Question:
Tony, given that you stated you do the majority of your investing in Antelope Valley where the price points of the homes are relatively close to each other and the price range is narrow, could you briefly discuss when you would apply the various Investment Exit Strategy scenarios? Does your exit strategy depend on your tax bracket? If you sell before 1 year cap gains, right?
-Student
Answer:
First, I don’t agree with your assessment of the Antelope Valley. We have condos and houses for under $100,000 and we have custom homes that sell for over $1,000,000. Everything is geographically specific.
I only buy if the properties qualify for both of my Exit Strategies:
- Buy, fix and sell, with at least a 10% net profit.
- Hold as long-term rental for at least a 10% cash on cash return
What he’s saying is, if you sell before 12 months, you’re going to get wacked, but here’s the thing when you’re starving and you need money, capital gain should be the last thing on your mind. It’s all an individual thing. It’s not just your tax bracket, it’s your food bill, your rent, your mortgage, whether you have kids or not or whether you lost your job. There are many other things that come into play, but what I think you’re trying to say is yes it’s an individual situation.
For me, nowadays, I like to buy and sell just enough to cover all of the expenses in my office. The rest of my houses, I like to keep them as rental houses, because I know where I made all my big bucks. I don’t need to go to anybody’s seminar to tell me how to make $10 million dollars; I know how to do it. So, I know it’s not going to be “buy and sell,” and “buy and sell,” all this “flip this house” nonsense. Yeah, that’s lovely if you want to have Uncle Sam as your partner. But if you want to make some serious dollars, look at the guys who have been around. And you know what the problem is? The guys who really make big money in the real estate business, they’re what’s known as the “silent majority.” They’re quiet; they’re the guys sitting at the back of the meetings, the older guys that are very polite to everybody and they’re bringing in $100,000 a month in rental income and you wouldn’t know it by the way they dress.
But you’re very, very accurate, you have to be very specific, you have to know what your tax ramifications for your decisions are, but when you have no other choice you have to flip or you have to wholesale to someone. You have to get a finder’s fee, something to start working in the business.
My perfect example for that is the kids who started in San Diego, Erin and Joey. And they’re on the website, I’ve told you a million times, if you haven’t seen that video, shame on you! Go to www.tonyalvarez.com and click ‘video interviews” and listen to those kids that started with nothing.