My next step in real estate

I did a 1031 exchange on my first two deals. It is like trading in a car in America and paying sales tax on the difference of the trade.

 

You dont pay income taxes on the profit if its put into the next property. However, in the end I believe you have to pay taxes on the total when you cash out and dont do another 1031. No sure.

 

In my city, the average house is $111,000....not much. Good and bad I guess.

Great thread guys! Thanks for the invaluable information and opinions!

Yes, mortgage interest deduction up to 1 million dollars mortgage amount.

 

No way, are you serious??

Anyone have any recommendations on how you can educate yourself about this? Books, etc?

 

I've never read any books on the subject, sorry can't recommend any.

No way, are you serious??

 

 

It just points out how we get raped for taxes here.

 

But could you imagine how expensive housing here would be if people could deduct their private home interest?

In the US we have what's called a (Section) 1031 Exchange which allows for tax free capital gains on property but only if you move the money into another property, and have that property identified within a certain time period.

 

That sounds like heaven, it will NEVER happen here.

 

 

Fortis what do you think about deciding between buying real estate in the very expensive cities versus the less expensive cities to get going?

 

So for example say $1 million that buys you a single unit home/apartment in one city or maybe that same amount of money could buy a multi-unit residential or commercial in another city?

 

I've understood the returns to be better on bigger unit properties.

 

This naturally comes up when you live in those expensive cities and the cost of entry is rather daunting.

 

 

I think it comes down to what you are after, cashflow or capital gain or a bit of both, the further out you go the more your money can buy the greater the return the lower the capital gain.

 

If you just start building yourself up it's good to take a safer approach until you've familiarized yourself with the process so investing in places you are familiar with will come naturally to everyone.

 

If you are a seasoned investor you will be looking at the big end of town, generally that's where the money is, doing a multi million dollar transaction is just as easy as doing a few hundred thousand dollar one, same formulas just different numbers, it always comes down to the size of your balls

 

To answer your question honestly I don't really know, I don't do any passive investments, I develop so I am only interested in the land component not so much in what's on top of it, I've never bought anything that I didn't have to demolish, unless I bought empty land, raw or subdivided. When I buy real estate I never go inside to look at the buildings because they have zero value to me or I should say negative value because it will cost me to have them removed.

 

Personally 100% of the time I take location over immediate returns for me realestate investment is long term 7 to 10 years minimum, I always look at the capital gain and volume, I want as much area as my money can buy, returns I can manipulate to suit my current needs so I am not very concern about them.

 

 

 

 

 

It just points out how we get raped for taxes here.

 

But could you imagine how expensive housing here would be if people could deduct their private home interest?

 

Time to move

I did a 1031 exchange on my first two deals. It is like trading in a car in America and paying sales tax on the difference of the trade.

 

You dont pay income taxes on the profit if its put into the next property. However, in the end I believe you have to pay taxes on the total when you cash out and dont do another 1031. No sure.

 

In my city, the average house is $111,000....not much. Good and bad I guess.

 

You pay taxes on the original gain that you already owed, and the gain on the property that you bought. You really have to be careful though, it's not the free money it appears. Sometimes you end up buying something that should have been passed on. Another is the depreciation schedule on the new property changes as well. You depreciate the difference, not the total price. That can be a big whoops. Say you sold a property for 400k, and made 100k on it . Then you bought a 900k property with the 1031. The depreciation schedule would reflect the 900-400k, or 500k for depreciation, not the real 800k difference to you. At least that's how it was explained to me on the last one that I did. So now one of your best write offs, depreciation was cut. Still another is the tax rate has risen &chances of it ever going down don't look good.

Time to move

 

The US is slowly moving that way. I learned a lot about economics from a couple of really interesting, in a good way, limo drivers in New Zealand.

 

The jist of my lesson is that it's harder to get ahead in Aus and NZ, so much respect to you wealthy Austrailians.

It just points out how we get raped for taxes here.

 

But could you imagine how expensive housing here would be if people could deduct their private home interest?

 

The US Government decided a long time ago that real estate should be subsidized on some level for its citizens. I guess the idea is that by encouraging RE investment, it would help the economy out more and those lost taxes would be made up for in other ways. The home equity loan/line of credit market goes up as a result.

 

Either that or the elites pushed for that law way back when to benefit their portfolios. But at the same time it benefits everyone not just the big boys, and as Assman pointed out there's a cap for the mortgage interest.

 

As far as AUS housing increasing based on adopting US tax laws, you could probably say the same thing if interest rates were really low. Imagine if interest rates were super low like 0.5%? We all want low interest rates but it could raise the market value of homes now that people have increased buying power.

 

In the short term the low rates are great to individual buyers, but eventually the prices would have to go up. I'm pretty sure the RE market in the '80s was pretty stagnant when we had 18-20% (!) mortgage rates.

 

 

You pay taxes on the original gain that you already owed, and the gain on the property that you bought. You really have to be careful though, it's not the free money it appears. Sometimes you end up buying something that should have been passed on. Another is the depreciation schedule on the new property changes as well. You depreciate the difference, not the total price. That can be a big whoops. Say you sold a property for 400k, and made 100k on it . Then you bought a 900k property with the 1031. The depreciation schedule would reflect the 900-400k, or 500k for depreciation, not the real 800k difference to you. At least that's how it was explained to me on the last one that I did. So now one of your best write offs, depreciation was cut. Still another is the tax rate has risen &chances of it ever going down don't look good.

 

You raise some interesting points.

 

I think a 1031 is most beneficial to the long term investor, because you only have to pay taxes when you finally sell a property for cash only....and by that time your property value has probably increased enough to offset the increased tax burden you may have accumulated.

 

Companies that specialize in this are called "1031 Facilitators".

 

This looks to have good info:

 

http://www.1031exchange.com/faq/

 

The US is slowly moving that way. I learned a lot about economics from a couple of really interesting, in a good way, limo drivers in New Zealand.

 

The jist of my lesson is that it's harder to get ahead in Aus and NZ, so much respect to you wealthy Australians.

 

 

My few visits there gave me the same impression.

 

 

 

My few visits there gave me the same impression.

 

Visits? Why haven't I been notified?

 

Assman managed to avoid me also.

That sounds like heaven, it will NEVER happen here.

 

 

I think it comes down to what you are after, cashflow or capital gain or a bit of both, the further out you go the more your money can buy the greater the return the lower the capital gain.

 

If you just start building yourself up it's good to take a safer approach until you've familiarized yourself with the process so investing in places you are familiar with will come naturally to everyone.

 

If you are a seasoned investor you will be looking at the big end of town, generally that's where the money is, doing a multi million dollar transaction is just as easy as doing a few hundred thousand dollar one, same formulas just different numbers, it always comes down to the size of your balls

 

To answer your question honestly I don't really know, I don't do any passive investments, I develop so I am only interested in the land component not so much in what's on top of it, I've never bought anything that I didn't have to demolish, unless I bought empty land, raw or subdivided. When I buy real estate I never go inside to look at the buildings because they have zero value to me or I should say negative value because it will cost me to have them removed.

 

Personally 100% of the time I take location over immediate returns for me realestate investment is long term 7 to 10 years minimum, I always look at the capital gain and volume, I want as much area as my money can buy, returns I can manipulate to suit my current needs so I am not very concern about them.

 

Some good advice, thanks!

 

 

Visits? Why haven't I been notified?

 

Assman managed to avoid me also.

 

 

Next time my friend. Rix also asked why I didn't visit you guys.

Next time my friend. Rix also asked why I didn't visit you guys.

 

as long as you had fun.

Well...I sent out 5 letters today to 5 different properties that are not on the market. They all have homes with people there, and one is a 12 acre lot being farmed. The houses are worth about $150k each and can be rented for now $800-1200/month. The school district they are in is exploding and many people need a place in the district just to get their kids in the school. It is hard to find a place to rent.

 

All 5 places will be rezoned commercial in the next 5 years or so, and are corner lots. They should go from $400-800k a lot. I hope someone pulls through

 

Also contacted my bank financing ideas. Wish me luck!

Well...I sent out 5 letters today to 5 different properties that are not on the market. They all have homes with people there, and one is a 12 acre lot being farmed. The houses are worth about $150k each and can be rented for now $800-1200/month. The school district they are in is exploding and many people need a place in the district just to get their kids in the school. It is hard to find a place to rent.

 

All 5 places will be rezoned commercial in the next 5 years or so, and are corner lots. They should go from $400-800k a lot. I hope someone pulls through

 

Also contacted my bank financing ideas. Wish me luck!

 

 

Way to get after it-- which part of the country are you in?

If you are paying $150k per house and you get $1000/month in rent I want in, that's a great return for properties with an upside.

 

I'd take the face to face approach rather than letters, letters seem very impersonal.

 

Good Luck Boner. ( this felt weird to write )

Thanks guys! Im in the land of OZ. That's Kansas, not Australia ;-)

 

I could get a 2 bedroom house for $80k (just in a neighborhood) and get $800 per month easily. On a 15 year note, not considering interest, that is $450 per month to the bank. That leaves $350 per month profit, though I would need to consider $200 per month for property taxes and insurance. That would leave me at $150 per month profit. I guess its monthly income plus an asset someone else is paying off.

 

When you guys build a new apartment complex, how do you make it profitable? I know its a stupid question. But, lets say you get a good deal on land and I could be the contractor, Are you banking on profiting $200 a month per unit, Times the number of units in the complex?

 

One of my best investments is a sandpit I recently bought outside of town. The ones in the city are selling for $2-2.5 million. This is a 35 acre sandpit 15 minutes away, and built a micro cabin on it. Its done and I have $60k in it. Ill have to post a topic about it later. At this time, I have 70 fishing leases at $250 each, and a hunting lease for $5000. This property is making $22,500 per year and that does not include the $100 I get to rent the cabin a night. It was just finished last week and I have 6 nights on the books. I think this property is a good point for borrowing equity now. The leases renew in october and I plan on raising the price $100 per lease and I have a waiting list at this time.

Wow, those numbers really put into perspective how lean margins are here in aus.

 

Of all the properties I own, the absolute best return I achieve is 6.5% (most however closer to 5.5%) which falls massively shy of the 12% in the example you've provides. Not to mention our interest rates are usually 2%+ higher than yours and cost of entry is 5x as high.

 

I'm now whining just jaw dropped how much room for earning there is on your properties.

Wow, those numbers really put into perspective how lean margins are here in aus.

 

Of all the properties I own, the absolute best return I achieve is 6.5% (most however closer to 5.5%) which falls massively shy of the 12% in the example you've provides. Not to mention our interest rates are usually 2%+ higher than yours and cost of entry is 5x as high.

 

I'm now whining just jaw dropped how much room for earning there is on your properties.

 

That's because you are a passive investor in resi realestate, if you develop your returns are, let's just say A LOT more than that.

Thanks guys! Im in the land of OZ. That's Kansas, not Australia ;-)

 

I could get a 2 bedroom house for $80k (just in a neighborhood) and get $800 per month easily. On a 15 year note, not considering interest, that is $450 per month to the bank. That leaves $350 per month profit, though I would need to consider $200 per month for property taxes and insurance. That would leave me at $150 per month profit. I guess its monthly income plus an asset someone else is paying off.

 

When you guys build a new apartment complex, how do you make it profitable? I know its a stupid question. But, lets say you get a good deal on land and I could be the contractor, Are you banking on profiting $200 a month per unit, Times the number of units in the complex?

 

One of my best investments is a sandpit I recently bought outside of town. The ones in the city are selling for $2-2.5 million. This is a 35 acre sandpit 15 minutes away, and built a micro cabin on it. Its done and I have $60k in it. Ill have to post a topic about it later. At this time, I have 70 fishing leases at $250 each, and a hunting lease for $5000. This property is making $22,500 per year and that does not include the $100 I get to rent the cabin a night. It was just finished last week and I have 6 nights on the books. I think this property is a good point for borrowing equity now. The leases renew in october and I plan on raising the price $100 per lease and I have a waiting list at this time.

 

developing apartments is totally different, I am doing a complex at the moment (not my favorite type of development) I got into it because it allowed me to have a substantial commercial/retail section which I am after, I wouldn't hold units to rent out unless I own them outright and I do it in order to manage tax liabilities, I'd rather put them in a rental pool and let them sit there then be crucified with taxes, that way I can use the equity for further developments and the passive income which comes along with them.

 

Developers will sell apartments down in order to realise immediate gain then they move on to the next deal, there are instances where you'd keep (forced to keep), tax reasons, units which are harder to sell and you don't want to take a haircut on, etc.

 

At least here these type of developments are very complex, I'd stick with what you are doing (intending to do).

 

Can you give us few figures on commercial/retail/industrial space around your area?

 

 

Sure!

 

I have a commercial building here, on the edge of town. It is 15,000 sq ft, and is a "strip center". But, it is a very nice one. 6 of the units are clinics. 5 years old. It is solid stone, three phase electrical, and fully rented. This area will grow for the next 15 years. I get $12 per sq ft triple net. The property is worth $1.5 million and the property taxes are $50k per year. So, the overall income of the building is around $180,000 per year. Only killer is taking the $50k property taxes off that. That brings it down to $130,000 income per year. Over 15 years, that brings in $1,950,000 after property taxes. Not including odd bills, interest rates, and insurance, that is a $450,000 profit when the building is paid off. I am hoping most of them will be around $15/sq ft on the next round.

 

Hopefully this makes sense?

 

2 miles from here, the rent is DOUBLE that. It is mainly fields in that 2 mile gap, but it is closing very quickly. I am guessing it will be closed within 5 years. It is one of those deals where we have a city of 500,000 and several small towns n the outskirts that are getting swallowed, and these towns have the better schools.

I have to say it, but this is almost more interesting than lambos to me!!

Sure!

 

I have a commercial building here, on the edge of town. It is 15,000 sq ft, and is a "strip center". But, it is a very nice one. 6 of the units are clinics. 5 years old. It is solid stone, three phase electrical, and fully rented. This area will grow for the next 15 years. I get $12 per sq ft triple net. The property is worth $1.5 million and the property taxes are $50k per year. So, the overall income of the building is around $180,000 per year. Only killer is taking the $50k property taxes off that. That brings it down to $130,000 income per year. Over 15 years, that brings in $1,950,000 after property taxes. Not including odd bills, interest rates, and insurance, that is a $450,000 profit when the building is paid off. I am hoping most of them will be around $15/sq ft on the next round.

 

Hopefully this makes sense?

 

2 miles from here, the rent is DOUBLE that. It is mainly fields in that 2 mile gap, but it is closing very quickly. I am guessing it will be closed within 5 years. It is one of those deals where we have a city of 500,000 and several small towns n the outskirts that are getting swallowed, and these towns have the better schools.

 

That's good return, entry price is very low, I couldn't even build that here for the price you are valuing it at, get few more of those if you can or venture out of your area or start land banking in your area.

 

Damn I might have to actually travel to US for a bit if a looksie

 

Also, another bit of info with few caveats, I don't know your age, financial position, local taxation rules Etc. but if I were you I'd change my attitude about paying things off and rather build up the portfolio by using financing to your advantage, when you get closer to retirement sell off part of your portfolio to unencumber the balance, keep your insurances up to date in the mean time. Shift your focus from paying off to smartly building up your portfolio.