All Forum Posts by: Henry J.

Hi @Rax Gupta,

Before you invest in anything, understand why you're investing first.  Understand the risk and pros and cons of each investment strategy.  Understand your personality and your risk tolerance, then decide if any investment strategy fits your personality.

For your example, I would add vacancy (8% ~ 1 month per year) to do the calculation. I also would use about $50/month for repair. The ROI looks really bad for OOS so not sure where you're getting this from. Also use zillow/trulia/redfin or realtor.com for area / house info.

I would highly recommend you to talk to your CPA if you have one to understand tax implications. if you don't have a CPA, then buy a book or google REI math to read up on it.

Additional BP links that may help you - 

BP calculator link - https://www.biggerpockets.com/buy-and-hold-calcula...

Buying Rental Property: A Step by Step Guide - https://www.biggerpockets.com/renewsblog/2013/02/2...

BP's tax strategy book - https://www.biggerpockets.com/store/the-book-on-ta...

Good luck figuring it out.

Henry

Hi @Rax Gupta,

I'm not a CPA so you should definitely check with your CPA about the tax details. Also find a RE lawyer to learn about trust / LLC to decide if it's necessary for your situation.

2) I am in California, if I am getting $300 cashflow, what are the TAX implications ?

if you get $300 after all expenses and depreciation, then you will need to pay federal and CA state income tax for that $300.  

Expenses like property management fee, insurance, Memphis and Shelby county local property taxes, etc.

You also need to 

3) I do understand that there is a possibility of having a bad renter but what the probability of getting them more often?

That depends on your property manager and how they screen tenants.  I haven't had that bad of a luck yet (fingers crossed) but even with good screening I had late payments and eviction filings.

5) I also heard that If I do such kind of investments, then I should create a trust and put my investment property under it. I am not sure how its is going to help me and do I really need it ?

I don't know anything about trust but there is a lot of discussion on BP regarding LLC. IMHO, it depends on how rich you are and how much it's worth to you to be anonymous in the world of Internet and frivolous lawsuit. There are costs associated with LLC - CA franchise tax board annual $800 fee, tax filing, not sure about TN tax filing, etc.

It looks like you need to learn a few things before buying any RE.  Suggest you to search through BP newbie area and see what you can learn from there 1st.  If you have too much money burning a hole in your pocket, then be careful online because there is plenty of people who won't mind taking your money from you.

https://www.biggerpockets.com/real-estate-investing

Good luck figuring it out.

Henry

Tim Schroeder IMO, it depends on what you are trying to do. The 50% rule is good for quick estimate for what I Invest, but I will only buy after I run my numbers on my spreadsheet. If you already done enough analysis and have a good grasp of the expenses, and it’s close to 50%, then apply the 50% rule to do your quick estimate. If you haven’t done that many analysis yet, it’s always a good practice to go through full analysis anyway. Good luck. Henry

Desmond Price There are quite a lot of experience BPers here sharing their info. I’m just sharing what I’ve learned over my short REI experience so take it with a grain of salt. We recently sold a OOS rental at Dallas and we were interested of learning our return as well. We purchased the rental from another investor through the PM in 2013. From what I remember (typing on the phone so no access to anything), our REI return was close to 100% after tax / fee / depreciation recapture. The same DRIP type of investment, depending on what stock, would give you different return. You can find ROI on other stocks like AAPL or MMM. Obviously if you have a dog like GM then that’s a different story. 🙄 S&P - 75% from 3/13 to 9/17 https://dqydj.com/sp-500-return-calculator/ Long story short, REI you need to account for unforeseen circumstances, exit fee, timing, liquidity, and most importantly you NEED appreciation (forced or market) if you want to exit in a short period of time (let’s say 5 years since that’s all I’ve experienced)... Thanks. Henry

Fredie Robinson If you haven’t, still check her credit to see if there is anything else on her report that she didn’t tell you. Definitely check her employment. Did she show you her bank account balance so you know she has enough cash on hand? I don’t know your local requirement, but can you ask for 1st and last month rent as deposit? Not to scare you but we had a tenant similar - divorced with kids and a dog except she had her own business but still with really bad credit history. While they were leasing from us, there were couple of late & under payments resulting in eviction filing. We worked out a payment plan and they stayed until the end of lease and left - except the house was pretty beat up - dog pee on carpet resulting in new carpet, lots of damages throughout the house. The 2 month deposit came in handy as we had quite a lot of repair due to their inability to take care of our house. Hope you have a better experience with your tenant, if you decide to lease to her. Henry

@J Lustre

I went through and followed the process online and submitted couple appeals.  I just used values from zillow "sold" values and sent I think 3 comparable examples electronically.  I was able to reduce one of the 2 submissions based on that.

I'm not sure if you can still appeal the assessment right now.  Check the site and see if you still have time or not.  This is the site that I went through - http://www.assessor.shelby.tn.us/content.aspx?key=...

I don't know anyone doing it for Memphis tax appeal process there.  Maybe someone local can help?

Good luck.

Henry

I 2nd what Wayne wrote. You will pay taxes on Stock capital gain, unless it's under tax deferred accounts like IRA or solo 401K type. Then you can open self directed IRA / 401K to invest but that will require more down payment and different tax rule.

@Kenneth Lowry

I don't have the RE experience like some of the people posted above so take it with a grain of salt.  I've learned a lot from reading Jay's posts and many of the above so you're obviously at the right place to learn.

I've done TK for a few years (less than 3) but I also have properties purchased through broker / MLS. You don't see many people on BP telling you how great the TK experience because people using TK are usually not on BP. They are probably busy with other things in their lives to read on BP or deal with rentals themselves. :)

That said, what is your expectation from your TK properties? How long is your holding period? What is your understanding of REI? Know that RE isn't as liquid as stocks or bank accounts, and can take a while to offload if you have a need for cash. Make sure you know the pros / cons and be prepared (with cash reserve, etc) when things don't go your way.

Please reach out if you have any specific questions and I can share what I've learned.

Good luck figuring it out.

Thanks.

Henry

@Albert L.

This is just my personal feeling since I only have limited experience -

1. get a home warranty insurance if you have a AC more than 7 yrs old.  For $500/yr it will cover the big ticket items and pay for itself if you get hit within 10 yrs.

2. check out the area and understand the risk you are getting into.  I knew of hail, but I didn't realize the open field behind the house is potentially the reason I had the fence blown out 2 times in 4.5 yrs...

3. my PM said the same thing about watering the lawn frequently to minimize soil issue. I have not had soil / structure issue yet but my SFR's are relatively newer. I don't know how the watering can help and if it has scientific basis. Just be prepared if it happens - maybe another $5K-$10 worth of structure repair, hopefully discovering it early to minimize the damage. I will keep my fingers crossed.

@Jon Q.

It was a thin profit property to start with so I didn't have much room for any of the big ticket items so soon.  I was more concerned with exit so I wanted better school districts than making higher cash-on-cash return.  

Rents have gone up from $1250 to $1500 before I sold the property, but my property tax also has gone up from $3600 to $5100, and continue to rise due to market appreciation.  I don't know how long the rents will continue to rise.

Most people only share how well they did in OOS investment so I'm just pointing out some of the potential shortfall.  

Thanks.

Henry

Albert L. Big ticket items - Replace back fence twice when I got wind damage. Replace AC. Paint twice during 2 turn overs. Replaced carpet twice - once for make ready after 1st tenant moved out. 2nd time due to tenant's dog pee on the carpet and we were selling retail so need to replace. Some money we recoup from the tenant due to their abuse to the property. Property was vacant for 2 months each time during turn over - electricity / water / landscape were the maintenance items. Water pipe broke when we were selling the house thus higher water bill. I didn't purchase through a TK provider but it was previously sold by a provider. Obviously TK didn't do a good job rehab, but we are also talking about a 2003 property which is relatively new.