All Forum Posts by: Emma S.

Hi, I'm looking to make a cautious entry into REI with this potential first SFR purchase.

Cash purchase price $22k (no rehab needed at this time)

Rent: $550 (current tenant is midway thru a 2 yr lease thru 6/2014)

Gross income = 6600

Expenses:

Vacancy (1 mo) 550

Taxes 297

Insurance (estimate) 400

PM (12%) 792

Repairs ( ?) 1000

Total expenses = 3039

NOI = 3561 Cap rate = 16%

Questions:

1) What is an appropriate % to use for maintenance? I just randomly used 1000 for this calculation although I'm setting aside reserves of 5k (planning on doing a few things like windows and paint in June).

2) How much total reserves is appropriate to have on hand at any given time? Or is a decent line of credit good enough?

3) Are my calculations right?

Appreciate any feedback. Thanks!

@Will Russell

It's good you both got attorneys to work on this deal. I apologize for jumping to conclusions about the seller's situation. It's a good reminder that things are not always black and white, often there's shades of gray and I'm glad others spoke up with different perspectives. Another reason this community is so great.

I'm rooting for you to get your first deal but even if it falls through, be positive and keep moving forward.

Best wishes!

@Henry M.

I'm certainly not judging the OP just cautioning him to not get entangled in a legal problem. He did the right thing by posting the question.

But I'll admit, I was judging the seller - good point about not making assumptions @K.Marie Poe. I'm all for helping people in need especially the elderly if there is a LEGAL way to structure it so she doesn't lose benefits or pay taxes etc. After all, that's what accountants do finding loopholes to help their clients etc.

@Henry M.

@Rob K.

Is it right for us to complain that government spending is out of control but when we see fraud we just look the other way? But besides the moral aspects, what about the legal implications for the buyer?

Google the term "aiding and abetting". Here is one definition I copied:

"A criminal charge of aiding and abetting or accessory can usually be brought against anyone who helps in the commission of a crime, though legal distinctions vary by state. A person charged with aiding and abetting or accessory is usually not present when the crime itself is committed, but he or she has knowledge of the crime before or after the fact, and may assist in its commission through advice, actions, or financial support."

Paying cash for the express purpose of helping someone defraud the government would certainly expose the buyer to the possibility of criminal charges under this definition. Not only does he know her intent but he is also assisting her by taking action which is outside the norm for purchasing. So the seller's problems could easily become the buyer's problem.

@Will Russell

You have made the right decision to walk away. Don't do it.

Will,

SSI is only for people under the retirement age. If the seller is 87 she should be on regular social security with no limit on her earnings. See link:

http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/160/~/effect-of-full-retirement-age-on-disability-benefits

Looks like there's more to the story than you know. It's good you posted this question and avoided being scammed or getting into a messy legal situation...

@Scott W.

The fact that new home sales are in the second lowest level and construction is also low are 2 very good reasons to buy real estate. Land is fixed and population is increasing and people have to live somewhere so in the long run there is no better investment than real estate IMO.

On the other hand, I completely agree with the concerns about the stock market, Fed printing money, too big to fail, revolving door between politics & business etc.etc. But that is all the more reason to invest in a tangible asset like RE for which there will always be a demand.

"Where are the seasoned investors?"

Some of them are not running after deals anymore but enjoying the fruits of their labor as they should and as many of us hope to do someday. Some of them are here on BP sharing their experience and wisdom just like you may be doing by starting a thread to remind us to adequately evaluate RISK. Some of them mentor newbies just because they have the time and generosity of spirit to do it.

So it's all good. Keep the conversation flowing :)

I think geographical diversification is very prudent for the very reasons stated by @Marco Santarelli .

Another reason: natural disasters (which seem to be more frequent nowadays). An entire region could be hit really hard. Makes perfect sense to me to diversify to other regions as long as the numbers make sense.

I suspect that quote from Buffett is less applicable to this specific issue of geographical diversification because REI is not a liquid investment like the stock market. An investor may know his local market really well today but if next year new state regulations drive businesses to leave the city/state; leading to increased unemployment & a depressed real estate market, then that investor cannot easily get out of his market to get into another more profitable market. So what good did knowledge of his market do for him in this situation? Not that much.

On the other hand, the same quote can be applicable to REI investing in different niches. So if an investors specializes in SFR's, or Mobile homes and is doing great, well in that case diversifying into apartments etc. may be unnecessary and superfluous.

Just my 2 cents.

Hi,

I recently set up a sole proprietorship & transferred a Rollover IRA into a Solo 401k. Now I want to convert it into a Roth 401k so it will be tax free at retirement.

Questions:
1) Is it true that since I am my own trustee of the Solo 401k, there is no paperwork to be filed - I only report the conversion on my taxes the following year?
2) I do not yet have income in my newly established business to contribute to a 401k & not expecting contributions this year. Am I then prohibited from setting up a Roth401k until I have a contribution program in place? (info on this site seems to imply that).

@Steven Hamilton II please share your thoughts! Thanks!

Sorry for being MIA. Have a family member in the hospital so have to hold off on this matter for now. However, everyone who is interested please feel free to move forward with flushing out ideas on the best way to collaborate. I read of meeting on Google hangout but not sure how it works...