All Forum Posts by: Deanna O.

"Hot pocket? Absolutely. With the delivery fee that will be about $49, and the Door Dash delivery driver should arrive in about 45 minutes. Will that be cash or credit?"

In all seriousness though, that kind of behavior warrants a call to Adult Protective Services. 

Sounds like a mismatch between what they expect and what you think is reasonable. On the face of it, the simple, relatively inexpensive security stuff doesn't seem particularly unreasonable, but add in extra locks and the yelling and it starts to get uncomfortable.  I've had tenants with use belligerence as a "best defense is an offense" tactic attempting to keep me from confronting them about lease violations.  In that case, crazy-train paranoid texts made it abundantly clear that they had to go sooner rather than later. 

The worry is always that it's $ from criminal activity. A 650 credit score doesn't usually happen because a person has $ sitting in the bank. That said, I know someone with tenants who have been paying annually for years now. Nothing criminal. They happened to have gotten an inheritance right before they moved in. At the time they were still processing the loss, and didn't want to interact with anyone more than necessary. They still like their privacy, but are friendly enough, and every year they have the next annual payment. Sure a lot less hassle for everyone.   

Sorry --I should have been clearer. It should have been "from your mortgage PAYMENT".  New investors often make the mistake of regarding the whole mortgage payment as an "expense". Of the mortgage payment, only the interest (and tax and insurance, if those are included) portion is deductible as an expense. The principal pay down not an expense. If you keep separate books for your rentals, the amount by which the debt has been reduced has to be treated as "income", as does the actual cash flow. 

So. Not giving tax advice, not a tax professional, everything I say is strictly my own opinion. Read at your own risk---I do figure my free advice is worth at least 2x what you pay for it though ; ) .  Amanda Han who wrote an e-book that BP published a year or so ago - she's a CPA with a focus on RE. I haven't read it yet, but most of the content here has to pass a pretty high bar to be sold as a book. You might also consider consulting a tax strategist as well.

 When I referred to principle paydown as "taxable" what I mean is that you don't get to treat your whole mortgage payment as an "expense". 

eg - you pay $50k/year in mortgage. $43k goes toward interest, taxes, and insurance, while $7k is principle paydown. At the beginning of the year you owed $600k on the mortgage, by the end you only owe $593k. The IRS sees that $7k of reduced debt is income, even though it isn't cash in your pocket.  

What that looks like;

Using above example;  You take in $40k rent. Your mortgage is $50k. Principle paydown is $7k. Your LOSS is only $3k, even though you shelled out $10k from your own personal bank account to make up for the difference between incoming rent and outgoing mortgage.

Now throwing in some theoretical depreciation numbers;

You paid $1m for the property. The land is deemed to be worth $400k, the house $600k. 
You get to deduct $21k as depreciation on the structure only (land doesn't depreciate), so now your total "loss" is $24k. Note that cash-flowing properties can have "losses" due to depreciation, even though the owner is pocketing cash each and every month. This is why a lot of higher-paid professionals turn to RE to help offset the income made by their career jobs (lawyers and Drs especially). Later in life, after retirement they sell the property. While they may pay capital gains and recapture taxes, it's generally at a lower tax rate than their income would have been taxed during their prime earning years (income taxes are pretty horrific once you start making $500-600k/year).

My first purchase, first property, I had a great realtor. She knew the market well (and this was 2010, so it was a crazy market). She suggested a much lower price than I would have thought of offering, and the bank took it. The next two were so far out in the weeds there was nothing for a Realtor to do anywhere in the process.  Will gladly work with her again if I have anything where a Realtor adds value - she's local, knows the properties and the people involved. Well worth the commission to find a good deal or stay away from a bad one. 

Oh, and the reason the banks don't consider 100% of the rent as income is because they are smarter than that. You get a $3,500 check every month -- until the tenant moves out, and you lose 1-2 weeks rent between tenants. The hot water heater goes, and 1/2 that month's rent is gone. 6 years from now the roof will need to be replaced (10  month's rent, conservatively). Smart landlords set aside a percentage every month to be used for future repairs. 

Hm. Your depreciation helps offset some of your regular income, so the negative isn't as bad as it looks at first. Your principle paydown from you mortgage is also "income" so remember that at tax time. Keep living with your parents ($1 saved is about $1.50 you don't have to earn). Buying a net neg cashflow does limit your next move. By all means study 1031 exchanges, since property #1 maybe be a key to trading up to something else that has a better chance of not running negative. Any chance of doing anything to the property that would provide added value? Could you add a bedroom, convert a garage to an ADU, reconfigure to carve out a studio apt, house-hack if it is a 3-4 bedroom? Is it close enough to major attractions or major employers to run it as a an airbnb or similar? A lot of Bay Area folk who moved out of area are having to come back to the office occasionally on their own dime, so there is definitely a niche for decent places to stay overnight near the big 3 (Apple/Google/Facebook).

The skills you learn on repairs are what let you do a walk-through inspection on a future property and spot problems before you even make an offer, let alone spend time and $$$ on an inspection. 

That said, this particular problem I would let be handled by a handyman or plumber - they are more likely to spot an underlying issue that you would. 

I'd go by if it was convenient, just so they can explain if there is some underlying issue. 

Just out of curiosity, you might want to find out if the tenant has been putting rice, pasta, noodles, oatmeal or any other starchy item down the drain (as in rinsing out their oatmeal pot every morning). Starchy things can gradually clog the drain, either at the p-trap or another area where the sewer pile levels out and the food settles into a globby pile). If it's grease I've had good luck using either the drain cleaner someone else listed earlier or dishwasher detergent with hot water, let set overnight- it's the strongest detergent you can buy, but won't damage plastic pipes (can work on slow toilets as well, since it breaks down, er "food"). We used to have problems with slow drains in the 1970s house I live in (3 bathrooms, 6 adult roomies). I started doing a regular routine of enzyme treatments every few months I use either Ridex or the enzyme sticks by Green Gobbler down each sink and shower every month or so and no problems since.