So, when we last left you, Susie and I had a house built in Las Vegas, had been the first ones to sleep in the house, and had then rented it out on a yearly lease. We had a local property manager who collected the rent, took a percentage, and sent the balance to us monthly. The money we got, covered the majority of the expenses of the house, we got a pretty nice tax benefit from owning and renting the house, and we had an excuse to travel to Las Vegas, which we did several times. The only thing missing was that we never got to use the house.
Sometime in the Spring of 2004, Susie and I went for a weekend trip to Atlantic City. Since it’s only 12 miles away from Ocean City, on Sunday, after checking out of the hotel, we took a drive to Ocean City. I don’t remember if we hit the boardwalk or not, but we did drive around town, and when we drove by an Open House on Asbury Avenue, we decided to stop in and take a look. The town was empty, and the realtor had been alone for most of the day, so he was more than happy to spend some time talking to us after we viewed the house.
His name was Ray, and that day was the beginning of a relationship that changed our lives! We got down to the nitty gritty, started talking costs, hearing about how much property values in Ocean City had been increasing, talking about what we could rent out a house for during the summer season, and really had our eyes opened that day! In the car, on the way home, we talked a lot about our future and about our real estate portfolio. The more we thought about it, although we’d enjoyed Las Vegas a lot, we both knew that we’d miss the ocean if we retired to the South West, plus having a house 3 hours away by car rather than a 6 hour plane ride seemed to make a lot of sense! It appeared we’d made a decision!
The next call was to our friend and realtor Sharon Malloy in Las Vegas. We laid out what we were thinking of doing, and she agreed it made sense. We loved what she told us about the Vegas real estate market, and were ecstatic when she told us what we could probably get for the Vegas house! We gave her the okay to put the house on the market, and to have the Property Manager let the tenant (who was now renting month to month since the 1 year lease had expired) know that we were putting the house on the market. Everything sounded like it was on track!
Well, not quite! First wrinkle in our plan was that for some reason, the Property Manager had sent the tenant a signed lease for a 6 month extension of her rental. Although she’d had the lease for several months, and had never signed it and returned it to the Property Manager, she was right that she had a signed 6 month extension. Okay, that pushed the potential return of the house to us back by a couple of months. We thought we could deal with that. Then, the second wrinkle hit…..as we were about to put the house on the market, the bottom fell out of the Las Vegas market!
Remember the US Housing Bubble in the late part of the first decade of the 21st Century? Well, Las Vegas had it’s own housing bubble burst, but a bit earlier. Turns out that they had overbuilt the housing stock in response to a population increase that leveled off. Because many folks had bought multiple properties without enough capital to carry them if they didn’t have renters, they were in trouble, because the rental market was over saturated. In reaction to what was happening, housing prices were dropping as landlords attempted to unload their unrented houses, rather than lose them to the bank. It appeared we’d missed the house price peak. Trust me, this only increased how pissed off we were at the Property Manager for screwing up the lease extension with our tenant!
We were very lucky, because our real estate agent Sharon was well versed in what was happening in the market, and had great advice for us. She knew what was going on regarding sales in the development our house was located in, and came up with the perfect asking price and marketing plan for the house. Although there were a couple of weeks of nail biting on our part, in the end it worked out. Even though we’d missed the market peak because we couldn’t get rid of the tenant when we wanted, thanks to Sharon’s good guidance, we were able to sell our house for a very good price. We’d owned the house a bit more than a year and a half, and we’d sold it for about $140,000 more than we paid for it! A pretty good profit in our minds for a 19 month investment!
Doing some research, I discovered that there was a tax legal way to transfer the profit gained on an investment property to another investment property, and not pay any Capital Gains tax. Called a 1031 Like Kind Exchange, in essence it allowed us to “trade” one house for another, and if we met certain requirements, not to have a taxable event. We found a company in Nevada that acted as the intermediary for this, and they handled all the paperwork and banked the funds until we bought the next property. One of the requirements, however, was that we had 45 days to identify that next investment property and then had 180 days to complete the purchase.
The clock was ticking!
Next time…finding that property, which turned into a home!