All Forum Posts by: Alan Pederson

What I don't get is that 2 of the houses are exactly the same. Same square footage, same builder, exact same layout of inside of house, same city, same county, same school district, and they're only 2 blocks away from each other. Yet one has taxes of $3,742 and the other one is $2,672. How does that make any sense?

Last year the taxes went up on one of our properties and took a big bite out of our earnings. We had a $1,000 house payment and were renting it out to my step-daughter for $1,400 a month. The county increased our taxes and the new payment went up to $1,200 a month. So our profit went from $400 a month to $200 a month. We were renting to my step-daughter (no lease) at a discount and I told her she probably needed to move because I needed to rent the house out for $1,600 a month (market rate for this house). She moved a couple of months later into an apartment for $1,000 a month and we found new tenants to pay the $1,600 rent.

We just received our new information from the mortgage company on the rentals we have. One house is going up $8 a month, another house is going up $56 a month, and the third house is going up $300 a month. This third house we pay $800 a month and rent it for $1,250 ($450 profit). Now that house is only going to make us only $150 a month. I was planning to raise the rent $50 a month on this house but there is no way I can raise it $300 a month. Market rent for this house is probably $1,400 but I have really good long term tenants that I want to keep.

The tax man is killing me... Rant over

I still have the original tenant in the first rent house we bought 3 years ago

@Mary Jay, We originally were looking for a way to make some passive income other than our 401K's. We were only making $2 a month on $40k sitting in the bank. $2 dollars wasn't going to cut it so we started looking at real estate. We invested about $35k to buy a rent house (down payment + repairs) and make about $500 a month off of it. (gross return = 17.14%) I know there are going to be repairs in the future so I know I won't be able to keep all of this. This isn't as much as I would like to make on this deal but it's a lot better than the $2 I would be making if I just left the money in the bank. This house has went up 30% in value since we bought it 3 years ago.

Good point. I've talked about the importance of saving money and getting your finances in order for years and years but it wasn't until I started buying rental property that others really started to listen. I encourage them to take their hobby or something they're interested in and try to find a way to make money from it. The 9-5 job pays the bills and provides insurance but if you want more out of life, you need to find a way to make your money work for you.

I can put money in my 401K and average 10-12% a year. If I can find a property that makes me about the same or more than that I consider it a good deal.

1. strategy or niche? The only thing I was concerned in was that I wanted to find a house that was close to mine that didn't need a ton of work and that it would make at least 15% return on investment. I wanted to find something that most people could afford so I would have a broad customer base. The first one we bought was 3 miles away and costs us $132k (it would now sell for $160k) w put 20% down and spent $3-5k to fix it up.

2. funding? We saved for 5-6 years before we bought our first rental. During that time I read books and did lots of research online. I had a big stack full of print outs sitting on my desk at home that I read thru. I put together all the paperwork I needed to buy, rehab, and rent out a house. I tried to think of everything that I would need to get started. We had about $50k saved up when we bought the first one. We used around $35k total and held the rest in reserves.

 That was a big chunk of our savings and my wife wasn't very happy with me spending it. She still let me buy the rental but told me I was on my own. She wouldn't lift a finger to help. Her brother-in-law also told us lots of horror stories about buying residential real-estate (he does commercial). No pressure... If I failed I would never hear the end of it. We ended up doing just fine and now my wife is 110% on board with this. She helps me do all the make ready now.

I agree with @Michael Pearse. First make a plan, then stick to the plan and move forward. You can always go back and adjust the plan. If you never move forward (or take the leap) you will never get to where you want to be.

When we started looking at buying rentals I was very nervous and my wife wanted nothing to do with it. I knew I could make it work but kept thinking "what if I fail". I decided that either way I needed to at least try because doing nothing wasn't going to help me retire any sooner than 67 years old and that wasn't a pleasant thought. We have 3 rentals now and we are saving up to buy the next one. We still haven't formed an LLC but I have thought about it and figure at some point I might do that. All 3 rentals are doing great with very good tenants. Finding good tenants is definitely the secret to doing well in this business.

Is that 3% down for a normal mortgage or for rental property?

I've used Colonial to finance the 3 rentals I have and I've had to put 20% down on each and have 6 months of payments held in reserve just to qualify.

We are at about the same place. We spend about 60% of our income and save the other 40%. The 40% is divided between 401K's (16% total) and saving to purchase more rental properties (24%). We should be saving more but for the past 10 years we have helped pay for college for 2 kids and 3 weddings. The last girl child is getting married in May of this year so all the kids will be out of our pockets after that. We should be able to start putting another 10% away and get our expenses down to 50% of our income.

I had a long conversation with two of the people that I supervise a couple of days ago. They both received their tax returns and spent them as fast as they received them. The first guy got back $5,000 and the money went towards breast surgery for his wife. A couple of weeks later he spent $800 building himself a new computer. He told his wife they didn't have any money but she went out and spent $800 on supplements and getting her hair and nails done along with a few other things. He ended up having to take out a payday loan just so he could buy groceries. He makes $24 an hour, is married, and has a 3 year old at home.

The other guy got back $3,000 on his tax return and spent almost the entire thing buying his wife a fancy diamond ring. This is the same guy who works every bit of overtime he can because he can't afford to save $20 a paycheck. He makes $27 an hour and lives in his grandparents old 900 sf house with his wife and 2 kids. He drives a new Mustang and always has the latest I-phone.

These 2 drive me crazy when they tell me this stuff. I guess that's just how some people are. It would terrify me to live like this and have no money in the bank.