All Forum Posts by: Buddy Holmes

@Bill Exeter, Thanks for your thoughts. I am glad I was not too far out in my thoughts of how to get a better handle on this exchange.  The City who is the buyer have a fiscal year and possible cost sharing with the county to work out and progress is slow.

Cheers, Buddy

@Dave Foster, or other QI's  I described my closing date issue above.  I had one idea that I would like some advice on it's appropriateness.

For replacement properties for my 1031 I plan to invest most into DST's which are easy to ID and close on within the 1031 windows, however I want to purchase one Buy and Hold property.

If I find a suitable property early, could I negotiate some sort of a "pre-closing" rental/lease to own in order to delay closing until after the relinquished property closing?

@James McCard, @Leslie Pappas, thanks for your comments!

James, a little grey in the beard certainly qualifies!  

I just wanted to give a call for those on BP that might be retired already and give them an

idea that they might be able to enjoy life a little more by entering REI. In general these folk should be a little better off that the newbie with no cash reserve looking for a house hacking deal. All to often I see retirement sites that offer "calculators" that do nothing more than give you the number of retirement years you can spend the principal you managed to put together by retirement age.

In a trial of "Personal Capital" this was there solution to my continued retirement years.

Granted they were most likely basing this calculation on my astute collection of losers in my stock portfolio. But they totally neglected the RE investments that I had input as well. It also strangely didn't seem to acknowledge conventional retirement income! BTW, I think Mint is a much better fit for REI than Personal Capital.

Thanks for your comments.  Cheers, Buddy

Sounds good.  My wife broke a leg on Memorial Day so I can't go too far for another week or so.

Cheers, Buddy

@Alexander Parada, The lower the interest rate the higher the ROI on you investment.

20% is the lowest conventional mortgage rate you can get. If you are going to live in one side of a duplex you can get a lower % down loan from FHA or other government sources.

There may be other reasons, but one could be a probate court where a spouse (and sole owner) has died with out a will and the o the spouse needs to sell the home.  If the home appraisal matches the off there should be no problem.  You should be able to ask the selling agent for details.

Cheers, Buddy

@Ryan Sasscer, I can send you a spreadsheet perhaps but..

You are correct on the first term of cash flow in your rent less: 

P (below) principal and interest per month

less Insurance per month

less real estate taxes per month

less reserve for rental vacancy (perhaps 1 month per year? or ~8% or rent

less reserve for repairs, perhaps 5% of rent

less Capital Expenditures reserve, perhaps 5-10% or rent.

Multiply by 12 months to put on a yearly basis.

That cash flow divided by you down payment and closing costs = ROI or cash on cash return

Next you need to know how much 12 months of mortgage payments actually pays down the principal on your loan.

Loan, L - B = first year's principal pay down.  see formulas below.

P = L[c(1 + c)n]/[(1 + c)n - 1] = monthly payment of principal and interest

B = L[(1 + c)n - (1 + c)p]/[(1 + c)n - 1]

B is principal remaining after n monthly payments. for first year, n=12

L is your original loan amount

c =monthly interest, yearly interest rate/12

p= monthly payment for Principal and Interest

Now your next calculation is you ROI based on tax savings.

Your depreciation allowance is the purchase price + a few items of you closing divided by 27.5 years. check IRS for how to determine you initial Basis or value to be depreciated.

Now you can calculate how much of your rental income is taxable

the net cash flow from first calculation above + first years principal pay down(you only deduct interest paid)+ Capital reserve (hopefully you will not spend this the first year) = your best guess at taxable income from your rental.  (This assumes you used you estimate for vacancy and repairs.)

No determine your tax rate for Federal and State from last year.  Say it is 30%

multiply the taxable income from the rental by you tax rate to get the next tax saving or tax expense from this calculation.  Add this tax (+/- )number to the net cash flow and divide by cash invested for

after tax ROI

Next step is consideration of principal pay down.  The first year is the smallest number of your rental investment, so;

Add the principal pay down to the tax savings/expense and the net cash flow.

divide again by your investment to get the ROI at this level.

Lastly decide what appreciation you might expect.  multiply that by the purchase price to get a yearly value.

Add this value to the last sum of cash+tax+principal pay down to get a yearly return estimate then divide by investment for total expected ROI.

Easy to set up on a spreadsheet, difficult to talk through!

Cheers,

Buddy

@Ben Biggs, Thought you might to read and comment on this thread.  It seems like good ideas but I know nothing of the geography.  Keep looking out for Ryan! ;>))

@Ryan Miller, Yes I don't have any LLC's so each rental is a separate Schedule E and thus a separate bank account. Some states require you hold security deposits in a separate back account as well. One for all deposits I think answers the requirement. I have recently started another account to contain my Rent Reserve, Repair Reserve and Cap Ex reserves; all rentals into one account. As required, I draw from this account when needed. I also set up a separate account for collecting cash flow from all the rentals.

I have the property managers make deposits directly into the correct account. I set up auto pay to pay mortgage, HOA fees, insurance, and one non escrowed tax bill directly and on time.

I set up auto transfer of funds for the reserves to the joint reserve account and transfer of cash flow to the joint collected cash flow account.

We do a lot a travel in our retirement so I try to automate as much as possible.

Yes I am new to Mint and it does consolidate all these as well as your personal ones into one place.

I guess you could set up to Mint accounts if you wanted to separate business and personal.

The AI features allow you to train the transactions Mint brings in to be: "Rental Income", "Rental Mortgage" "Retirement Income"in my case , Rental Tax , Rental HOA, and any other Schedule E items that you have each month. and other tax return categories like Health Ins, Dr's, Rx etc.

You can "tag" each transaction for multiple search returns such as "tax item", "rental #1"

I have found that with a mortgage from Wells Fargo, they don't charge or have minimum deposits for each back account.   Check you bank fees for your situation,

I bought Quick Books, QB, to try to help sort out rental tranasactions for tax time and transfer to a CPA,

But the complexity has stopped me for now.  I may take a class on using quick books later, but I realy think the Mint.s capabilities my allow me to sort all transactions, (bank and credit cards) by rental property, export via CSV and into Excel and to a CPA perhaps as easily as QB.

Hope this helps with some ideas. Cheers, Buddy

Woops! make that a Call rather than a Cal.