Monthly Archives: December 2008
Thinking 1031 Tax Deferred Exchange?
I just hung up the phone with Geoffrey Allison of Starker Services, a Qualified Intermediary (QI) that handles 1031 tax deferred exchanges here in the Kansas City area as well as the surrounding areas/states. And of course the failure of Land America’s 1031 Exchange division came up.
What is funny to me is that I’ve had clients with over $100,000 going into a tax deferred exchange and they want to pick and choose their QI based on cost alone. So they don’t use Starker Services and Geoff because they cost an extra $100 or so. (That’s o.oo1 of the price for those of you keeping score.)
Did you know monies in held with a QI are unregulated? Did you know that many QIs do business but very few do business right? Do you know who the hell is responsible for your $100,000 while it’s being held for those 45 days or so?
Listen, today more than ever we see why it’s important to do some checking and to be in business with the right people. I had a guy not too long ago say he wouldn’t pay me a 6% commission (my minimum going rate) that he’d never pay over 5%. Fine. That’s he prerogative and this is America. But I would warn you that basing your entire investment decisions over pennies (comparatively speaking) is short-sighted and amateurish.
Go ahead, use whatever QI for your tax deffered exchange that you like. I’m sticking with my recommendation of Starker Services, Inc. You can click the link to find out more about them. If I was turning over a considerable amount of money I think I’d do that….
Filed under 1031 Exchange
How’d We Get Here?: Must Reading
I’m not an optimist. I’m also not a pessimist. I just digest everything and see what comes out. Here is some must reading when examining our current real estate market.
USA Today: Why Home Values May Take Decades To Recover The details are what I found interesting. Not the sensationalism.
BawldGuy: What Does The Percentage Of Home Ownership Have To Do With Real Estate Investing A sentiment I’ve shared for quite a while. I think some of my DNA might come from Jeff…he’s certainly old enough to be my papa. 😉
Keep in mind that opportunity comes in mysterious places…
Filed under Worth Reading
Analysis Time
As promised I’m bringing you an analysis of both a single family home and a multi-family home used as investment properties here in Olathe, Kansas.
The question presented to me was “isn’t it better to own two single family homes at $115,000 each instead of a duplex at $230,000?” Both have advantages/disadvantages over the other. See this January 14, 2006 posting about Multi-Family vs. Single Family.
So what I did was I found a duplex currently for sale in Olathe priced at about $187,000 and a single family home priced at $99,000. I used these two because they are currently for sale and have both been investment properties within the last five years so I know about what the rents are/should be.
The results? Well, I may have to tell you it’s a toss-up…or even that the SFH wins. Despite my normal belief. But keep in mind a few things when looking at the numbers below;
- Financing is the sticky wicket right now. It’s easier and less expensive to get financing on a SFH investment property right now than a multi-family home. And that is not to be discounted! Though when prices drop under $100,000 interest rates go back up a bit. Financing is just a drag…
- These two properties are in Olathe, Kansas. Not exactly the least expensive place to purchase investment property. Though you can always count on appreciation. (Yes, I used the “A” word.)
- The return numbers were a little lower than I expected. Rents have softened a bit in the last six months, financing has become more expensive and it seems every property needs a little more work.
- What is not shown is that the single family homes can be purchased at steep discounts making the marginal returns far better when the economy turns. Themultis are still over-valued.
- You can add a minimum of 50% to these return numbers by purchasing in Blue Springs, MO or other similar market areas.
Single Family Home
Purchase price would be $95,000 with $3,000 in closing for a total purchase cost of $98,000.
Total capital invested: $26,750
GOI: $8,742
Total Operating Expenses: $3,425 (includes property management!)
NOI: $5,317
Based on those numbers we actually have a NEGATIVE cash flow of about $287/yr.
Adding the Four Benefits of Real Estate Investing together and we end up with a Return on Investment WITHOUT Appreciation of about 4.0%. Aren’t you excited? Do your own property management and the return rate jumps to about 6.8%. These are not numbers to get too excited about. But I just checked my stock portfolio (such as it is) and I’m down 64.44% for the year. So I’ll take this over that any day. 🙂
Multi-Family Home
Purchase price would be $180,000 with $4,000 in additional closing costs for a total purchase cost of $184,000.
Total capital invested: $49,000
GOI: $16,530
Total Operating Expenses: $5,925 (includes property management)
NOI: $10,605
Based on those numbers we have a cash flow before taxes of $93 for the year.
Again, taking the 4 Benefits without appreciation your return on investment looks to be 5.1%. Without property management you could bump that to 7.9%. Keep in mind that I am not finding the same kind of values in multi-family homes that I’m finding in single family homes.
So Single Family Homes win, right? Well, I’m leaning that way.
Duplex vs. Single Family Home: Which Is The Better Investment Property?
Just got the call. The usual call about why you would want a $230,000 duplex rather than two $115,000 single family homes. Maybe you would maybe you wouldn’t. Once again;
Single Family Home Advantages
Single family homes appreciate better than duplexes, by in large. They attract a better class of tenant, by in large. And they are more understandable to most people.
Duplex Advantages
Real quick there are two. The first is that if half is empty the other half is still bringing in income. That’s super important for an investment property. The second is that the rents to price ratio is usually a little better in a duplex than a single family home.
There are other subtleties. But those are the big differences. Next we’ll do an analysis of both situations. Stay tuned!
Filed under Real Estate Investing
I’ve Been Smacked By Credit Crunch…But Don’t Care
In the last ten days I’ve received two letters from two of my three credit card companies. The first stated that since I don’t use my card and haven’t done so in more than twelve months, and since they had “re-evaluated” my employment situation (I’m self-employed) that they were cancelling my credit card.
Boo hoo. Did I mention I don’t use it? It was a Washington Mutual card. Aren’t they in big trouble?
Then yesterday AmEx sent me a letter stating that they had reviewed my situation (I’m guessing this is a popular thing to do now) and had decided that they were reducing my available credit by 20%. Again, okay by me since I’ve never been anywhere close to the credit limit. I guess they don’t want me to get anywhere near it, anyway.
Anyone else noticing things like this?
Let me state that I am not behind on anything. Nor has my income declined. Nor have I had any trouble at all in years and years and years and years. (I was not so good in my twenties.) My guess is that “my employment situation” isn’t popular right now with credit companies. A self-employed real estate guy has to be a little scary to them.
Yet, 45 days ago I signed a rather large loan with a local bank here during the height of the credit crisis news cycles and they barely even asked me to explain myself. Just “how much do you need” and it was ready days later. Now this money is for a non-real estate related business I also have. So I have to believe it’s the self-employed real estate agent thing on the credit apps and credit company reports that has them leery.
Just a guess, anyway.
Filed under Misc. Real Estate, Social Issues
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