All Forum Posts by: Frank Jiang

Old thread, but great place to drop a quote!

Keep all balances under 30% of maximum.

Consider getting a personal line of credit and use it the same way as you describe using your credit card.  Similar to investments, you want your debt to be "diversified."

Consistently request credit increases with the credit card.

Assuming you've stayed current on these accounts, ask any company who has billed you (phone, utility, cable & internet) to report your payment history to the credit bureaus.  Sometimes these are left off on reporting.  They are not obligated to do this but some may be cooperative.

Hope this helps!

You're undervaluing your time imo.

But at the 6% management, along with the other information you provided, the deal just looks mediocre. 14% levered IRR, ~7.5% cap rate. Not fantastic but also not terrible. Increasing it to properly account for your time invested makes the deal much less attractive as a hold.

With your current numbers, you're looking at ~15% Levered IRR. While this looks great, I want to add that $550 per month sounds pretty optimistic imo. I don't know what taxes, insurance, and PM fees are like in your area, but at the least the PM fee is always higher than expected because of placement fees and this can eat into your profit very quickly.

@Andrew Lanoie

Drew's Post was very good. Only thing I wanted to add was that I don't see PMI in any of the assumptions. Wouldn't there be an extra ~$75 monthly expense incurred for mortgage insurance since he's putting less than 20% down?

Oh I forgot the 40k initially invested.  This amount would lower your total capital gains.  You may be able to allocate that 40k depending on which part of the property you spent the money on but this is totally outside of my knowledge at this point.

So when you sell a duplex or other property with apparent segregation, you will get the Capital Gains Tax Exemption on half the property, while the capital gains on the other half will be added to your taxable income.

So assuming a 650k sales price, you get a total capital gain of $265k, half of which (132.5k) will be exempt because you qualify for both the ownership and use clauses for half the property.  The other 132.5k will be taxable.  Some of the 132.5k should be reduced thanks to depreciation.

More details on home capital gains exemption here:

http://www.irs.gov/taxtopics/tc701.html

Hope this helps somewhat!

Can't help you too much with a lot of your specific questions since I'm relatively new to investing myself, but one of the most important things for your situation is that you don't have to pay tax on capital gains up to $250,000 on your primary residence if you live there for 2 years.

I see so many reply posts focused entirely on return.  For investment instruments, the goal is not to maximize return, but to maximize your risk / return ratio.  Modern portfolio theory suggests diversification because you can use uncorrelated assets to reduce risk while maintaining your return.  For example, buying a stock with 10% return and 10% SD and a different, uncorrelated stock with 10% return and 10% SD can create a portfolio with 10% return and only 5% SD.

To answer your original question, I think it's unhealthy to think of RE as "better" than the stock market.  It's a much better vantage to see RE as a unique asset that likely has low correlation to other investment assets that you can use as a tool to maximize your risk / return ratio.