All Forum Posts by: Frank Jiang

Your market can heavily impact how easy it is to find a property with decent cash flow, so it's possible you just live in a good environment.

That said, there is a very serious trap that you can fall into by following these rules of thumb.  Cheap (read D-F class) properties fulfill the 1-2% rule very easily.  However, If you invest in these very cheap D-F properties, reality often underperforms the paper proforma returns for a couple of reasons:

1) Tenant class is lower, leading to higher turnover costs, increased risk (especially in COVID) of non-payment issues

2) Capex costs. For some reason, all calculators take capex costs as a % of rent. This is stupid. Capex is determined by the cost of a large capitalizable item divided by its useful life. A roof or a water heater costs about the same to replace for a small house as it does for a larger house, meaning that its cost is a higher percentage of rent than a larger house would be (and a higher percentage than what most online calculators will say).

This isn't to say that you can't make these work or even that the houses you're looking at are like this, but it's just something to consider when analyzing your properties.

I don't mean to say this to be mean, but your question shows a fundamental lack of understanding of how interest rates work.  If rates go up, the 30 year note doesn't just stay at 2%, these things move in accordance with each other.

When rates goes up to 5%, this means that anyone can get 5% return on their money basically risk free (by buying treasure bonds). Your private funding source would have to be pretty dumb to lend you money at 2% in a risky venture like real estate when they can get 5% risk free.

You can currently borrow money at ~3% interest from an institutional lender, which is a smoking deal.  Why would you wait for money to be more expensive to buy?

I'm under the general impression that QOZ funds are a terrible place to park your money. Assuming a cap gains tax rate of 15%, you're holding your funds in an illiquid asset for 10 years just to save 15%, or an IRR of 1.6% (math at the bottom).

Now, an extra 1.6% gain would be great if it were free, but QOZ areas are QOZ for a reason. The underlying assets would be designated C class properties at best.  Would you rather invest in an A class property that generates 7% return, or a D class property with on-paper 8.6% return?  Honestly, this is a no-brainer to me.  You'd have to pay me a hell of a lot more than an extra 1.6% more on my money to take on all that additional risk.

The correct way to invest in QOZ is when you're highly familiar with an area and you are already making a gentrification bet.  QOZ is the cherry on top of the sundae you're betting on.

Your basis is the purchase price of 230K.

Since this is your primary, as long as you have lived in the house for 2 of the last 5 years, 500K of that gain is exempt from taxation (500K is for married couples, which I assume you are based off of your lovely family photo).

Fun fact, most banks don't actually check the dating on checks.  You could have deposited all 12 of those checks and they would have tried to cash them immediately.

It's nice that this worked for you, but there's no way I would agree to this if I were in the tenant position.

It's 50 (carry -2) + 25 (carry +2) = 75 + 0 adj (carries cancel out).  Mental math is always easier if you round to a number that's easy to work with in your head.

I am neither a lawyer or a tax expert, but I think this is a terrible idea.

1099 represents income.  If you issue a current tenant a 1099, what's to stop them from going to court and saying that they are no longer in arrears in rent?  The 1099 is basically proof that you "credited" them the rent and they no longer have anything due.

If you issue this to a tenant you've already evicted, you've just lost all hope on collecting any sort of judgement just to spite someone.  There's literally no upside to doing this.  Treat your business like a business, leave the emotions at home.

I mean maybe, it's technically connected via Friars, which is a major artery street, but I don't know if it's close enough to have much direct impact.  I really don't know enough about it tbh.  I think the new Civita Park addition is a really nice addition to the Mission Valley area and that's much closer.

Hi Oscar!

I like Linda Vista, Bark Park & Bay Ho.  Linda Vista in particular has some MF/duplexes/4plexes and seems like it's been on a steady upward trend for the last 10 years.

This is an odd one.  I agree with you that cutting every cost in half and saying "that half's for the house" is completely bogus.  I think the best way to continue valuation is to add revenue and expenses from the house as if it were a rental and then add in all expenses, that way you get a full P&L picture and it negates the weird game the seller's trying to play with the expenses. So you would produce a proforma P&L that looks like this:

Revenue

- Revenue from house

- MHP Revenue

Expenses

- House-only expenses

- MHP-only expenses

- Communal expenses

Then you can figure your cap rate based off the entire property.  Be mindful to accrue for future replacement of all those septic tanks.  Those things aren't cheap.