All Forum Posts by: Jonathan Stone

Sarah,

I am also living in WA originially from the East Bay Area. That said. You do have to think through your options, you said you wanted to take the 500k tax exemption by selling with the 5 year window. If you have 500k in equity, not sure what the actual equity is: would you rather - repurchase your current property and assume and 2.6% rate 

OR

find some other investment that is made with the intention of being an investment

You said the house is large and new - so current chances that you need major CAPEX is low but as this home ages and is in an expensive market realize that those updates will also be expensive. I would guess if you do have 500k in equity you could probably outproduce the cashflow in most markets oustide of CA, and could possibly diversify into more than 1 property.

Just some food for thought.

Any areas you are considering. Take a friend and drive through at night. If you don’t feel comfortable, probably not a suitable investment. If you don’t mind it then maybe it works for you. 

Each person has their own risk tolerance and tolerance for tenant types. There is a reason people can make solid investments in some “higher crime” areas. It’s not usually for me, could work for you. I need my wife to be able to drive by a place and feel safe. 

Unfortunately the Portland Metro is now a speculation market like most of the west coast. Can you put enough work in/money down to cash flow, yes. Most properties are not going to cashflow in most neighborhoods without significant work or low LTV. We have been lucky enough to buy, and take our previous primary and turn it into a rental. Buy a vacation home and turn that into a rental. Those options still exist, you would still be looking at rents appreciating over 5-10 years to really make the property cash flow well but debt pay-down and appreciation could be available if the market continues to grow.

I like the growing suburbs as mentioned above. If you are playing the long game, strong school districts with reasonable commute distances to the economic hubs in the area, just like most other metros.

Yes. Fractional costs. 1/12 to 1/15th of the properties total value on the typical sale. And 1/50th on the purchase side. That Can often equate to 1/3 of equity in a property though. So if I sell my 200k in equity turns out closer to 160k. Then I use another 3k ish on the next acquisition. So I need the return on equity if the new property or properties to be 27% greater than the original investment. 

@Joe Villeneuve

So simply stated you’d reinvest the equity into another higher value deal.

But what about the frictional costs of buying and selling. Or finding a deal that provides an equal or similar return on equity?

 Not a bad starting point. A couple of things I noticed: You are showing property tax of $500 per year, that is less than .5% of property value. I haven't seen taxes that low in any of the markets I have lived in. I don't see holding costs in your calculations nor do I see finance cost from the cash used from original purchase. If this is your capitol on hand then forgive me, but if it is hard money or some other loan, I would include the holding costs and points for that purchase. Given the current credit environment you would be wise to use a cash out refi of 70% for a non-owner occupied property. If you can get better in 3-6 months thats great, but better to not aim to high.

@Joe Villeneuve

1-Value today

Prop 1 500k plus or minus

Prop 2 350k plus or minus

2-Mort Balance

Prop 1-335k

Prop 2-250k

3-Loan data

Prop 1-350k @2.875 30 years (2020)

Prop 2-260k @3.625 30 years (2021)

4-mortgage is being paid from rent exclusively

5-These we’re both personal residences converted to rentals. I paid the mortgage as my residence for each for approx 1 year. Outside of that and the funds are from rents.

@Taylor Dasch and @Joe Villeneuve

You guys both agree that Mortgage paydown is slow and useless:

5- Once again, incorrect. I have purchased 3 properties in 2022 where I did not put a down payment. The initial equity that I received is from two sources: Buying the property at an already discounted rate, and rehabbing the property to force appreciation. The one thing we can agree on is that principle pay down is slow and useless and appreciation is where the money is found lol.

I currently have 2 properties that cash flow little after reserves and expenses: around $100 each. But mortgage paydown as of this month on each is $400 and $600 respectively. If I could find another property that would offer me a similar return today I would likely take it. This seems to me to be part of the reason you can't always compare cashflow. I am exploring 3 markets right now, but If I buy a $150K house and it cashflows $100 after expenses but has $100 of mortgage paydown, that is quite different than a $500k house that cashflows $100 after expenses with $400 of mortgage paydown. I could be thinking about this all wrong, and Joe you have certainly made me consider other ideas on other posts here on the forums. But adding 500/month of paydown to my units seems valuable to me over 5/7 or 10 years.

That is a sizeable rate buy down. I am only poking at the market currently but if that changes or my current LO doesn't offer what I am looking for I will keep that in mind.

@Bonnie Low - Sounds Good! I did consider that area before we went to the Oregon Coast. There are some really awesome and unique properties out there that can do well as @Michael Baum pointed out the cost can be very high. I am sure you will kill it. I keep poking around looking into additional markets as we don't frequent Bend ourselves even though it is well within our normal travel distance.