All Forum Posts by: Glen Wiley

Quote from @Michael Remelgado:

how long is long term? As someone new looking to get started and hopefully set myself up for retirement in ~15 years, is that enough time or should I just put all my money in a brokerage account and save myself a lot of aggravation ?

Now is the best time to get started. If you have a choice between a 10% annual ROI and 30% ROI, why would you not take advantage of that?

Long term to me means that RE is not liquid. Part of your returns are simply not easy to get to, that does not mean you don't get them, it just means that you have to plan ahead and be flexible.

Spend some time looking at the various models of how to realize returns from real estate to better understand the various vectors of return:
1. Cash flow - money you get now to spend.
2. Appreciation - money you earn as a percentage of MARKET VALUE (not equity) - a mortgage will 4x your returns on this vector.
3. Principle pay down - builds equity each month as your tenants pay the mortgage for you.
4. Tax benefits (depreciation and expenses) - this gives you more money near term by reducing taxes.

Of the 4 I listed, 2 are money now, 2 are money later. To get money later you cash out refinance or sell (or use other creative means) to realize the gains. Those are still returns on your investment.

I used corporate housing for one of mine and it was a disaster. The tenant they put in wrecked the house, they ended up taking his rent and not paying me. I took them to court for over $20,000 in damages and unpaid rent.

I feel that one of the ways I am able to optimize my SFH rentals is by being really good at selecting tenants, I will not ever do this again.

@Madeline Mercer you outlined a nightmare scenario for operating a residential income property. I would not buy an income property in a rent controlled city. Those numbers would leave a landlord bleeding cash under the inflation rates we have seen in recent years.

@Kay Nemen - get comfortable with the idea that rents must increase and must outpace inflation or your returns will eventually degrade to the point where you are loosing money. You may still enjoy gains via appreciation but cash flow is an important part of most investors portfolio. This means that tenants are going to be faced with changes that they are typically not happy with.

I watch for the deals that Lowes runs. They will occasionally advertise basic washer and dryer units at great prices to get people in the store and then upsell them. If you are a veteran you can get 10% discount off their sales price too and often free delivery. They will haul away the old ones.

Always check the clearance and scratch and dent units in the back of the store. We have bought many appliances from lowes that had minor cosmetic damage but were heavily discounted.

Oh no! I am sorry to hear that (and a little worried).

You really need to get a CPA who is familiar with real estate. You can do your taxes yourself but I guarantee that you are missing out on more deductions than the CPA will cost you.

A few high level points:

1. The most important thing to do is either you or your wife need to qualify as a real estate professional (IRS definition, no realtor license required). Without this designation you can't take deductions from passive income (real estate rentals) against active income (W2). 

2. Track every single expense and account for that in your return. Anything you spend related to the rentals is deductible.

3. Depreciation is a huge savings, for nicer properties you need to do a cost segregation study and use bonus depreciation.

4. Home office.

The LLC should be used for pass through reporting, you do NOT want a separate corporate income tax bill. LLC is for asset protection and has no bearing on your taxes.

We moved our properties to USAA and had no issues in spite of a claim shortly before the move for quite a bit of damage from a burst water heater. If you or your parents are a veteran then you should reach out to them.

I wouldn't do it unless your market is highly competitive and it is necessary for getting applicants.

I have my tenants handle their own utilities for a couple of reasons:

1. I don't want to be the middle man when there are problems with service delivery - let them deal with the service provider directly. Any of my time spent on this is time I could be doing anything else.

2. I don't want to be involved in a tenant's abuse of the service.

3. Billing problems are between the tenant and the service provider, I don't want to be liable for extra charges or billing mistakes.

Have you asked them to explain why they didn't advise you of this?

In many situations where we are disappointed by a professional the best first response is to have a civil conversation. Your goal is to understand the situation fully so that you can make a wise decision about whether to continue doing business with them.

I often see folks fire people for a single mistake which is a tough way to operate. Nobody is perfect, every single person you deal with is going to make mistakes eventually. The key is how they handle their mistakes and whether the mistake is the result of incompetence. 

One thing you might notice is the cost of some repairs. I replace water heaters for about $700. One great way to scale a portfolio is gaining skills with plumbing and other repairs and taking the time to do the work yourself.

If you enjoy working with your hands you can save a fortune by learning to do as much of the maintenance on your properties as you can.

I get it that some folks would rather hire someone - I like to look at it as though I am getting paid the difference between what it cost me to do the work vs. hiring a tradesman. On the water heater that is about $700-800 for a few hours of work, plus I enjoy it.

We put together a proforma for prospective deals to try to capture all of the projected costs to determine the real monthly cash flow. I do this many times a year to refine my ability to sketch it out. A key part of your message is that folks need to fully understand their expenses when modeling a deal before they execute on a purchase.