All Forum Posts by: Yun Han

Another question is… Which option would be better to cover the missing mortgage payments: a HELOC or forbearance?

Hope everyone is having a wonderful holiday season!

Unfortunately, the end of 2024 has brought a string of financial challenges for my family, and I’m feeling the pressure.

Two weeks ago, I was laid off from my job. Thankfully, my wife is still working, and we have a few months’ worth of emergency funds to cover our expenses. Initially, we thought this would be enough to get us through until I found a new job.

However, things took a turn today. I own one rental property with a mortgage of $3,400 and rental income of $3,300. After a long and complicated history with the current tenant, I’m now starting the eviction process. Since the property is in Los Angeles County, I expect the eviction could take 4-6 months, followed by another month or two to secure new tenants. That means I’ll need to cover the mortgage for the next 6+ months entirely out of pocket. With this additional expense, that would mean depleting the savings we’ve worked so hard to build over the past few years.

To add to the situation, my wife and I are expecting our first baby in just two weeks!

I’m turning to this forum for advice on what to do with the rental property. Here’s what I’m considering:

• I plan to call the mortgage company tomorrow to explore any assistance options they might offer.
• Should I look into selling the property? Managing it has been exhausting, especially with the tenant issues and LA’s landlord policies.

Here are some details about the property:

• Purchased for $650k, with about $90k spent on renovations.
• Current Redfin estimate: $1.1M.
• Mortgage interest rate: 3%.

Would selling it “as-is” during the eviction process make sense financially? Or should I stick it out and keep the property?

For additional context, here’s a snapshot of our financial situation:

• We’re paying the mortgage on our primary residence.
• We have one car with ongoing payments.
• I anticipate it could take up to three months to find a new job.
• I’ve already applied for unemployment benefits (in PA) and am waiting for approval.

I’d greatly appreciate any advice or insights. Wishing everyone a happy and peaceful holiday season!

I am curious if you had found one! Can you tell me how it went? 

It’s been few years.. wondering if you found one. Can you recommend if you did?

My lease to the tenant contains the below term:

“TENANT PROTECTION ACT OF 2019: This property is not subject to the rent limits imposed by Section 1947.12 of the Civil Code and is not subject to the just cause requirements of Section 1946.2 of the Civil Code. This property meets the requirements of Sections 1947.12 (d)(5) and 1946.2 (e)(8) of the Civil Code and the owner is not any of the following: (1) a real estate investment trust, as defined by Section 856 of the Internal Revenue Code; (2) a corporation; or (3) a limited liability company in which at least one member is a corporation.”

I am wondering if this counts as official Notice of Exemptions in Los Angeles county. 

Would I need to deliver a dedicated official Notice of Exemption to the tenant before being able to raise the rent, free of the rent caps?

Thank you everyone! I will keep records of as much as possible and prepare cash reserve for the worst scenario while letting PM to handle the eviction. 

Hello,

I recently received news from my property management (PM) company that they have initiated an eviction process against my tenant due to non-payment of rent, despite several attempts to resolve the issue. While I'm relieved that my PM company guarantees my rent until the end of the lease term (November), and they will also cover up to $15k in the eviction process, I want to prepare for any potential worst-case scenarios given that I live in Los Angeles, California.

Currently, the PM company is waiting for the attorney to draft the eviction application, and they have promised to keep me informed of any updates. However, I am curious about what else I can do to ensure the process goes as smoothly as possible.

If anyone has any advice or suggestions on what I can do to prepare for any potential issues, I would greatly appreciate it.

Thank you.

I am working on calculating the depreciation basis for my rental property, and I am currently analyzing two appraisals. The first appraisal was conducted in 2020 when I purchased the property, while the second appraisal was done in 2022 for the purpose of removing PMI.

(I am assuming the "opinion of site value" equals the land value. Please correct me if I am wrong..) 

According to the 2020 appraisal, the land is valued at $530,000 while it is valued at $410,000 in the 2022 appraisal. It seems little odd that the land appraised in 2020 is too high, making the land value 80% of the purchase price. This is resulting the depreciable basis of this property to be too small... Using the current calculation method, the annual depreciation would only be $4,000 per year ($125k/30 years).

Even with the increased property value in 2022, the land is valued less than 2020's. This raises concerns regarding the accuracy of the land value appraisal in 2020.

Given these circumstances, I am uncertain whether it is still appropriate to use the 2020 appraisal numbers as the depreciable basis. If someone can provide insights/advice, I would greatly appreciate it... Thanks!

(This property is in Los Angeles area, specifically Torrance).

Quote from @James Hamling:

@Yun Han you havn't supplied enough information for anyone to give an intelligent answer, only knee-jerk feeling based opinions. 

For example, what is the interest rate your locked in at? Is your current cost of $ sub 6%? Your not going to get that going forward. 

Are you using depreciation? How much is it? 

Have you looked at Cost Segregation and accelerated depreciation? What kind of $ impact does the use of depreciation have on your taxes? 

Yeah, you could sell, 1031 into some other "cash-flowing" properties, clear as much as a few hundred per month, but depending on your situation and use or non-use of depreciation, that more cash-flow could COST you thousands per year. Yeah, sometimes -$200mnth results in highest ROI after depreciation.

And what is the area like? Is it flat, ascending, descending? Is there room for growth or is it capped out? 

Your taking 1 item, 1 alone, putting on blinders of the 40+ other factors. Decisions made with such tunnel-vision are all but certain to end regrettably. 

I apologize for not providing enough information earlier. The loan has an interest rate of 3%, and the property is located on a flat area with a large lot in the R2 zone of LA County, which permits secondary residential units. In terms of tax strategies, I used standard depreciation last year, which amounted to $1500 (not sure if it matters but I received only one month of rental income that year). However, I am eager to learn more about cost segregation and accelerated depreciation, as suggested by your comment. 
If you have any additional advice based on this information, please let me know. I appreciate your insights and guidance on this topic!

Quote from @Bill B.:

Spending $40,000+ in selling costs to save $200/mo in negative cashflow (obviously still producing income and tax savings) doesn’t seem like a great first move. 

Unless you’re in such desperate financial straights you can’t afford the $200 why sell unless you think it’s going to start going down in value? Would it change your world if you raised rent $300 and became cashflow positive? I doubt it.

If you don’t think you’ll ever move back you can certainly sell just because it’s not an ideal rental or you have other uses for the money. But a built in $40-$50k selling costs alone with another $30-$40k in taxes if you sell without doing a 1031 seems to make selling a bad idea. If you found a great deal closer to your new home you could do the 1031, but remember California will still want their 10+ % in the future. 

 That is a valid point. I had never gone through a selling process and I guess selling cost would still occur even with doing 1031.