Investment property - Advice
- Thread starter IrvineOrange
- Start date
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Honestly...I would say to talk to people who already done it and have no financial incentives with respect to provide advice to you. Most articles/discussion are from a 50,000 feet level and not all that helpful to an individual investor. Talk to investors, loan people, and attorneys about the pros and cons of REI and be realistic about your situation. You also want to talk to a CPA about the tax ramifications.
Again, this is not to say that you cannot have success in REI or any other form of investment but it takes a lot of work, research, and luck to do well. It's not a "hey, let's buy a house and rent it out". Even if you have a local property, there is a lot of time and effort that you need to commit to. I can't tell you the number of times I have heard "I have to drive out to ___________ cause my tenant is complaining about __________________."
Edit: I just realize that I meant to type REIT instead of REI. REIT is like mutual funds but with the money going to RE investment (usually commercial). There are a number of types of REIT that specialize in a variety of property. Some have better return than others but of course also means more risk.
http://www.steadfastreits.com/reit-university/reit-fundamentals
https://www.investopedia.com/articles/mortgages-real-estate/10/real-estate-investment-trust-reit.asp
You are definitely right about the one bad apple but can you still make money on flipping as a "regular person" around here?
I see if you are a realtor/construction team you could reduce your costs substantially (real estate commission, maybe getting a "deal" on closing costs, knowing where to buy building supplies that get a contractor rate) but then you are getting your profit on your time put into the project.
Selling commission is on the whole enchilada not just the profit.
When I watch Flip or Flop, I say but but but.... that must include only the commish to the selling agent for their closing cost and I see they did work themselves.
Oh I agree...flipping is insanely difficult and risky and you need a ton of commitment/research/personal knowledge. People understand (or should understand) how risky flip is but think renting a property is a piece of cake.
Two biggest money traps for a property are 1) unseen issues with the property and 2) holding costs. There are also some hidden costs.
https://www.thebalance.com/pros-and-cons-of-flipping-a-property-2124830
Well if you are flipping, there are ways to turn short term capital gains to longterm capital gains...and even tax deferral. But it adds a layer of complexity that most people don't think about.
https://investfourmore.com/2015/03/11/how-much-in-taxes-do-you-have-to-pay-on-fix-and-flips/
I simply disagree on the longterm viability of renting out single family homes....it becomes way too much of a headache as the house/property gets older and you get more and more tenant turnovers. Multi-unit is the way to go but again...that's takes a lot of capital.
I am actually close to buying an SFR in there and my cash flow can be around $100-$200 inclusive of property management fees/vacancy rates/PITI etc. In best case, it might touch $300,but the bigger question is the rate of appreciation which at this time is something i am constantly debating against in my head.
To get a little positive cash flow is one thing but if there is minimal appreciation in next 5-10 years, then it may not make sense to dump in more cash/mortgage in there.
Irvinecommuter
New member
dream16 said:
Honestly...I would say to talk to people who already done it and have no financial incentives with respect to provide advice to you. Most articles/discussion are from a 50,000 feet level and not all that helpful to an individual investor. Talk to investors, loan people, and attorneys about the pros and cons of REI and be realistic about your situation. You also want to talk to a CPA about the tax ramifications.
Again, this is not to say that you cannot have success in REI or any other form of investment but it takes a lot of work, research, and luck to do well. It's not a "hey, let's buy a house and rent it out". Even if you have a local property, there is a lot of time and effort that you need to commit to. I can't tell you the number of times I have heard "I have to drive out to ___________ cause my tenant is complaining about __________________."
Edit: I just realize that I meant to type REIT instead of REI. REIT is like mutual funds but with the money going to RE investment (usually commercial). There are a number of types of REIT that specialize in a variety of property. Some have better return than others but of course also means more risk.
http://www.steadfastreits.com/reit-university/reit-fundamentals
https://www.investopedia.com/articles/mortgages-real-estate/10/real-estate-investment-trust-reit.asp
Ready2Downsize
Well-known member
Irvinecommuter said:
You are definitely right about the one bad apple but can you still make money on flipping as a "regular person" around here?
I see if you are a realtor/construction team you could reduce your costs substantially (real estate commission, maybe getting a "deal" on closing costs, knowing where to buy building supplies that get a contractor rate) but then you are getting your profit on your time put into the project.
Selling commission is on the whole enchilada not just the profit.
When I watch Flip or Flop, I say but but but.... that must include only the commish to the selling agent for their closing cost and I see they did work themselves.
Irvinecommuter
New member
Ready2Downsize said:
Oh I agree...flipping is insanely difficult and risky and you need a ton of commitment/research/personal knowledge. People understand (or should understand) how risky flip is but think renting a property is a piece of cake.
Folks must know that they are not going to be cash flow positive buying over the past few years. Yes, if they are looking to park half of an 800-900k home and get a loan they can be positive in the cash coming in. They make not care about parking money vs opp cost of putting the money somewhere else.
I think the argument is that the property market in Irvine is stable and less volatile then the stock market. Yes renting can be a pain and less so with the right property manager but it is part of the process.
The other thing is though people say you just have to get in but what if people start laughing when someone on this board is looking for 4bd and asking where they can find homes for less than 1.5m in Irvine.
I think the argument is that the property market in Irvine is stable and less volatile then the stock market. Yes renting can be a pain and less so with the right property manager but it is part of the process.
The other thing is though people say you just have to get in but what if people start laughing when someone on this board is looking for 4bd and asking where they can find homes for less than 1.5m in Irvine.
irvinehomeowner
Well-known member
Flipping seems easy considering how many home projects (and sales) we've done over the years.
It's really easy to buy inexpensive stuff that looks expensive and raises the value on a flip... I just think it's time intensive and you have to have a consistent contractor team for all the work. New paint and flooring alone adds perceived value to any dated home.
A relative of mine just went to through a kitchen reno and they could have probably spent just 1/3 if they went with more inexpensive stuff that looks just as good. They don't really need that $3000 range when an $800 one will look just as nice to a buyer. Since you are not going to live in it, it's easier to put in the cheaper stuff.
I remember when we sold our last house... paint, newer sink fixtures and good staging probably netted us at least 10% more than similar homes and we didn't come close to spending that much on it.
Who wants to be part of my Flip or Flop Irvine team?
It's really easy to buy inexpensive stuff that looks expensive and raises the value on a flip... I just think it's time intensive and you have to have a consistent contractor team for all the work. New paint and flooring alone adds perceived value to any dated home.
A relative of mine just went to through a kitchen reno and they could have probably spent just 1/3 if they went with more inexpensive stuff that looks just as good. They don't really need that $3000 range when an $800 one will look just as nice to a buyer. Since you are not going to live in it, it's easier to put in the cheaper stuff.
I remember when we sold our last house... paint, newer sink fixtures and good staging probably netted us at least 10% more than similar homes and we didn't come close to spending that much on it.
Who wants to be part of my Flip or Flop Irvine team?
Irvinecommuter
New member
irvinehomeowner said:
Two biggest money traps for a property are 1) unseen issues with the property and 2) holding costs. There are also some hidden costs.
https://www.thebalance.com/pros-and-cons-of-flipping-a-property-2124830
panda
Well-known member
IHO,
Flipping homes is taxed at earned income level while buy and hold rental properties are taxed at passive income level. In the financial markets, flippers are like day traders while buy and hold investors are like investors buy and hold their S&P 500 index for 10 years +. Flipping is what I consider Income Statement wealth whereas buy and hold investing is considered Balance Income Wealth. You need focus on growing your balance sheet wealth, not your income statement wealth.
Flipping is no different from any other active small business like a web designer selling each websites for $3000.00 in that both are taxed at the earned income level. Flipping homes is difficult to sustain long term, while buying and renting single family homes is a sustainable long term semi-passive business.
This is why for every millionaire flipper, there will be at least 10-15 buy and hold millionaire investors.
Flipping homes is taxed at earned income level while buy and hold rental properties are taxed at passive income level. In the financial markets, flippers are like day traders while buy and hold investors are like investors buy and hold their S&P 500 index for 10 years +. Flipping is what I consider Income Statement wealth whereas buy and hold investing is considered Balance Income Wealth. You need focus on growing your balance sheet wealth, not your income statement wealth.
Flipping is no different from any other active small business like a web designer selling each websites for $3000.00 in that both are taxed at the earned income level. Flipping homes is difficult to sustain long term, while buying and renting single family homes is a sustainable long term semi-passive business.
This is why for every millionaire flipper, there will be at least 10-15 buy and hold millionaire investors.
irvinehomeowner
Well-known member
Heh.
I won't be challenging Tarek in my lifetime (does he still do ForF?).
I just think it would be fun to try a few... maybe when I'm retired.
I won't be challenging Tarek in my lifetime (does he still do ForF?).
I just think it would be fun to try a few... maybe when I'm retired.
Irvinecommuter
New member
Panda said:
Well if you are flipping, there are ways to turn short term capital gains to longterm capital gains...and even tax deferral. But it adds a layer of complexity that most people don't think about.
https://investfourmore.com/2015/03/11/how-much-in-taxes-do-you-have-to-pay-on-fix-and-flips/
I simply disagree on the longterm viability of renting out single family homes....it becomes way too much of a headache as the house/property gets older and you get more and more tenant turnovers. Multi-unit is the way to go but again...that's takes a lot of capital.
irvinehomeowner
Well-known member
I agree with irvinecommuter... I would rather be spending my time with flips than managing tenants because it's an "active" way to make money.
I know that the preferred way is "passive" income but I wouldn't make rentals the bulk of my real estate empire in Irvine. I would flip whatever makes me good turnaround and stuff that looks like it will rent better I may lease... but like everyone says, Irvine is priced too high to go positive unless you are just paying full cash and parking money for appreciation.
I wouldn't "invest" in Santa Ana either... maybe Flip or Flop Inland Empire?
I know that the preferred way is "passive" income but I wouldn't make rentals the bulk of my real estate empire in Irvine. I would flip whatever makes me good turnaround and stuff that looks like it will rent better I may lease... but like everyone says, Irvine is priced too high to go positive unless you are just paying full cash and parking money for appreciation.
I wouldn't "invest" in Santa Ana either... maybe Flip or Flop Inland Empire?
Liar Loan
Well-known member
I agree with you completely, but not everyone thinks that way. Some people may have trouble coming up with even a 3% down payment, despite making good salaries. There is a lot of pressure to keep up appearances in the upper middle class Southern culture. They have a whole magazine devoted to it called Southern Living. It's probably even worse than OC in terms of spending more than you earn to keep up with the Jones', or Kim's, as the case may be.
That is a very interesting take I hadn't really thought of - maybe because I was taught to live below my means. I always thought the winning strategy in rental investing was high density in working class areas (i.e slumlord), however I am intrigued by the strategy of renting upscale SFRs to the faux-affluent in areas with good cap rates.
OCtoSV said:
I am actually close to buying an SFR in there and my cash flow can be around $100-$200 inclusive of property management fees/vacancy rates/PITI etc. In best case, it might touch $300,but the bigger question is the rate of appreciation which at this time is something i am constantly debating against in my head.
To get a little positive cash flow is one thing but if there is minimal appreciation in next 5-10 years, then it may not make sense to dump in more cash/mortgage in there.