All Forum Posts by: Scott Albritton

$250,000 exemption is federal and deducted from the gain. Not the sales price.
[Sale Price - (Original Purchase Price + Improvements) = Gain] 

In order to benefit from the $250k exemption, must be primary residence, lived in 2 out of the last 5 years, can use this once every 2 years.

Looks like there's no capital gains Tax in Washington. (still federal though depending on income bracket)

hope that helps some!

Looks like you removed CapEx in Proforma and increased repairs/maintenance by only $3,500? Any reason to not account for a larger CapEx?

Landscaping and Pest control seem cheap to me, but not knowing location, there's no way to actually know. 

What is current ask price? NOI/Purchase price = CAP rate (what's typical in the area for similar building types/unit mixes

Can the area demographics support the rental increases? 

Dan, I appreciate the thoughtful response, many things to consider and certainly a lot of great information.

For the expenses, yes at 33% I would agree it is a little thin.

You bring up some great points as it relates to opportunity cost and the payback period with a large down payment. Something to definitely consider evaluating more. I appreciate your viewpoint and sharing your thoughts! So thank you for that. 

Do you typically reevaluate your current returns based on the net equity you have in your properties? I've found a lot of investors focus solely on the return they're achieving based on the initial investment in the property.

i.e. - 12 years ago you purchase a duplex for $400,000 with NOI of $30,000, for a return of 7.5%/year. However, that property has now appreciated to $1,250,000 resulting in a net equity of say $950,000 after mortgage and closing costs. Their actual return is 3.1%/year on the equity in which they've acquired over that time. With completing a 1031 exchange into a more expensive property, their depreciation table would reset as well, providing an even greater benefit.

Curious to hear your thoughts. 

Getting back to the original post, what would be a strategy you'd explore given his circumstances? 

Thank you for the reply Dan. I appreciate the perspective and insights. 

In the current market, it's pretty much impossible to have any positive cash flow in the 2-4 unit space with long term rentals, unless you're putting ~40-50% down, not only focused on the cash flow per se, but rather simply not being in the negative. As you're very aware, appreciation here locally has skyrocketed in the past ~4 years. I don't believe we'll continue to see that trajectory moving forward over the next 4 (you never know though!)... 

You've put yourself in a great position to capture both appreciation and increase in rents simultaneously, which is a great place to be. For investors looking to purchase properties here in SD at the moment, 20-25% down will most often leave you with negative monthly cash flow. 

With that being said, appreciation is certainly something to always consider here in SD.

Example of current property for sale, 

$1,800,000 asking price (25% down) - 4 units 

$10,200 total monthly rents (pro forma) - rental market has seen softening as of late

$9,770/month after assuming 5% vacancy rate.

$8,981 mortgage at 7%
$2,918 expenses monthly 33.38% of Gross rental income (Prop mgt, maintenance reserve, utilities, Prop Taxes, Insurance, other)

$6,852 NOI/monthly

($2,129) negative monthly cash flow..

Same scenario with 50% down, 

$864 positive monthly cash flow

Not saying it's the best use of capital or the only way to do it, instead providing an example using an available market opportunity to share what the numbers look like.

Welcome to San Diego! 

Near the 56 is a great place to live. As you've mentioned, great schools, area in general is nice and it's centrally located. Other areas nearby that are great include, Cardiff, Encinitas and Del Mar. 

As for your scenario, how many bedrooms would be ideal? If you elected to rent, would a house be the only considered option? Would you entertain a condo?

We've seen the rental market soften here in the greater SD area as whole, prices may continue to soften towards the end of the year. 

I'd consider renting for a period of time and identify a particular area you'd like to eventually buy. From an investment perspective, I'd look to invest in small multi-family 2-4 units with a larger down payment ~50% or more (only way to produce positive cash flow here at the moment) 

Investing in San Diego right now isn't driven by immediate cash flow. If cash flow is the main goal, there are many other markets to consider before San Diego. With that being said, if you're comfortable with a long term hold, San Diego and especially coastal, will always be attractive imo. 

Best of luck, San Diego is a great place to be!

 Hi Paul, 

Good stuff! 

For your current place, what is the cost basis for the property and what would it be worth if sold today? 

From a sales perspective, if you're married ($500k) or if single ($250k), you'd have a portion of the exclusion (%50) assuming the square footage is the same for each unit (assuming a duplex)

The remainder (%50) could be 1031 exchanged into another property tax deferred. 

Or, if possible, move into a different property, hold onto this property for another 2 years or so, (your circumstances have now changed) and you'd like to sell your investment property, 1031 all proceeds into a "like-kind" property and benefit from the 1031 tax deferral. 

Best of luck, seems like you're on a great path!

Hi All,

Looking to buy a property here in San Diego, CA. The property is zoned R-1 single. My question is, can I possibly get the lot rezoned to accommodate up to 4 units? The house would be divided amongst itself and all be connected. Adding some walls, kitchens, etc to make it 4 total units.

Do I have to get it rezoned? Is the a better way to do it?

Thanks in advance,

Scott

I will have to look into that some more. Thank you for the info! 

Thank you all for your replies! 

Sounds like I will have to explore this again when the time is right. I will move on and look for other opportunities! 

Thanks Mike! 

What would be a decent interest rate? 10%?