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Old 02-24-2017, 01:08 PM   #41
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Was just speaking to a co-worker (we're in the bay area) who recently sold his local rental property. To avoid capitol gains he bought 2 rental properties in another state.
I know this is besides the point, but does this actually avoid capital gains in the US? In Canada, capital gains would be payable regardless of what he did with the proceeds. I'm just curious!
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Old 02-24-2017, 01:12 PM   #42
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I know this is besides the point, but does this actually avoid capital gains in the US? In Canada, capital gains would be payable regardless of what he did with the proceeds. I'm just curious!


Yes, gains are deferred if you do section 1031 exchange.
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Old 02-24-2017, 02:05 PM   #43
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Right now it is easier to find cash flow positive properties than any time I can remember. The 100k townhouse I described that rents for 1300/mo might have sold for 180k ten yrs ago. Taxes and mortgage rates have dropped also but not the rent. This won't last.
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Old 02-24-2017, 03:13 PM   #44
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What do you folks think about college town rentals? I've considered buying a rental in a town where my son attends school, about 2 hours from me. Son could take care of minor management issues. Seems that student rentals would have problems with less-responsible renters and yearly turnover. But, I suppose someone is making money at it?
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Old 02-24-2017, 03:15 PM   #45
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I know this is besides the point, but does this actually avoid capital gains in the US? In Canada, capital gains would be payable regardless of what he did with the proceeds. I'm just curious!
It would NOT avoid capital gains the way the OP described it... selling a property and buying another.... in order to avoid capital gains one would have to trade one property for one or more other properties (called a 1031 exchange).
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Old 02-24-2017, 03:19 PM   #46
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He did a 1031 exchange
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Old 02-24-2017, 03:59 PM   #47
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What do you folks think about college town rentals? I've considered buying a rental in a town where my son attends school, about 2 hours from me. Son could take care of minor management issues. Seems that student rentals would have problems with less-responsible renters and yearly turnover. But, I suppose someone is making money at it?
Long ago my Mom bought a huge oooollld house for my sister to live in while she went to college. College didn't work out at that time, but Sis had a good time and met some lifetime friends - in fact, one of her roommates ended up being her husband. Worked out well, as they remain married to this day. Seems to be a popular idea in our little college town - meanwhile I make bucks year after year from the kids whose parents prefer the rental route.

Bear in mind, if college at that school doesn't work out you may take a bath on the resale - you need about 8-10% appreciation just to cover cost of sale. Also consider whose name the house will be in - capital gains can eat you up but primary residence exclusion can be really sweet.
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Old 02-24-2017, 04:05 PM   #48
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What do you folks think about college town rentals? I've considered buying a rental in a town where my son attends school, about 2 hours from me. Son could take care of minor management issues. Seems that student rentals would have problems with less-responsible renters and yearly turnover. But, I suppose someone is making money at it?


I think it's a very good idea but we aren't the first to think of this. It's probably a lot more work (turnover) for a bit more profit.
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Old 02-24-2017, 04:11 PM   #49
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What do you folks think about college town rentals? I've considered buying a rental in a town where my son attends school, about 2 hours from me. Son could take care of minor management issues. Seems that student rentals would have problems with less-responsible renters and yearly turnover. But, I suppose someone is making money at it?
While in college, a lot of kids, yes, kids, are rebellious, anti-social, non-conforming and have competitions to see who can be the piggiest, grossest, reeking tenants ever. While the numbers can be staggering in your favor, your main job is not landlording, it damage control. I witnessed this market when my son was in college, and I gave the landlord all kinds of hell when showing his 6 unit building. He promptly showed me another unit in the building where he was to do some maintenance work after our showing. Never in my life......

Not my cup of tea, or unit of swill.....
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Old 02-24-2017, 06:28 PM   #50
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I prefer investments that do not result in losses, even if you get to carry them forward... if your losses net with gains, how is that a great investment?
These loses are only on paper. Go figure. A loss on paper of 20K but cash in pocket is $6K tax free The $14K left can further reduce your taxes if you don't earn too much money.

Cary the property to death heirs get step up in basis.

Wash and repeat!
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Old 02-24-2017, 06:52 PM   #51
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I'm curious as to how many properties he actually owns. I suspect the number is closer to zero than to one.

.
I don't own many only 4 rental properties with 6 units in total. As I look at my FIRE scenario, with all properties. (I've been crunching the numbers lately) They pull $86,100 a year in rents with insurance of $3977 & Taxes of $15,845. So my net after debt will be $66,278 or a bit over $5500 a month.! I figure I have between $120K and $160K initial investment dollars. (It's not like I can log into fidelity and process my numbers)

My current mortgage obligation is roughly $36,720 and include two of the properties which escrow taxes and insurance. Through the miracle of depreciation, none has ever shown a profit.

My accountant just told me today due to carryover losses once again I would get a refund this year. Couldn't use the losses in previous years, so they carried over.
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Old 02-24-2017, 06:55 PM   #52
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While in college, a lot of kids, yes, kids, are rebellious, anti-social, non-conforming and have competitions to see who can be the piggiest, grossest, reeking tenants ever. While the numbers can be staggering in your favor, your main job is not landlording, it damage control. I witnessed this market when my son was in college, and I gave the landlord all kinds of hell when showing his 6 unit building. He promptly showed me another unit in the building where he was to do some maintenance work after our showing. Never in my life......

Not my cup of tea, or unit of swill.....
My daughter is looking at renting a house off of campus next year in Philly. The guy bought it for a bit over $100K in 1999. He is charging nearly $4K per semester per room or close to $80K per year. It makes me want to puke
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Old 02-24-2017, 07:04 PM   #53
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It should make you want to buy a property in Philly
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Old 02-24-2017, 07:21 PM   #54
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My daughter is looking at renting a house off of campus next year in Philly. The guy bought it for a bit over $100K in 1999. He is charging nearly $4K per semester per room or close to $80K per year. It makes me want to puke
We have that guy beat - have two buildings with nine total college units we paid $50k for - last year they had rents received of $57,105.47. Expenses were $18,169.13. Not trying to make you puke - all we had to do was buy them 4/1/1987 and do just a wee bit of fix up and cleaning now and then... They long ago were all paid for. Rentals are nothing but gravy.
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Old 02-24-2017, 07:26 PM   #55
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It should make you want to buy a property in Philly
It has crossed my mind, but it violates a few of my rules:
1) Don't buy property that are far from home, which increases the PIA quotient.
2) Don't buy properties that I wouldn't be willing to move my family into.
3) Don't buy rentals where you aren't comfortable dealing with the tenants.

I had rented to college kids 1 time. The group talker was a slick kid. he sublet the property unbeknownst to me. I found out through a waiter down the street he had people living in the closets.

I said never again to "college kids", though I legally can't deny them the unit if they meet my requirements.

The beauty of this rental guy in Philly. I have to sign as being responsible for the rent.
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Old 02-25-2017, 08:53 AM   #56
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What do you folks think about college town rentals? I've considered buying a rental in a town where my son attends school, about 2 hours from me. Son could take care of minor management issues. Seems that student rentals would have problems with less-responsible renters and yearly turnover. But, I suppose someone is making money at it?
We own several multifamily properties in a town dominated by a large public university. Over the years, they have done well (generally positive cash flow, deferred taxes due to depreciation, and capital gains due to appreciation). You have higher turnover with college rentals, but that makes it a easier to raise rents with new tenants.

College towns can have a yearly cycle for rents. In our case, if we have a unit that is not occupied at the beginning of the academic year, it will either be empty for the academic year or will require significant discount of the rent to get it rented "off-cycle".

We have had a few issues with damage to the units but we require a parental guarantee for tenants without a job that has adequate income to pay the rent. The parental guarantee has been a help a few times with expenses related to tenant-caused damage, but not always. We had one tenant that tore the $^!* out of one of our units. Turned out mommy and daddy were both lawyers. When our attorney sent a demand letter to this tenant's parents, they cheerfully called and said to so ahead and try to collect as they knew they were legally obligated to pay. However, they further stated that they would do whatever legal maneuvers were required to ensure that would it would cost us more in legal fees than it was worth. What a lovely family!
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Old 02-25-2017, 10:00 AM   #57
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In that case, I might spend a little money to file and go for a judgement. They would likely pay before that happened, but the court case and their behavior would be public record.

I don't think lawyers are a protected class. I know one landlord that won't rent to attorneys. At least that's what he says...
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Old 02-25-2017, 10:18 AM   #58
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In that case, I might spend a little money to file and go for a judgement. They would likely pay before that happened, but the court case and their behavior would be public record.

I don't think lawyers are a protected class. I know one landlord that won't rent to attorneys. At least that's what he says...
We have a property management company handle the day to day stuff. Part of their service is subscribing to an online database called Tenant Tracker that allows landlords to provide a sort of "credit report" on tenants as well as report unpaid debts of deadbeat tenants to the true credit reporting agencies.
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Old 02-25-2017, 10:22 AM   #59
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My father did a similar thing back in the 90's when he sold a triplex that we had initially lived in, and owned in a college town for many years in California for $1.2M (purchased for $50K!). He took about $800K from the sale and bought four single-family homes in Raleigh North Carolina. (FWIW - for the college-town renters, rent to professors and grad students. They make much better, long-term tenants.)

My Dad initially did it the wrong way for the right reasons. He had been his own landlord for awhile and wanted to find a market where property values and the economy was stable, hence Raleigh. The problem was he didn't have property management, and so he talked his realtor into handling his rentals for him - very bad idea. After about six months, that relationship fell apart and he ended up finding and hiring a small, family-owned property management/relocation company that knew their stuff. This firm handled all management duties for him and did a terrific job for a reasonable price. He and Mom lived on that income in retirement and even through the most difficult economic periods, they never had a downturn in rent and their property values were incredibly stable. From a return standpoint, I would estimate they earned about 6% per year on their investment, not a great return for the time, but it was reliable and the equity was preserved to pass along, which is what they wanted.

Fast forward to 2010, when the market, and property values, took a dive my wife and I decided it would be a good idea to raid our stocks and buy more property in NC. Since I was already 'managing' and would be receiving my parents' properties it seemed like a good idea to add to the existing portfolio. Our timing couldn't have been more lucky. Unlike my father's initial foray, we had experienced management in place, the inventory was plentiful and cheap, and the homes we bought were even better financial investments overall than the ones my dad had purchased years earlier. We were even able to negotiate our fees down since the management company had seven properties in our account. For us, since we financed our properties, our return has been much higher on invested capital - we invested about $180K and the homes have appreciated $250K+ in 5 years plus they spun off $1,000 excess cash per month and we have missed a total of 3 months rent in 5 years due to turnover. I couldn't be happier with the whole package. We recently refinanced and lowered our interest rates on all the properties and took some cash out for a kitchen remodel (ours).

For comparison to earlier posters, we were able to purchase our homes for about ten times annual rent - a little less on one, a little more on two - and that seems to be a good factor for us that I have used to evaluate opportunities quickly. (I've read that 10-12X is good) I will be doing a 1031 this year, and I don't think the new property will even come close to those numbers, but since I'm selling too... FWIW - I like owning rental properties that are nice, and attractive to working couples and families. Students, Section 8, low-income rentals are not my thing. My one weird hangup is that I have to have a two-car garage. (It makes life so much easier!)

Having said all that, if we didn't have the benefit of market timing, our returns would be much different. Every owner's situation is unique and there are a lot of moving pieces to help make it successful - timing, market selection, property management, level of investment, type of investment etc. It seems to be much easier to use rentals as a place to store large sums of cash vs. trying to do it on the slow and cheap, but it can be done; the earlier you start, the better. It is interesting how property values tend to rise much faster than rents, and that makes markets like SoCal very difficult for SFRs. Sadly, I could never make it work where I live.

If I were starting over from zero, my first task would be to find the best market from a risk/return perspective, and the best management in that market to help me find and fill my properties. I've heard Milwaukee is good for rentals right now and down South there are other good markets. Keep an open (and analytical) mind.
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Old 02-25-2017, 04:42 PM   #60
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In that case, I might spend a little money to file and go for a judgement. They would likely pay before that happened, but the court case and their behavior would be public record.

I don't think lawyers are a protected class. I know one landlord that won't rent to attorneys. At least that's what he says...
One of the first books I read on landlording advised never rent to a lawyer or relative of one.

The contractor I use to lay carpet or vinyl when I don't have the time, advised me to never rent to the ER doctors close to the hospital. He said some are bigger pigs than college students.

I did rent to 3 college girls once. My wife and I jointly approve/disapprove of our tenants based on a 8 point checklist we have developed over the years. Two of the girls were former high school students of my wife, so they had a good reference. They rented for 4 years, and were the prettiest young things on the planet. No damage, great tenants, paid on time and very easy on the eyes.
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