Investing 102

[Flash68]

Originally Posted by Vegas69

While I'm building my new house, I'm living in home we rented for a few years to convert it to a primary residence.

Love this strategy!

One I often used to read about was 1031 exchanging up and up over the years into more valuable properties and then at the very you trade a large apartment complex (likely holding) into your dream mansion SFR, then rent it out for a year before moving in to then recapture that 2 of out of last 5 primary residence designation. I think it still holds true as a viable option but that was awhile ago.

[Vegas69]

Yep, I had similar thoughts at one time as well. While I have utilized a 1031 before, I bought this one with Camaro money.

You know how those custom projects go. They always cost more than you thought they would up front. So I decided to utilize the primary strategy for 2 years while we build. It's worked out very well for our stage with Hugh and living simpler.

I have a very simple philosophy that has served me well so far. If a house doubles in value, I sell it. I'm glad I didn't utilize a 1031 on a number of them as I would of been forced to move up in value with poor markets on the horizon. It would've cost me far more than the 15% capital gains and I was only 2-5 years into the depreciation cycle. In fact, the 1031 I did utilize ended up costing me when I exited a market a bit late.

At this point my plan is to wait until the next recession and buy when the market is the most pessimistic. I don't mind moving in and out of markets as long term rentals mean bad tenants and major repairs at some point. Now, I only buy if the numbers make sense. I don't make the numbers work. If I get caught, I want the choice to hold long term. That's the real key to real estate investing. Can you wait until the timing is right worst case? If not, don't buy it. Unless you are a big risk taker and I'm not. I don't mind being the tortoise.

[SSLance]

Originally Posted by GregWeld

RE: Inheriting depreciated rental property




You will not need to worry about past depreciation on your inherited property. You will just use your stepped up basis (FMV of property on date of inheritance) and this new basis will be used for depreciation. You will be able to depreciation these inherited assets in full over the property's useful life. For example, use the full 27.5 year, S/L for the rental house (less land) and the start date will be the date when the rental property was transferred to you.

For any prior capital improvements, these will be included in the stepped up basis on the inherited property so do not depreciate them separately.

For any appliances, since they are considered "new" to you, you will just use the new FMV of these items and depreciate them over the new useful life at the date the asset were transferred to you.

Yep, that's what I thought...death accelerates basis...

[GregWeld]

There are MANY ways to invest in rental real estate....

I, for one, have ZERO interest in managing a rental. I don't want to know about the water heater that quit working on Sunday afternoon.

I invest in LLC's that buy larger commercial apartment complexes - they do all the management.... I collect a check every 6 months for my shares. The last one I invested in ($900K) pays me $60K a year... I get the offsetting depreciation just as I would if I owned it personally.... and we recapture the depreciation upon the sale of the property (again, just like you would on any rental).

I got a statement with the last "dividend" check --- showing the value of my investment is over $1.9MM now. The rental market in the Seattle area has been ON FIRE.... and as such (after an extensive remodel of the property) they've been able to substantially increase the rents.

Just throwing this out there for those - that like me - have no interest in managing a rental. There are many firms in every area of the country that do this kind of income property management. You just have to ask your attorney or accountant.... They'll know someone.

Typically a share goes for somewhere between $50K and 100K per share. Sometimes they'll sell a half share. You do have to be an "accredited investor" to invest in this type of deal -- they're totally illiquid -- and you have zero control of when the property is sold.... so your money may be invested for a very long time (as in YEARS) and there's nothing you can do about it. So like any investment -- it should be a small percentage of your investable dollars. Remember the 5% rule!!

[GregWeld]

End of year reminder folks!


Don't forget to review your accounts


Before you decide to SELL ---- make sure you check to see if you're close to collecting a dividend? Do you have profits to take that the sale will offset (for taxes).


Do you have outsized gain(s) that you want to offset losses with? If so -- make sure you check - are they long term gains (one year and one day ownership) or short term etc.


This IS NOT a list of all of the thought process --- it's simply a reminder to look at your accounts -- think about TAXES -- and IF you are going to do some balancing -- there are things to think about!


In other words ---- don't just indiscriminately punch the Buy or Sell button without thinking it thru.

[Vegas69]

It doesn't appear that the Great Recession less than 10 years ago changed the behavior of many citizens. Housing debt is a little lower, but other debts/overall debts are actually higher than 2008. With interest rates still so low, you have to wonder how close we are to the end of the short term debt cycle.

When consumers run out of available income for credit, spending decreases. Remember, a majority of the money exchanged for homes, cars, college, etc. is with DEBT not cash. With interest rates near zero, that card has been played to spur spending since 2010ish. Will we see some inflation before things taper off?

I can tell you that $0 down loans and similar products to stated income are back in the housing market already. I've seen many around me take on new cars, boats, RV's, etc. over the last few years. All financed of course.

As usual, time will be the best teacher.

[Vegas69]

My search varied some, but up to 78% of Americans live paycheck to paycheck or damn close to it.

[WSSix]

I've been hearing people talk about us being in another bubble and that it's only a matter of time before it pops. I'm not surprised people are taking on more debt that they should. We're a very materialistic society. I won't get into that trap. I'm sure someone could show me how I can leverage the cheap lending situation to make more money for myself, but I'm not interested in putting myself at that much risk.

[GregWeld]

Originally Posted by WSSix

I've been hearing people talk about us being in another bubble and that it's only a matter of time before it pops. I'm not surprised people are taking on more debt that they should. We're a very materialistic society. I won't get into that trap. I'm sure someone could show me how I can leverage the cheap lending situation to make more money for myself, but I'm not interested in putting myself at that much risk.

This is what people don't understand about "leverage" (borrowing and having to pay back that borrowing) -- is the RISK they're assuming. The more stuff people own (the banks own - the people are making payments) the more risk they've taken on -- and when a recession hits - or the company downsizes - or is bought / acquired.... That risk multiplies in a HUGE hurry.

That is when the old saying "cash is king" comes into play! I've made the most money in the biggest downturns. You can get houses cheap - apartments cheap - stocks cheap.... LOL

[Vegas69]

Originally Posted by WSSix

I've been hearing people talk about us being in another bubble and that it's only a matter of time before it pops. I'm not surprised people are taking on more debt that they should. We're a very materialistic society. I won't get into that trap. I'm sure someone could show me how I can leverage the cheap lending situation to make more money for myself, but I'm not interested in putting myself at that much risk.

The value of anything is the life you must exchange for it.

I didn't think of debt or obligations this way until recently in my life. My good buddy had a truck that was paid for or close to it. It was serving him just fine. He went out and bought a brand new truck because he's 51 and just wants to LIVE. (He tends to be a paycheck to paycheck guy) My perspective is now he must work to pay for the truck every month. Debt is really the antithesis of freedom.

I've spent the last 5 years of my life going the opposite way. I've worked continually on putting more margin in my finances and obligations. I've done that by reducing my liabilities(Currently have zero debts) and increasing my income.(Over doubled) I've hired better staff that reduces my work load and figured out what's of greatest importance daily. I say NO more than I ever have.

Focus is the art of figuring out what to say NO to.

The most successful say NO to almost everything. -Warren Buffett

Wealth is a pretty simple formula. The distance between your liabilities and income need to grow. The farther you can live below your means, the faster you will obtain wealth. After all, you must have the capital to take advantage.

I agree with Greg. I used to look at a recession or downturn in a very negative light. Now, I would see it as another opportunity to take advantage of a Spring. BUT, you have to be prepared for a rainy period and that happens over time, not days.

The most money is made with the market is MOST PESSIMISTIC. When the news, your friends, and coworkers are talking about how bad it is, that's your key to start looking for opportunities.

Now, I do still believe in leveraging some real estate with debt. The numbers on an investment property just need to make sense for the long term after counting all the costs.