" I consider you are one of the best on this site." Thank you. Flattery may get you somewhere with me. Actually, I am impressed with how many good responses one can get here and how few really poor ones. I sure wish this site had been available when I started investing. I’d be far ahead of where I am now if it had been.
About 7 pm yesterday I posted to some ongoing thread about this issue of quick sell/hold forever. I do a much more thorough analysis there.
I expect property values in CA generally to go up smartly over the next 20 years or so, based on the projected increase in population and building not keeping up with demand.
Better than sell in a while is to either exchange into other properties so there are no federal capital gains tax to pay. Or to refinance out money to buy something else. Given that very low interest rate on the first loan, probably a new second loan would be the way to go, should you refinance.
And congratulations riding up the automatic escalator to wealth: appreciation.
This does not make a lot of sense to me. Planning to hold a rental property for 2-3 years? Why on earth would you ever do such a thing? What is your reasoning here? Would you also tell a pregnant woman to plan on having her child 2 months after it was conceived? In my view there are two time periods to hold property: as short as possible and forever. Anything else makes no sense to me. I would like to hear arguments for other periods of holding but have not yet heard any good ones. Maybe you are just part of the “me” generation and want things quickly? You are not the first to do such things or talk about them. But that still does not make the idea sensible to me.
Live in or rent out? Well, I guess that is mainly a question of your personal needs and desires. I don’t see them as being at all similar activities. You have to live somewhere don’t you? Do you want to live in a property you own or one you rent?
Now, the answer to that last question could be influenced by the price range of the neighborhood in which you want to live. If you want to live in a very high cost neighborhood it could be financially better to rent where you live then use our money to buy rental properties in low-cost areas where the return per dollar invested is better.
Posted by gerald(tx) on September 09, 2003 at 20:20:19:
It’s not a bad strategy at all. I think part of our philosophy differences come from the types of properties we own. I see from some of your previous posts, you like the lower strata which will provide a higher cash flow. Nothing wrong with that.
I’m different in that I deal in nicer, newer, pretty houses only. I have a rule that I will only buy a property that I would consider living in myself. (I had some bad experiences with trashy folks in junker properties years ago, and this shied me in a different direction altogether.)
Anyway, say I buy a 2yr old $150k house for $138K, Subject 2. Do I take the quick $12k, or hang on to it for 2 or 3 years if it has a strong chance of being a $175-180k property then, and have a $37-42k profit?
Remember, this house is under builders warranty and is pretty much problem free with a good tenant who will sign a 2 or 3 year lease. After the lease expires, the house is still almost new and usually takes very little to slick it up for market.
Most homes I buy Sub2, then immediately resell with owner finance. But a couple of them are rentals as above, and I see some nice paydays down the road.
Re: Which is better to live in a property… - Posted by Rob Ricker
Posted by Rob Ricker on September 09, 2003 at 12:57:29:
Ron,
There’s always a reason to do things differently. I know ONE reason why you would want to hold for 3 years, then sell. Fannie Mae and Freddie Mac now require appraisals to list any sales of a property for the last three years. If the buyer was getting a Fannie or Freddie backed loan (conforming), it might be advantageous to wait the three years. Why? Appraisers are very scared of being blacklisted for bogus appraisals. How does it look when a house was bought in 2002 for $65,000 and sold in 2003 for $90,000? Fannie and Freddie will ask questions and the appraisers credibility will be questioned. If you wait three years, there’s no problem.
Thanks for your response. I’m eager to understand the thinking on this subject.
Your suggestion sounds plausible. It does not sound very convincing to me however. I doubt that there would be very many investors who consider this issue important enough to delay selling for three years.
When you sell immediately you do not have to worry about the market value declining, a serious issue when you are leveraged. A reason to sell soon even if you are not leveraged, it seems to me.
I appreciate your reponse. I enjoy trying to understand things better. I maintain the same position: either buy to resell as soon as possible or to hold forever–no other plan for length of holding.
Re: Which is better to live in a property… - Posted by Rob Ricker
Posted by Rob Ricker on September 09, 2003 at 22:24:11:
Ron,
I basically agree with you on this subject. I’m just playing a little bit of devil’s advocate. I do, however, believe that each situation is different from another. There are reasons why I might hold one property for three years, another for 45 years, and flip two others for instant cash. If I was selling to someone with A credit, I would probably want to wait the 3 years out to avoid appraisal problems, but in most instances you are right. Either flip for immediate profit or hold for long term cash flow.
Of course, when you sell on a Lease Option to someone with bad credit you have little choice but to hold for 2-3 years before selling at a, hopefully inflated, price.
As always, I enjoy your posts. You’re a wealth of knowledge, and I thank you for sharing that with young guys such as myself.
Well, doing lease-option with a two year or three year strike date is pretty much “selling as soon as possible.” The particular structure and quality of the leasee-optionee dictates a “slow close.” However, It really does suffer from the same problems as other “delayed, but not forever,” sales. Possible decline in market value, buyer walks away, less return than if you had pulled out the money and used it for some more profitable deals. All-in-all, I see the lease-option selling program as an inferior way to go, if you have the choice of doing a quick in-and-out at a profit.
I have a much more complete discussion of the topic of immediate sale or hold forever that I posted about three hours ago in an on-going thread.
One of the first things I do when I come to creonline is to look for your posts:)))! I consider you are one of the best on this site. I bought the property for 184K two years ago, rented it out for a negative cash flow $300.00, now some appraisers say it is worth around $300K. I just refinanced it on a 3/1 Arm 4.875%. Don’t have a job right now. I don’t know for how long prices in LA will continue to go up. From tax prospectives probably it is better to live in the property for 2 years, so as to avoid “capital gain” tax. I pay approx 800 rent where I live, but I have rented out my place for 1,395.00. I am not getting much cash flow of it, but if I sell it in 1,2, or 3 years, I will pull some cash (most likely) and be able to by a building with positive cash flow which for me would make sence to hold forever (if in good condition and location.) But from this one I only get equity with no cash in my pocket. That is the reason I want to sell-money in my pocket, and opportunities to buy more properties. Thanks, and good investing too!