All Forum Posts by: William Thorn

I think it depends on what market you are investing in, type of real estate, experience level and financial situation.  I agree there are always deals out there that can be bought in any market and you can’t time the market.  While I agree you can’t time the market you can make logical decisions based on your situation.  I bought my first multifamily (duplex) in 2010 in San Diego.  I’ll be the first to admit I had NO idea what I was doing.  My underwriting for this deal literally was: Mortgage=$1,200 and Rental Income=$2,400. I didn’t factor in vacancy, maintenance, cap ex, etc.  I just knew I was handy and can fix things so how much can it really be?  Well I ended up remodeling one side myself, putting all the materials on a HD card because I was broke, and getting it rented out which covered the mortgage then remodeled the other unit and got it rented out.  I sold it a few years later to a friend for $340,000 thinking I was a veteran investor and bought a 10 unit.  By this time I had a little more knowledge but I still didn’t know what I didn’t know.  Over the next few years I bought 3 more 4-unit buildings for a total of 22 units in San Diego with a total value of over $4,600,000. My real estate broker is one of the top commercial brokers in SD and has been in real estate for 40 years thought I was a really smart investor so much so that he mentions me in a book he wrote.  Fast forward to 18 months ago when I really started reading books, listening to podcasts, studying everything to do with real estate for hours each day and most importantly realistically evaluating my own properties.  What I found is I started buying when I didn’t know anything and continued buying when I didn’t know what I should have known.  That was a wake up call.  The only thing that saved me is I was buying in an appreciating market.  I listed my 3 4-unit buildings in February and have sold 2 of them.  I had a significant amount of equity in relatively low cash flow properties.  My assumption is the people buying my properties or properties like mine are in the same situation I was in in 2010 except I don’t think appreciation will save them.  In the last year I have made a significant amount of offers in Phoenix and areas in the Midwest but have not had an offer accepted.   What I have seen is people are not being realistic with their underwriting.  For example they are underwriting deals with 5% vacancy on value add deals that have 5% physical vacancy in the market but aren’t accounting for bad debt and down time for unit rehabs so vacancy should be underwritten much higher.  They have low maintenance numbers on a building that is 60+ years old, low or no cap ex, underestimating taxes/insurance, etc.  They haven’t stressed tested their deals to see that the vacancy was 11% in that market just 9 years ago and logically can be 11% if we have another recession.  Their deal might work today but won’t work tomorrow if there is a downturn and vacancies increase.   I feel very fortunate that I bought at the “right time” and I’m selling at the right time.  Will the market continue to appreciate? Nobody knows but I have a lot better idea of what I’m doing now and some of the purchases I did and other people are doing I wouldn’t do knowing what I know now.  It may work out for some but to me no deal is much better than making a bad deal.  Continue learning and networking before you make a decision.  Joe Fairless says the 3 ways to mitigate a recession is to buy for cash flow, have adequate reserves and get long term debt.  

@David Smith

I’m not sure your situation but look into cost segregation. I was looking at $120,000 in capital gains this year from selling 2 apartment buildings. I’m in the process of doing cost segregation with @Scott Roelofs on a different building and it should shelter my gains.

@Dennis Nikolaev

I was using the syndication as an example of cash on cash returns but I’m not investing in syndications as a limited partner.  I’m going to be an active member in any investment I make for now.  There are a bunch of forums on syndications and recommendations on who the good syndicators with a track record are.

I’m not sure what you bought it for but if you have have owned it for 2 years as your primary residence then you have $250,000 free of capital gains single and $500,000 if you are married.  If you put $500,000 into a Multifamily property making an 8% cash on cash return then you are making $3,333 a month positive cash flow plus all the other benefits of owning investment property providing you do your DD and buy the right deal.  Nobody knows when there will be a correction and how extensive it will be, buy when you find the right deal that fits your investment criteria.  I’m in a similar situation with 3 of the buildings I own being 4 unit building which are based on comps.  If we do have a downturn I will potentially lose all that equity I have so I’m selling all of them and taking my equity and buying larger Multifamily properties.   Some people will have different opinions but that’s what I feel is the best choice for me.  I have also done cash out refinances which I really like especially in your situation.  You can still live in your place and pull some of your equity out to invest while still having a manageable mortgage on the townhouse.  If the $300,000 is invested wisely it will far exceed the increase in your mortgage payments.

@Katie L.

@Kenneth Donaghy

Thank you!

Hello, does anyone have a good Real Estate CPA in San Diego they would recommend? Thank you.

@Jay Hinrichs

I agree.  I ended up paying capital gains on the first building because I couldn’t find an upleg.  I’m very cautious and conservative with my money and would rather pay the taxes than make a bad investment.  The absolute breaking point for me in CA is rent control.  When the government tells me how much I can increase rents on my PRIVATE PROPERTY, I’m taking my money elsewhere.

@Jay Hinrichs

@Dan H.

Yes, you both probably have more experience than I do and I respect your input.  My yearly cash flow on all 3-4 unit buildings is realistically about $25,000 dollars and if I cash out and invest with a good GP on a syndication offering 8% cash on cash I’m making $72,000 cash on cash a year.  If they have a good value add plan then my returns are much higher.  I may be wrong but saying prices will continue to climb in San Diego is speculation and speculation has cost many investors a lot of money.  

@Dan H.

I completely agree with the fact that San Diego is good for appreciation but having 3-4plexes that are based on comps, I will not get the benefit of appreciation if I don’t sell high.  I don’t want to assume it will continue to climb significantly in value, I want to take advantage of my equity and move it to cash flowing properties at this point in the cycle.  If we have a pullback I will but again in San Diego.

I’m looking at many different areas in the Midwest but still doing my research.  I ended up paying capital gains on the first building because I couldn’t find an upleg that worked.  I NEVER want to pay the government more taxes than I have to but it was better to pay $40,000 in taxes than overpay by hundreds of thousands.  I’m not going to rush into a marginal deal that might work today but won’t work tomorrow if there is a downturn.  I didn’t do Helocs because: the properties would be negative cash flow if I used any significant amount of equity, I don’t want to own properties in CA anymore because of government regulation and I want to scale to large multifamily properties that cashflow.  If I have a vacancy in a 4 unit building right now then I have 25% vacancy and it’s costing me money.  I own C buildings in C areas with many tenants living pay check to paycheck.  If/when there is a downturn I see my buildings as a liability, not an asset.