Welcome to the readers of the 102nd Carnival of Real Estate | Farming For New Real Estate Blogger Talent graciously hosted by Searching Solutions. If you’re new to Minding My Own Business, I’d like to extend a hearty Welcome Aboard! I hope you enjoy your visit. You can find more real estate experiences here. And don’t forget, you can get regular updates by subscribing by RSS or email.
Recently I shared my impressions of some potential real estate investments located in Kansas City. That trip to KC made me realize that my REI goals were not necessarily in alignment with my financial standing and my idea of the types of property I desire to own. The result…revised goals and revised property criteria, but still a fighting chance to buy my first investment property before the end of 2008. I can live with that.
Enter stage right… the US Navy and an unexpected career opportunity. The result, another major modification to my REI strategy.
While unexpected, the opportunity the Navy presented me is too good to pass up. But like all opportunities it requires sacrifice, flexibility and an open mind to new possibilities. The details of the job are not important for now, but it will require my family and me to move to Boston, MA just before next summer.
I’ve visited Boston in the past and found it to be a nice city, with lots of history, arts, theater, sports and fun things to do, but the cost of housing is a bit more than I’m used to here in Virginia Beach. So this is where the flexibility and being open new possibilities comes into play. Can I still buy an investment property this year? Should I? What about a house in Boston? Do I need to sell my home in Virginia Beach?
Wait a minute. This has got to be the WORST time to sell. Chris over at KC REI has similar views about timing the current real estate market. Bottom line…I have to figure out a way to keep my house here in Va Beach. I’m no where near taking a loss on this property. I could sell it today and clear $200K over what I purchased it for, but Millionaires work for profits, and I think there are more profits in this house yet to come. Besides, current rents in my neighborhood are $500-$700 MORE than my mortgage payment.
Decision #1: Keep the Beach house and rent it out (disclaimer: it’s not actually located on the beach).
OK, I have one major decision under my belt. So what’s left? I still want to get started investing in real estate and I need a place to live in the Boston area. Let’s look at housing options in Boston.
A quick run through the MLS shows a lot of nice homes, but at first glance my housing dollar doesn’t appear that it will go as far in New England as it has here in the mid-Atlantic.
I suppose I could rent, but that just doesn’t feel like a wealth-building strategy to me. Rents in the Boston area appear to be running between $2500-$3500/month for places on par with my current home. That much per month could float a loan in excess of $500K. I have a hard time stomaching giving up $30K-$40K per year to help someone else build equity by paying down debt and bide time in today’s market so they can benefit from future appreciation. Additionally, I’m not keen on giving someone else positive cash flow and tax deductability. I want those benefits. And if this a bad time to sell, it must be a GREAT time to buy!
Decision #2: Buy a house in Boston.
Decision number two made….whew! So what about my goals. I wanted to buy an investment property in 2008. Regrettably this goal will have to be deferred a bit. The good news is that if I can execute the decisions I’ve made here with you on MMOB, I’ll be a real estate investor by the summer of 2009. A six-month delay, but one that will put me in a position to have close to $1 Million in real estate rather than $600K or so had I not received the job opportunity in Massachusetts and executed my previous REI strategy.
I’m going to still be a real estate investor, I’m just gonna sneak in the back door to get started.
I’ll cover more as this strategy unfolds over the next ten months. But I can already see many benefits to getting started in real estate investing in this manner over my original plan. Some include a larger and greater quality property portfolio, owner occupied financing and the possibility to forgo paying for property management here at the Virginia Beach property.
Thanks Uncle Sam!! 
-Jeff
I’m Minding My Own Real Estate Investments, are you minding yours?
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19 responses so far ↓
1 Chris Moran // Jul 28, 2008 at 7:18 pm
Nice writing style. Looking forward to reading more from you.
Chris Moran
2 Allen Taylor // Jul 28, 2008 at 7:34 pm
Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor
3 Jeff // Jul 28, 2008 at 7:59 pm
Chris and Allen….Thanks
4 Chris Lengquist // Jul 29, 2008 at 9:36 am
Sometimes accidents happen that work out to your benefit.
5 Jeff // Jul 29, 2008 at 10:49 am
Chris, thanks for the comment. I’ll take accidents like this one all day long.
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9 Scooter // Aug 4, 2008 at 1:49 pm
Have you considered the tax implications for your (soon-to-be former) primary residence in Virginia Beach. Until about a week ago, you could have held it as a rental, sold it three years after renting it out and pocket all gains up to 250K (single) or 500K (married).
Thanks to the new tax law, starting Jan 1, 2009 a primary residence that is converted to a rental will result in capital gains tax due on
an amount proportional to the number of days it is not a primary residence.
10 Jeff // Aug 4, 2008 at 1:58 pm
@Scooter - Wow! I’m not aware of the change you are referring to. Looks like I’ll need to do some research on this one and give it due consideration. I have been telling my wife that we can rent for three years then decide whether to go tax free gains or continue to rent. I have close to $250K in equity so it deserves careful consideration.
If I choose to keep it as a rental then I could still protect the gains via a 1031 exchange rolling them over to new properties. But that only defers the tax…it doesn’t eliminate it.
Hmm…maybe my strategy will have to change again. Thanks for the thought provoking point.
11 Kevin // Aug 8, 2008 at 12:55 pm
Jeff -
One solution is just hold everything until you die! Then your heirs will get the step-up in basis and you’ll never have to pay the cap gains/depreciation recapture taxes.
Good luck to you.
12 Jeff // Aug 8, 2008 at 3:04 pm
Kevin - Good point. Now if only I could get an investment loan from my kids based upon their future inheritance.
13 Twig // Aug 11, 2008 at 2:29 pm
Ahh, how tied our lives are to the Navy. While you’re on your way out, I’m on my way in (to Norfolk). I accept 36 month orders starting Dec ‘08.
Like you, I’m leaving an area with lower cost of living (Jax) to VA which is relatively higher. I too have my equity tied up in my primary residence, which I will convert to a rental. I’m currently justifying a purchase in Norfolk/VB, even though my intended down payment has been substantially reduced with the stock market plunge, leaving me less than 20% for a DP. I’m glad I found your blog, I’ll keep an eye on your progress.
14 Jeff // Aug 11, 2008 at 3:44 pm
Twig - Thanks for the comment. I’ve got a house for you to rent if you can wait until June 09.
Seriously though, the down-payment issues is one I’m fretting with as well. I’m going to probably pursue a jumbo-VA backed mortgage and minimize my down payment. I’ve bought two houses with little to nothing down and have done well so far.
I’m a bit nervous with the cost of housing in the NE. But the BAH is over three grand a month up there, so that floats a sizable mortgage.
Thanks again for reading and welcome to Hampton Roads.
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