All Forum Posts by: Allan C.

How long do you plan to stay in Bakersfield? If it's a temporary assignment, I wouldn't be eager to buy a primary there. I'm sure you'll hear varying opinions, but I'm bearish on overall supply / demand of housing in that area. Likely more jobs leaving the area than coming in, which doesn't bode well for assets holding value. 

Ethan, big kudos to you for saving so much this early in your life. You've also got a W2 now with good savings rate, so you seem to have a good head and good hustle. 

You're on the right track, and it's hard to pass up a shortcut. Others gave you good advice, so I'll just reinforce that you should wait another 2 yrs to qualify for a loan with your W2 income. You'll build up more savings during that time and get past the current market volatility. You'll be in a much stronger position to make a better informed decision at that time. 

in the meantime, you can start building up your skills. Learn how do tiling work, light carpentry, drywall, etc. You don't have to do repair work on your own, but contractors can tell if you know anything about repair work just by how you speak. It'll improve your chances of not getting taken advantage of.

also learn how to underwrite investment property cash flows on active listings. Calculate how much you'd pay for a property and then see how much they sell for. Over time you'll get a sense on how to make a competitive offer without overpaying. 

I'll also voice my disagreement with this opinion. It may work for someone who isn't looking to diversify their investment and stay at their property forever. However, all of my analysis show this to be an inferior investment to all other real estate options. 

while I agree impounds are good for lenders to reduce defaults, they are horrible for responsible borrowers. If I have 6 figures of taxes and insurance escrowed at 0% interest I am losing $20k+ of interest income.... and even worse opportunity cost is even more. 

This is a question of what you can afford and how much effort and risk you can tolerate. Highly capitalized people and institutions don't go after C/D class assets. There's a reason and do your research on that reason. 

conversely, people with low capitalization don't pursue A/B class assets since it's tough to scale. 

You don't want longer leases. Many tenants will skip out mid lease and you don't have much recourse. As noted above, longer lease terms benefit tenants more than LLs since you are expected to uphold your lease.

Every new LL wants to minimize turnover by having longer tenures but that is not a realistic expectation. Most experienced LLs know MTM is the way to go (except have some protection around mid-winter vacancies). 

One other point to consider as a small landlord, work with your accountant to maximize expense deductions through safe harbor elections (SHST and de minimus). You shouldn't ever need to capitalize any spend, and this is a powerful tool. 

there you have it - expense deductions for legitimate business needs are powerful to minimize your tax burden. Don't get creative and claim family food and vacation expenses as deductions, but legitimate items that help you run your business (ie cell carrier, internet, etc). 

Is $60k your gross rental income or net income after expense deductions? Are you paying interest expenses, taxes, etc?  $60k net income for LTR units seem very high. 

I haven't paid taxes on my net rental income ever. And even though taxes are deferred, that's as good as paying no taxes when you factor time value of money. A 15% return on investment means 2x principal over 5 years. If I defer taxes for 5 years, I still walk away with more money than paying taxes today. If I defer 10+ years then I walk away with a LOT more. 

Congrats on the big accomplishments to date!

we should tag this post and follow up in 5 and 10 years. Would be a good case study for all to learn from. All the non-millennials are concerned about OPs financial future while the younger folks all want to model this approach.