some responses - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on August 11, 2003 at 13:56:53:
1–this is a matter to check with LOCAL knowledgeable people. Talk to real estate investors and licensees in your area. Here within Oakland, is a separate city, Piedmont, which was largely built out between 1910 and 1930. So many of the houses are of that era. This is a premium location because of good schools and reputation. So older houses here? No Problem. It depends upon the reaction to the location.
2–I think you are confused here. If you are referring to reselling immediately, there is no capital gains tax, the whole profit is ordinary income.
Why would you ever plan to buy and resell in two years time? What is the sense in that approach? If you are going to be a successful investor, I suggest you either hold until you die or you do quick turn-over real estate merchandising, buying below market and selling as soon as possible for a profit.
If, for some reason, you need to move your investment out of a specific property, then you can do a 1031 tax-deferred/tax-free exchange into some other property, which you will hold forever.
3–This is a personal decision and probably depends upon the market where you are. Also, it depends upon the leverage–the amount of loan against the property.
I advise looking at the real estate portfolio as a whole also. Suppose you have a high cash flow in a property. You may have a very high equity level in the property. It might pay to put a new loan against the property, pull out investment money to buy other properties and get positive cash flow from them. They might make up for the reduced cash flow from the original investment property. Also, there might be more property appreciating and more more tax write-offs. So, just the dollars per month from a single property is not necessarily the number you want to be considering. Consider all three of the financial benefits of owning real estate: C A T.
4–It depends upon your purpose to do the calculation. Are you considering buying or are you considering selling? Any sellers and any buyers are going to have the same trouble valuing the property as you are. So you set down a value that you think is right–one that is of most benefit to you if that is used as the selling price–and go from there. Negotiation is the name of the game.
There is the possibllity of considering the rental income or portential rental income also. Use the income method of determining value. While not generally recommended for single family houses, it may provide a useful number.
You can use properties at a distance for your comps, they don’t need to be close by. You might use a ratio: value of 1/1 compared to 3/2 in different neighborhoods, then apply that to the value of the 3/2 in the subject neighborhood to value the 1/1 there. Remember, the other party has trouble figuring value also. He who fights the fiercest for his value wins.
Good InvestingRon Starr*