All Forum Posts by: Bill B.

@Zach Howard

All 1800-2400sf, 3-5bd, 2-7 year old (when I bought them), stucco sided, tile roofed, SFR without lawns. Basically zero maintenance. With a dozen properties over 25 years I have yet to spend a dollar on a roof or painting a house exterior. (Other than wood trim.)

People move in and they stay 6-12 years. It’s their home. They have a yard, they have laundry and a garage. Apartments aren’t an alternative to these people. My vacancy is probably under 1/2 of 1%? (A couple weeks for 1 property every year or two? (5 tenants are original tenants, having been in the homes since I purchased them 9-12 years ago when I was doing more buying.)

My last purchase was a 1031 exchange in September of 23 for a new build. 

Hey Christopher, congratulations on making it through that mess. 

I have a dozen properties. They generate about $300k in rent, I get to keep about $250k of that in cashflow. But, ON AVERAGE those properties appreciate about $325-$400k per year. No, I do not extract that income to live on because I don’t even need the $250k to live a pretty extravagant (To me a boring Midwest guy who never made more than $60k/yr while working. Plus with no state income tax, cheap insurance, and very low property taxes, I’m probably starting $20k ahead of most people, and that’s a tax free $20k.). Then think about writing off your cellphone, your internet, you car, your home office, your tax prep, etc etc etc.  And there’s another $20k tax free head start I have over the “worker bee”. 

It’s like I have a bunch of clones out earning money for me. (Others would be more boring and say it’s just my money earning money. But it’s also saving me taxes. :-))

But yes, I could take a $200k or $300k tax free loan every year on the appreciation if I couldn’t manage to make ends meet at $20k/mo. But to me that would be a spending problem, not an income problem. 

Imagine something as simple as deciding tomorrow to spend 3-6 months in Australia because it’s too cold here, or I haven’t been, or a friend dared me. Most people couldn’t afford to do that. Either they don’t have the money, or more likely they don’t have the freedom. They’re a slave to their job. If they stop going the income stops. More importantly to me. Most of the people who could would just do it, leaving their home empty.  I would rent out my primary and end up making more than I spend living in Australia. And it wouldn’t even be ONLY profit motivated. To me, having my home sit empty is wasteful. It’s the reason the lake front “retirement” home I bought on Lake Minnetonka in MN has had a tenant in it for the last 10 years. The idea of it sitting empty caused me emotional damage. 

I think a lot of it is mindset, or personality or whatever it is that controls how you act in certain situations. My classic example is:

The richest man in the world works harder and longer hours AFTER becoming rich than almost anyone else is willing to work to become rich. It has to be a personality trait. People talk about being a rush to retire early on $1-5-$10 million. Here’s a guy with 400,000 billion working his butt off. And the world’s a better place for it. Don’t be wasteful and try to make the world the better place while generating income and it won’t even seem like work. 

And I’ve rambled on again. Hopefully you found a nugget in there somewhere. And congratulations if you made it to the end again. 

Ps. Can you believe how much time and information Tax, 1031 exchange, accounting, and financial experts give away here? Many of them have already “made it” and do it just to make the world a little better. So I try to thank them every time for providing information I would have to pay for, if I knew who to ask and who to trust. They are a more local and relatable example. 

I tried to skim most of the replies so I wouldn’t repeat what’s already been said but here’s my response to OP about real estate and retirement. 

Treat it like a retirement plan, in fact I replaced my retirement contributions with real estate. This means…

Don’t count on it to cashflow, your 401k or your ROTH doesn’t cash flow, they never have. And yet every retirement expert tells you to sink every dollar you can afford in to these accounts. 

From 2015-2020 everyone on BP was cash flow, cashflow, cashflow. Cashflow is guaranteed, Appreciation is gambling, blah blah blah. Then in 2020 it turned out cashflow wasn’t guaranteed, the government could burn your cashflow to the ground and you could lose everything. To me this was always a false narrative. All my rentals were in Vegas during the Great Recession. You tell me a market that was hit harder than Vegas? Well.  I never made more money than that time period. Rents were skyrocketing, 10-20% annually. I had waiting lists of tenants for the first and only time in my career. 

Personally I don’t think you are ready or that you should buy real estate if you NEED the cashflow. Especially if it’s less than $1,000/months per property. It’s just too easy for it to go away. In fact I went out of my way to get 15 year mortgages because I knew that even if I had zero or even negative cashflow I was literally making more money as my interest expense was lower. I care about income waaaay more than cashflow. I sank every dollar my rentals provided back in to paying off debt and acquiring more properties. (You know, zero cashflow, just like a retirement account.)Even today with only paid off properties generating a boatload of cashflow I generally make more every year on appreciation. 

Sure, it took almost 10 years to retire, but compared to the 30-40 year plan most people use it was a dream come true. And none of that counts the 10’s of thousands in tax advantages I reap without any advanced skills or planning, the government just hands them out. 

It’s not a binary on/off choice. Not convinced? Buy a new primary every 2-5-10 years, whatever you can afford. Keep it as a rental and I GUARANTEE your life will be better in 20-30 years than if you ignore me and the simple get slow plan. After all, if your 5% down properties only double in 20 years you’ll have 40x your money. And that extra $40-$50k a year will be life changing. Every single new investor wants to say it was easier “back then” or “it’s too hard/impossible today” so they don’t have to start today. When I was buying 1/2 price homes not ONE person I talked to said it was smart. EVERY single one said “aren’t you afraid they’ll keep dropping?”  Now they tell me I was lucky I bought back then. I was buying homes for $100k with $25k of my money, and the mortgage was paid off by the tenants. Did they really think 3 year old Vegas homes would drop below $25k? Now they’re hoping they’ll drop below $525k. 

You’re surrounded by a support group I never had, and that’s a positive. But I also didn’t have all the negative Nancys (sorry Nancys of the world) saying it was too risky too late or couldn’t be done. Maybe that’s why it was easier doing it alone. I literally didn’t know a person that owned 2 homes, much less a rental. I just did the math and it was obviously better than stock account retirement. And experts said that was a good idea. So if this was better it couldn’t be a bad idea. Get started and look back on today in 5-10 years with all your new knowledge. Keep asking questions. And Good luck. Sorry again to rant but I never plan my response beyond the first paragraph and I’m sure it shows. 

I WAS going to say you’d be setting yourself up for a large tax bill on that $200k, assuming investment. BUT, you face another problem. If an appraiser says it’s worth $400k, then that’s all you should pay. So either you’re going to ask them to lie or you’re going to overpay. Do you plan to live there forever? You’re saying a primary home buyer won’t be able to buy it. And if you convert it to a rental you’ll be facing a $200k taxable gain. 

I think you’d be better off getting a true appraisal. (Churches are surprisingly low value structures. Our huge brick church was sold for about land value.). Maybe you can talk them in to seller financing with a big downpayment?

11%? You plan to outperform the experts that do it for a living?

Obviously you jam it all in the stock market for 11%. Heck, you should mortgage your home to the hilt, and borrow every single dollar you can at 6-7% and crush it on the arbitrage. Heck. Sell your car and get a loan on a new car. Use that sales money to buy more stock. 

In 6 years you’ll have $1m, in 12 years $2M, and you can withdraw $220k/yr. Forever. You’re set. 

 Or. if you can’t wait that long. Invest for 6 years and then you can withdraw $110k/yr forever. I don’t see any real estate competing with that.  Especially after capex, vacancy, management fees, etc etc. 

I’m not a betting man. But I bet if you buy a property in OH and only hold it for 3 years. You’ll be lucky to break even after selling costs. So you better find something that cash flows or you’d be better off putting the money in a bank CD. 

You’d need 20-25% appreciation just to break even with the bank after selling costs. That’s assuming you don’t lose money to vacancy, capex, etc etc. At least I assume you are an expert on OH so you’ll do better than the people who are already investing there. Good luck. 

Ps. Don’t forget to pay your state of OH income tax, even on the formerly tax free money you are transferring out of NV in to a state with income tax. :-). 

“ cash flow returns” almost always compare horribly to a simple bank CD after you deduct for insurance, prop taxes< vacancy, capex, prop management (or your personal time.) etc etc etc. 

What you’re counting on is even a slow rate of appreciation, say equal to barely inflation, called it 2-3% being multiplied by 4 or 5X because you only put down 20-25%. Getting a base 8-15% return instead of 2-3% before actual “profit” puts you way ahead of the cash buyer. 

PLUS, you can buy 4-5X as many properties. Meaning you get 4-5X the depreciation to defer your income from being taxable. If you’re making a return higher than a bank CD you can support a mortgage. It’s like a built in test. 

Umbrella if your networth is over $500k.

If you’re not worth anything you’re “judgement proof” and don’t need anything. 

If you are worth "something" then you need the umbrella policy. If you searched the forums as stated you've noticed that it's been asked EVERY time this question is asked. Has any BP member ever been saved by their LLC? Not once has one member ever said the LLC saved them when insurance wouldn't have.

Think about it. How in the world would you get sued because of something at your STR that wasn't also your fault? You're going to be personally sued no matter the cause of the loss. PLUS, you are 10x more likely to cause a loss personally from a car crash, a pet bite, an injury at your personal home, etc etc. Cases where the LLC would do you zero good.

If you care and it bothers you, raise their rent another $500/mo for the hassle. (Assuming it bothers you more than the vacancy and finding a new tenant that pays on time for 3 years. 

Personally I’d wait and see what happen. If they pay the new amount on time no problem. If they fail to pay the new full amount send a pay or quit for the missing amount with late fees. This is assuming the way you notified the tenants of the new rent was considered legal notice in your market. 

Foreclosures ar near all time lows. What area ar you seeing all these foreclosures?

Ps. Almost an impossible way to "get started" as you're going to need full purchase price in cash on hand or a HML willing to instantly fund you.

Pps. In today’s market most homes will be worth more than their outstanding loan balance unless they are VERY recent purchases with little to no money down. And that balance is where the bidding will usually start. (Or more likely that balance plus every late fee, penalty, escrow shortages, and anything else the lender can declare owed.)