), although my drivers license date/date of address change is technically June 3, 2016. I am wondering what date actually matters to the IRS for me to reach the 2 year mark, and whether it matters or not if I close on my next home prior to these dates. My plan is to rent out the unit that I have lived in for 2 years and retain the option to sell for the following 3 years (given section 121 allows you to exclude the taxes on up to 250k in gains as long as you have lived in the unit for 2 years out of the past 5 years) without having to pay tax on the gains, if I do end up deciding to sell.

If anyone who has used the section 121 exclusion can help lay out how it Is actually applied and what steps I may need to take now in order for me to keep these great tax exclusion benefits in the future, that would be very helpful. Thanks, everyone.

Thanks @Dave Foster - A good article on this that helped me to understand the exclusion better is:

https://www.biggerpockets.com/renewsblog/2016/05/01/how-the-section-121-exclusion-can-boost-investor-returns/ by @Brandon Hall

Thanks @Robert Motch - I am definitely considering house hacking as a good option and agree that selling would really only be in the case of a lot of appreciation and when the cash flow is very slim. I just like the idea of keeping a lot of options open in case it does make sense to sell in the near future.

Thanks @Greg Moss - It is definitely hard to find good deals in this area but I think it can certainly be done if you are patient; I am personally just not a fan of the B/C neighborhoods and feel like there is more risk there. I also am planning to be living in my investments so it has to be an area I am willing to live - the plus side to that is my future tenants will likely (hopefully) be similar to myself and there will be less problem tenants (more NYC commuting full-time 20 to 30 something year olds, I hope). Also, renovating yourself is definitely the way to go if you can.

Curious on everyone's thoughts on the following strategy I am considering. Note that I work full-time in NYC and live nearby in NJ and want to do real estate on the side as a long-term play and ease into investing. I have already bought my first unit (primary residence) in mid 2016.

The strategy I am considering is simple. Buy a unit (condo, SFH, etc.) as a primary residence in a relatively nice area (but also with a high likelihood of appreciation) that would cash flow in today's market if it were to be rented out. Live in it for 2 years and then buy another and rent the first unit out. In 2 more years do the same thing again. At this point, consider selling the first unit depending on the current market/my need for cash or continue renting the unit out. Continue this cycle of buying every 2 years and re-evaluating whether or not to sell some of the units that have already been lived in for 2 years. Along the way, most of the purchases will preferably need work done (my dad is a contractor) and those can be sort of a longer live-in-flip/rent strategy. Once I have accumulated 4 or 5 units, I want to start using the cash flow and any cash received from any sales to pay down the mortgages. The end goal is to have roughly 5 rental units that are completely paid off and can help supplement my income and potentially give me the opportunity to branch into a different career/lifestyle.

The main reason behind the 2 years of living in the units is that per U.S. tax code 121 (exclusion of gain from sale of primary residence), if you have lived in a unit for 2 of the last 5 years, an individual does not have to pay tax on the capital gains for up to $250k of gain ($500k for married couples). Also, 2 years gives me enough time to save up enough cash for another down payment, without cutting into my excess cash reserves/vacation savings. Another reason for this strategy is that when buying as a primary residence, the financing terms I can get are much more favorable and in turn, increase the future cash flow due to the lower monthly costs.