All Forum Posts by: Heather K.

Melanie,

I don't have a STR arbitrage, but I do own a single family STR. It's not in a destination area, but in a fairly large city in a nice neighborhood. The long term rent for a house my size in my area is around $1400/month and renting it out short term I average around $2200/month. So you can see the margin is small ($800) if I was to arbitrage a similar property. With that $800 I would have to pay utilities, plus the management fee is higher than for long term. If I assume 15% mgt fee and $150 for all utilities, that leaves me with $320/month cash flow, which I will pay full taxes on since I can't deduct anything else. As an owner, my monthly expenses are lower, so my cash flow is closer to $700. Usually STR houses are nicer and have higher appreciation, so as long as it pays for itself and then some, I'm good, cause it's sitting there going up in value. But as an arbitrage, you need to maximize cash flow now, as you said, so you can use the cash to buy a property. Of course one thing you don't have to worry about with arbitrage is capital expenses and maintenance, which can eat up the profit quickly.

You really, really need to crunch the numbers.  Hopefully some others who are arbitraging will chime in.  For now, here are some questions you might not have thought to ask yourself.

• Does your rent include all utilities, if not factor that cost in.
• Is it furnished, if not factor that cost in as well (I bought everything second hand).
• Are you managing it yourself?  If not, factor minimum 15% for management.
• Also, consider that you will pay taxes on all the income (after expenses).
• As others mentioned, research the competition in your area to learn the demand/restrictions.

Depending on these answers, you may be better off doing this closer to home.  If you manage yourself, you can collect the housekeeping fee and the management fee which can really add up.  Consider it a part time job.

 Can you tell me more about this?

Well, we did some RE many years ago and lost our butt, so I can't attribute it to RE alone because on our own, we were idiots.  Honestly, it's from studying hard and actually implementing much of the advice of gurus like Dave Ramsey and Robert Kiyosaki, and people here on Bigger Pockets and other financial podcasts and books.  Thanks everyone!

Did my first balance sheet in spring 2019.  It was a huge slap in the face and motivation to start the needle moving a bit faster.  We were waaaaayyyyyy behind where we should have been given our age and income.

Since then I update our balance sheet quarterly.  I just copy the spreadsheet tab, rename it and update the numbers.  It's our measuring stick. It forces us to be more mindful of our spending.  It gives us direction.  When we are looking at making another RE purchase, or make a job change, or thinking to buy some frivolous doodad:), I use it to to project what the outcome will look like in 3-6 months.  

Personally, I think everyone should maintain a balance sheet.  In 2019, our net worth was growing yearly by about 25% of our annual income.  Today it's growing by about 110%. To think I can save more in a year than I make in a year, and still live a life is mind blowing.  But that's the beauty of compound interest I guess.

Hello, this is an old post, but I'm also looking for someone.  Someone midwest would be great, since that's my primary home, but anyone experienced will do.  I need someone who can give me tax advice also.

Hello, 

Others have answered your questions, but I want to mention that if you are prioritizing the cash value, you should really set the policy up for Infinite banking.  You'll have a reduced death benefit, as most of your premium will go to the cash value.  

We use ours as savings account, so we basically took the monthly amount we were saving, and that became our premium.  The plan was built around that payment so the maximum could go to cash value.  We love it and have used the funds several times for down payments.  Banks and realtors treat it like any other form of cash.

There are tax implications for creating this correctly, so best to go with an agent who is familiar with it, otherwise you could end up with a MEC, which becomes taxable.

This is an interesting discussion.  I'm pretty risk averse and we did follow Dave's plan to get out of personal debt, but obviously having no debt doesn't equate to retiring early.  One needs an income, and we didn't have umpteen years to wait, so we started investing in RE using leverage.

Years ago we dabbled in RE and lost our butts.  This time we studied multiple exit strategies and ultimately we found a nice balance that seems to work.  Here's the strategy we used to reduce leverage risk (and stress):  

Eliminated primary home payment and structured rental financing so the total monthly payments combined are not more than our previous personal home mortgage payment.  This way we knew we could handle it. (how?  downsized primary home big time, then bought properties at discount, built sweat equity, etc). 

We don't live on the rental cash flow while growing our portfolio.  We reinvest it all back through renovations, acquiring additional properties, or accelerating mortgage payments.

We keep minimum 6 month reserves to weather storms. We did have renters stop paying during covid and couldn't get them out for 1 year.  Yikes!

We keep a mix of long and short term rentals in different areas.  This reduces the risk of not getting any income, if one or two stop paying, the others still are.  Plus a short term rental offers you a place to stay if, god forbid, you had to sell your primary house quickly.

To raise cash we are now throwing in a flip here and there (buy, renovate, short term rent for a while, then sell after 1 year to reduce taxes). This way we don't take on more debt as the cash will then buy additional rentals.

Last, but not least, we aren't giving up.  When we finally evicted the covid non-payers, two houses sustained thousands$$ in damage.   Got a call last winter that the furnace went out in one of our houses, then the pipes froze. Ahhhhhhhh!  Pedal to the medal - increase w2 pay, extra job,etc.

I keep a balance sheet and update every 3 months.  I'm shocked at the difference (upwards) since we started this journey.  This is what keeps me going.

Everyone's situation is different. We aren't looking to get super rich, just enough that we can sail off into the sunset in 4 years.  I mean that literally, we are buying a sailboat and sailing around the the world.

For what it's worth, my advise is to look around you, exploit the opportunities your own situation affords.  Do not discount leverage, cause others say to.  Do not jump headfirst into debt to get rich quick.  Get out your spreadsheets, crunch some numbers, beef up your skills, get your hands dirty.  There's a world of possibilities, you just have to think creatively. 

Good luck y'all!

I would be curious to get an update on your situation.  40 years is a long time to project out and with your kind of discipline, you could easily do both.  You could max out your Roth 401k, and then take a loan against the 401k to buy that property you talked about, and pay back the loan quickly.  Then do it again.  Give us an update and let us know how you did.

It's best to open the Roth IRA ASAP even if you don't contribute much. So you don't have to worry about the 5 year rule.

I know this post is old, but for those who are just reading now who have a Roth 401k, don't forget to also start a Roth IRA as soon as possible, even if you don't plan to contribute much to it. For two reasons: it will start the 5 year clock, and there may come a day later on when you can no longer contribute to a Roth because of your income. But if you already have one, you can then roll your roth 401k funds into it when you leave your job, and you will have assess to your contributions right away.

If you opt to open a self directed Roth IRA, then when you roll your Roth 401k funds into it, you can actually buy the property in the Roth, and the rental income will also be tax free.