All Forum Posts by: Brian Sparr

Hi @Jason Cook -

Personally, I don't think there's anything wrong with the idea of being a renter while also owning rental property. And, I'm not saying that buying a rental property in Selma is a bad idea, but I would suggest you consider another option at the same time...

You'd be buying Selma as an investment property and should expect to put down 20% or more - $24k+. The other option would be to buy a multi-family somewhere in the Triangle, use an FHA loan for the purchase and live in one of the units. You'd drop your personal rental payment ... would have a lower down payment ... and, potentially, would receive as much rent from the other side(s) of the property as you would from the Selma property.

This property just went pending tonight, but is a good example - 2608 Stewart Dr, Raleigh. It's a 4plex listed at $375k - 3 of the units that are currently rented are bringing in $1995/mo. You put 3.5% down ($13k) - an interest rate as high as 4.75% would only have a PI of $1887/mo.

Just an idea...

Hi @Brenda Mercado Baez -

1) I don't know the FL market, so I won't try to comment on the best approach as it relates to SF and MF properties.

2) The number of properties that you can identify depends - take a look at this article about the identification rules - it does a better job of explaining the options than I can.  Understand, though, that you can wait to the last day of the 45-day period to formally make the identification - you don't have to worry about amendments prior to that if you don't want to.

3) Using the term "pre-qual" makes me a little nervous - depending on the lender, that can mean drastically different things.  Did they pull credit? verify income? verify employment? look at tax returns?  Some lenders - especially if they work in very competitive markets - will take a serious borrower all the way through underwriting as part of their pre-approval process.  If they're willing to do this, it allows you to close faster and make offers with more confidence.

Hope this helps ... good luck!

Hi @David Fairall - here's how I'd order my approach:

1) Health and Safety issues (ie, GFI outlets)
2) Domino issues (ie, inadequate gutters that lead to water damage in the basement)
3) Value add items (ie, fresh paint job and kitchen remodel)
4) Whatever's left (ie, automatic sprinklers)

As a landlord, I'd never want to allow an issue to exist that could jeopardize the health and/or safety of a tenant, which is why I'd address it first.  Next comes preventative maintenance - take care of the small issues today that will inevitably lead to big issues tomorrow.  Once I feel confident that I have a solid property, I want to focus on finding ways to increase revenue.  Then, lastly, I'd address any convenience / personal preference items.

Items #2 and #3 might flip-flop depending on the severity of the "small" issue ... if I was confident I could complete the value add item and still address the "small" issue before it turned big, I'd consider it.

Good luck with everything!

Hi @Account Closed -

In simple terms, you get taxed on the difference between your sale price and your "cost basis" - which, for right now, just think of that as your original purchase price.  In reality, the cost basis gets adjusted by different expenses/renovations/depreciation you may have made to the property and the sale price gets reduced by certain expenses ... but let's not complicate this for right now :)  Key thing to understand, though, is that doing a refi doesn't change your cost basis.

You paid $209k and sell for $300k ... that's a $91k gain that you will be taxed on - the Fed will treat it as long term capital gains - depending on your state, it will likely be taxed as ordinary income.

If you've lived in the property as your primary residence for 2 out of the last 5 years, you can shield the entire $91k from being taxed.  If you haven't, you could do a 1031 exchange into other investment property and defer paying taxes on this $91k until a later date.

Hi @Account Closed -

As @Tim Sherrod already mentioned, taking money out during a refi is not considered capital gains - you're taking on debt that will need to be paid back - so there is no taxable event.  Avoiding capital gains because you've lived in a place 2 out of the past 5 years only comes into play when you sell.

My recommendation, though, is that if you're considering doing a refi, do not wait until next summer ... do it now!  You have no idea where interest rates will be next month, let alone next summer.

If you're trying to decide whether to hold or continue renting, we'd need to know more about your goals and the current situation (I'm having a hard time backing into some of the numbers you listed above) ... if this is just about pulling cash out and dropping the MI, do it now.

Good luck!

Hi @Diane G. - thanks for sharing!  I'd love to hear more about how you guys landed at the $61k number ... how far apart were you and the tenant when you first started negotiating?

Hi @Danielle Wolter -

I see this same situation in the SF Bay Area all the time ... here's the process that I would use to help think through this:

Since I don't know your exact situation, I'll make up some numbers that may or may not be close to what you're dealing with ... my guess, though, is that they'll be in the ballpark:

- let's say you bought for $500k ... the PI on your loan might be around $2100/mo
- condo in downtown SD ... you might have a $450/mo HOA fee
- prop tax ... in the range of $525/mo
- insurance ... maybe another $75/mo
- sub total: $3150/mo (and I'm excluding repairs, prop mgmt, etc)
- potential rent: $2400/mo
- cash flow: -$750/mo ... -$9k/yr

You're looking for appreciation, so let's say you hold the property for the next 10 years ... you could be $90k in the hole from negative cash flow at that point (I know that's unrealistic, but this is just an example :).  If that were to happen, you'd need your property to appreciate 18% just to break even. While SD might experience massive appreciation, your wallet won't see it.

Now, compare that to another growth market like the Raleigh metro ... that same original $500k can be split into 2 townhouses that will kick off $400-500/mo in positive cash flow ... use a portion of the $90k that you were going to sink into the negative SD condo and pick up a third unit.  Your total property value goes from $500k in SD to $750k in Raleigh - plus, you're looking at $600-750/mo in positive cashflow.  Even if Raleigh appreciates at half the rate as SD, your total return is going to still be superior.

The kicker to this example ... you're making good money in CA - you're paying a minimum of 9.3% in state income tax, maybe more ... in NC, you'll have a flat income tax at 5.25%.  So, even if the the SD property was generating the exact same positive cash flow as the Raleigh one, you'd be seeing 4.05% less of it.

Hope this helps...

Hi @Barry B. - if you still need help, PM me the addresses and your email and I'm happy to reach out to one of my title reps for you...

Hi @Lois S. - in my opinion, there's no right or wrong answer ... if knowing you can jump in a car and get there in two hours allows you to sleep better at night, that shouldn't be ignored.  

My reason for asking, though, was to simply make sure you go through the thought exercise.  For example, consider the Seattle market.  $150 will get you a round trip ticket from Oakland - a 2 hour flight away.  Do that 4 times a year and you're looking at $600 in plane tickets - add in a rental car - let's just make our numbers easy and say you're looking at an additional $1200 total for the year - $100/mo.  If you could find a property in the Seattle metro that kicks off more than $100/mo over what you can find within a 2 hr drive of where you live, is it not worth considering?

Again, there's no right or wrong answer ... it's just something to think through.

Wish you all the best with your search!

@Lois S. - just curious, if you're planning on having the new property professionally managed, why limit yourself to only looking at properties within a couple hours drive?  Why not open yourself to all markets?