All Forum Posts by: Kyle K.

I don't think anybody here investing with the expectation of appreciation is doing so foolishly. Just because James Park thinks some of his properties may double in value in 10 years does not mean that those properties don't cash flow properly. I would be willing to bet that he would be happy with his investments even if they DIDN'T appreciate, because he's still building his capital through principal paydown and cash flowing rental checks.

Regarding investing for retirement, I still think those investing in 'A' areas will be better off than those investing in lower tier areas. Why? Those 'A' areas will remain desirable places to live, will maintain their values and attract desirable tenants for years to come. Perhaps overlooked is the fact that many of those homes being acquired in 'A' type areas are newer and/or more modern and, thus, less likely to face functional obsolescence down the road in retirement. Thus, 'A' area properties set you up better for retirement (when you don't want to have to worry about your properties).

Ulrich Burke That is one of the risks of purchasing a property with HOAs. But, you can learn everything you need to know about an HOA's financial status before purchasing a property.

There are more factors than straight cash flow when considering an investment property. After all, one may be able to get $800/month cash flow from a $40k property, but that doesn't mean I would consider that a good investment.

If you can responsibly increase the credit limits on your credit cards, this is a start. Of course, paying your credit cards on time (or any credit account on time) is the true key. Increasing your credit limit on your credit cards (while maintaining your average credit card balances approximately the same) is probably the easiest way for anybody to increase his or her credit score.

To answer your question, yes there are ways to purchase a condo as an investment property. It seems that many newer properties belong in communities that are governed by HOAs. This can be viewed in a positive or negative light. On the plus side, this generally ensures that all homes in the subdivision or complex are maintained at a pretty high standard. On the other hand, it sacrifices control. HOAs are not deal breakers in the real estate investment realm. If you want to get into newer properties, HOAs are often the norm. If the numbers work and long-term projections work in your favor, whether or not a property has an HOA doesn't matter.

Cheryl C. Your point is well taken and valid. There is no set rule for what approach is best because it completely varies due to individual goals, income, strategy, etc. This is why I think it is very important to have an real estate investment savvy accountant.

Loss carry-forward surely diminishes every year, unless you add to it year after year. An active participant can't take any losses against his ordinary income if he makes over $150,000 so he could be carrying even more paper losses forward every year. This could really add up.

The main point I want to make is that there may be very good options for long-term real estate investors other than the 1031 exchange. What will work for one won't necessarily work best for another.

I think James Park hit the nail on the head. I've experienced lower end rentals in 'C-D' areas, but also rentals in 'A' areas and, in my opinion, there's no contest. Higher end areas are the only way to go, especially if you are a buy-and-holder.

Some have mentioned that it is best to invest in up-and-coming areas for the greatest returns (presumably from appreciation). Ideally, that would be the way to go. But, realistically, it is extremely difficult to truly predict (and be correct!) up-and-coming areas. Sometimes, these areas never reach their anticipated trajectory. Other times, it takes YEARS longer to materialize than anticipated. Investing in up-and-coming areas may potentially provide higher profits, but they also carry more risk. Considering the fact that many invest in real estate to mitigate risk en route to a secure retirement, I'd stick to investing in established, high-end areas where you can pick up some beautiful properties sporting attractive price-to-rent ratios.

The utilization of leverage in higher end properties--vice paying cash for cheap properties-- only helps to amplify one's returns. I can't believe one would suggest paying cash for properties instead of using a mortgage. Sure, having a mortgage increases your "risk". But, if you're buying fantastic properties in stellar areas with an economy prepared for long-term stability and prosperity, utilizing a mortgage is anything but risky-- it is essential to accelerating your wealth. And that's the main reason we invest in real estate, correct?

This may come across as a cliche, but the answer is "it depends". It depends on your current income, your passive losses carried forward, your goals or endgame... the list goes on, but a decision shouldn't be made without talking to a competent real estate investor orientated accountant.

For example, some may want to one day sell their investment property to use the proceeds for some purpose. To avoid taking a huge capital gains/ depreciation recapture hit, they could use passive losses carried forward to off set most or all of their capital gains. They may be able to utilize such a strategy by doing things such as cost segregation.

Another thing to consider is how 1031 affects your basis and depreciation which definitely affects an investors bottom line. For this reason, I'm working to make sure I never have to do a 1031 exchange. It just wouldn't be beneficial.

Great topic. Right now, absolutely because I have lots of cash, Hugh income and a relatively small portfolio. If I purchase another property in a couple months, I will be stretched if my whole portfolio went vacant. But that's a small probability and one that I can handle. But this topic gets me thinking

David VanSteenkiste and Joe Delia: How long have you had your policies and have they lived up to your expectations? Also, why did you choose your particular policy over comparable policies like an Equity Indexed Life Insurance policy?

Part of what you said is not necessarily true. There are many good rentals that manage to generate passive losses. Some utilize cost segregation depreciation to virtually guarantee passive losses even with astronomical cash flow in the early years.

You're right, though, that many don't take all tax situations into account especially depreciation recapture. However, high wage earners that can't take passive losses against their regular income can save those unused losses to use against depreciation recapture and capital gains to greatly reduce or eliminate taxes AND step up their basis by avoiding 1031 exchange.