Posted on August 7, 2008 @ 10:52 pm - Written by BawldGuy
Due to the nature of tonight’s topic, pictures will again be at my whim. I’m feeling quite random as it turns out. When I’m talkin’ ’bout numbers and basic analysis on-topic pictures just don’t cut it.
A post published here earlier this week generated an excellent comment by David Shafer.
The post discussed the differing results of 10% or 20% down payments.
Here’s David’s comment:
I argue with myself over which is better the 10% or 20% version. I think it is really individualized. But gotta comment that the 20% version is less costly in terms of lower mortgage rate and/or no mortgage insurance which is expensive now. And if you take that cash flow and put it into another investment, then you might just come out even with the 10% down option!
Dave — I know what you mean, as I’ve done this particular analysis hundreds of times.
These days we’re seeing little or no difference in interest rates on the two loan LTV’s. Even if there was a .25% spread, if that kills the deal, then generally speaking the investor might not be a candidate for real estate at that time. ‘Course sometimes common sense dictates a particular deal just won’t work.
Let’s look at your suggestion though, which might be a logical alternative. Read the rest of this entry »
Posted on August 1, 2008 @ 11:50 pm - Written by BawldGuy
This weekend take the time to write down all the info ya need to paint a picture of where you are today — financially. Not just assets and liabilities, but what yer doin’ now that maybe isn’t the right thing for you. Also, what’re ya not doin’ that ya know should be happening as a habit?
If the only two things you learn is your net worth and how much yer savin’ each month — or not — the effort will have been easily worth it. I remember one weekend in the mountains with The Boss. I was doodlin’ on a legal pad, and started writing down my known recurring monthly expenses, for both home, and office. When finished I was staggered by the number. I shouldn’t have been, but isn’t that how most of us are?
BawldGuy Axiom: Garbage in, garbage out is just the modern way of sayin’ what Grandma taught me. One of her favorite sayings was, “‘Bout the time the farmer got the old mare to work without eatin’, she died.” Read the rest of this entry »
Posted on July 30, 2008 @ 11:47 pm - Written by BawldGuy
Here’s how I explain to real estate investors in other states what it’s like to trade equity from California to much lower priced growth regions.
It’s kinda like buying that killer Norstrom’s dress for yer wife. You honestly thought it was perfect for her. But after she stopped laughing, and could speak English again, you were back in the car, headin’ for a refund. Now, imagine you hafta spend the entire refund at the Dollar Store. That is what the CA real estate investor faces when he exchanges his properties’ equities to another state.
Take a Bay Area, San Jose (Palo Alto), or San Diego income property owner. We’ll use a San Mateo duplex. Let’s say it can sell for $850,000 and with a loan balance of $400,000 the net proceeds would be roughly $385,000 or so. If they paid $600,000 back in the day, their annual tax shelter runs in the neighborhood of $18,000 +/-. (Should be more, but that’s another post.) Their current cash flow is either zip zero nada zilch, or enough to treat the family to a monthly dinner at Sizzler. Oh boy! We’re goin’ to Sizzler!
Here is the ‘before & after’ picture when their 1031 tax deferred exchange has been successfully completed. Read the rest of this entry »
Posted on July 30, 2008 @ 12:10 am - Written by BawldGuy
This was many moons ago. The client was on in years and wanted to execute a tax deferred exchange to younger, higher cash flowing properties. Oh, and by the way, Jeff, can you exit about $75,000 in cash for me? When asked why, and getting the usual lecture from her about it being none of my $%^# business, I explained how her answer would most likely dictate how I’d design her transaction.
She always allowed me a smile after givin’ me the expected hard way to go. It was a dance we did, at her calling. Turns out, since she was gonna keep the newly acquired property for quite awhile, she wanted the cash way ahead of when she actually needed it. Though semi-retired her income was still six figures yearly, as she owned a long established cash cow cafe. (She hated it when I called it that.) Turns out in three years she was turning over the reins to the cafe, and forgoing the income. This worked out ‘cuz by then her portfolio was already cash flowing, uh, more than adequately. (She had quite the portfolio.) This was probably gonna be her last exchange, and it was mostly due to her wanting younger property with lower long term operating expenses.
My assignment was to get her $75,000 — and time it for three years from the close of this exchange. It would be for a long trip she was gonna take, and frankly, just ‘cuz she wanted a little more spending money for when she turned over the cafe to her son and daughter-in-law.
Not a problem. Read the rest of this entry »
Posted on July 28, 2008 @ 11:18 pm - Written by BawldGuy
Of late I’ve had maybe half a dozen conversations involving tax deferred exchanges. As one astute observer pointed out, there’s even some business models based on them. True enough, but I’ve seen so many folks get themselves in unintended places while worshiping the false god of 1031. I’m here to tell ya true — it ain’t the end all be all to the real estate investor. It’s merely another tool.
Ever met a carpenter whose tool belt had only a hammer? He has levels, saws, various measuring tools, and a bunch more. He uses the tool made for the job at hand. Why? He’s found through experience pounding nails with a level makes for a crazy day. That analogy is nearly exactly on point with the real estate investor’s tool belt. There are times when a partial exchange will do the trick.
Your Purposeful Plan takes into account how you will exit your investments when the time comes. Though most folks will make use of the tax deferral, it’s not anywhere near universal. This is especially the case for those with household ‘day job’ (In IRS-ese that’s ‘ordinary income’.) of $150,000 or more.
Let’s skip process for tonight, and go straight to results. Oh, now yer paying attention. Read the rest of this entry »