All Forum Posts by: Will Barnard

Realtor.com can be a source to find deals. They mix both MLS listings from agents as well as FSBO. In a lot of cases, you could have better results dealing with the homeowners in negotiating deals to purchase/wholesale. Of course, not all Realtors are RE savy either. Practically everyone and their Mothers became Realtors over the past 5 years and many of them do not price properties correctly or know how to negotiate, so deals can be found there as well.

Keep in mind that it is not the website and property you are looking for, but the "desperate" seller! This is where the deals are hiding. Desperate can be job transfer-need to move, divorce, death, behind on payments, jobb loss, etc.

Good luck.

I hear you. I too like to meet face to face with the pros on my team. In fact, I do fly out and meet them when I am able to arrange enough items of business to accomplish to make the trip worth the money "cost effective".

As for your deal, I looked at it. Can you send me all the figures so I know how you arrived at the cash flow figure? What about the subsidised monthly payment for two years? Is that how the property cash flows or is that extra "gravy" for 2 years?

Jon, Thanks for your input as well. As you, I am also not a CPA or tax attorney, but I have studied this subject and have been taught by competant professionals. I too want to clarify the specific calculation to be sure I am correct (as my calc is more beneficial than yours). I received my information on this calcualtion from a CPA/tax attorney named Mark Kohler. He has extensive knowledge on this and many other RE subjects as they relate to taxes, etc., however, laws do change often and perhaps mine is outdated. If you get positive confirmation of which formula is correct, please post it and/or email me and I will do the same.

One thing I understand is that there is no depreciation tax write off for RE investments held in a tax deferred/tax free retirement account. Since they are already tax advantaged, the usual depreciation is non-appplicable. Again, I may be wrong here, but that is how I understand the IRS rules to be.

As Mike said, it does not matter if the tenants are section 8 or standard, you can have the good and bad in both. The real key here is knowing how to screen your tenants. Just as you would for a regular tenant, it is necessary to screen section 8 tenants (even more so in my opinion).

You are ultimately responsible for your business and as such, you should take the necessary precautions and steps to reduce potentially problematic tenants.

The last response to this thread is almost 4 weeks old, but I believe this subject to be of high importance from a RE investor standpoint, so I will add to it.

Lito posed the question of contributing to an IRA for his wife in addition to himself. For 2008, a married couple filing jointly can contribute up to 10,000 into a traditional IRA (if over age 50, add $1000 single/2,000 married file joint). These figures are the same for a ROTH IRA.

Since most of us a RE investors, it would make more sense to invest these retirement accounts in RE rather than the suggested bank funds/brokerage houses. Anyone with earned income (or an existing IRA) can open a self-directed IRA (SDI) and invest in real estate, loans secured by RE, business ventures, and many other vehicles. In 1974 ERISA (Employee Retirement Income Security Act), states that you can invest your retirement funds in any investment of your choice excluding life insurance policies and collectables.

Jon suggested that Lito was attempting to create a much larger IRA account fast. I am sure that is true, but it can not be done by having your parents contribute to your account or anyone else for that matter as Jon said. You can not exceed IRS limits for contribitions. In order for Lito, or anyone else in the same position, to create a larger account fast, I suggest rolling over to a SDI and use the following strategy.
I know of an investor who opened a SDI with $5,000, located an apartment complex (46 units), placed $5,000 earnest money in the name of his SDI, located a buyer for the property and assigned the contract for $75,000. This all took place inside of three months and his IRA (it was a ROTH) grew form 5k to 75k in just 3 months. This same strategy (wholesaling) can be done on residential and commercial properties.

This of course, is not the only strategy, but one of low risk and high return in a short period of time.

For info on SDI's, Google "self-directed IRA" or check out Equity Trust (www.trustetc.com) or entrust. Both are good TPA's (third party administrators) and I favor ETC. You may also check out www.irs.gov click on publication 590 for the IRS rules and guidelines pertaining to SDI accounts.

Well said, I agree. Taking on a mortgage does incurr interest expense but does allow for more buying power. As Wheatie said, after doing the numbers on each deal, calcualte your return on the cash investment. I look for at least 25% ROI, if not, you should be looking elsewhere.

The depreciation on rental properties (residential 1-4 units) are calculated from the value of the improvements and divided by 27.5 years.

For example, lets say your rental is purchased for $200,000 and the land is assessed at $40,000 and the structure (improvements) assessed at $160,000. You would be allowed to take $160,000 divide by 27.5 years, giving you a $5818 annual deduction each year. Assuming your marginal tax rate was a combined (fed & state) 33%, you would get back $1919 on your taxes, assuming you had income and paid taxes.

Speak with your CPA on this, as there are several different strategies that can be used, and there can be depreciation recapture, depending on each situation. You can get the land/improvement values from your property tax bill or the county assessors office.

Now how about if you set up your LLC or Corp in a state that has no state tax. What if you were to set up a business bank account in that state, then have your monies sent to that account and deposited. You now can access this money, w/o the state tax. Is this a plausible scenario??

No, not true. You can not avoid paying taxes by setting up an LLC in a no state tax State such as Nevada or Texas. In almost all cases, you should set up the entity in the state you are doing business in. Just because you have an entity in Texas, and you make all the deposits there, does not relieve you from paying the state taxes in the state you reside in.

Remeber that LLC's are flow-through entities which pass any income/loss to the owner's or partner's personal tax return(s). Check out "Lawyers are Liars" by Mark J. Kohler - Protecting your assets. It is a great read written in terms easily understood and gives the real truth about this and many other topics. I highly recommend it!

As far as the last question on how to open credit for a new LLC/entity, you will be required by the lender to give a personal guarantee for the loan/loc. Once business credit has been established over time, the entity will have the ability to obtain financing on it's own.

I believe you are on the right track choosing RE as the income producing and retirement plan vehicle, however, you are missing out on the power of leverage to start. This is not to say that All Cash is wrong, just to say that your plan does require you to eventually use debt financing for the second or third purchase. Since you are already planning that, why not start out with debt financing on the first as well.
This of course does not mean to over-leverage, but perhaps placing 50% down on two rather than 100% on one may equate to better returns.

As All Cash also pointed out, make sure to include all the other expenses to evaluate your cash flow and thus your ROI.

Another option would be to get a commercial property to start which can produce higher returns and monthly cash flow. I do recommend that you get educated first before jumping in. Sit down with a knowledgeable/reputable financial planner or CPA who has lots of experience in RE to create a plan that fits your risk tolerance/ current goals, and future goals.

Best of luck to you.

Not sure about CPA in Oakland, but I have been with my CPA for over 12 years and he is very well versed in RE investments. He purchases RE investments personally as well so he practices what he preaches. I would be happy to give you his contact info if you choose - email me directly.
He is in So Cal but with technology of today (phone/fax/email/etc), it should not be a problem.