All Forum Posts by: James Triano

@Andy Krzanowsky

I keep 3 months of operating expenses in my checking accounts. Beyond that I'll use property specific accounts with Vanguard. They offer a wide range of assets. I specifically use money market or bond assets for reserves. There's lower volatitly and they're easy to exchange out of. It's  not more than 1-3% right now but it's better than nothing. 

@Joe Kim

Let me preface this with a completely alternative situation:  Don't buy a $48,000 car.  Buy a $20,000 3 year old used car and not have to worry about this situation.  Finance it if you must but pay it off early.  Then when you're investments cash flow enough money, do whatever you want with the money.

Now, to your question.  Let's look at this a bit differently:  After 3 years and $24,600, what do you have?  You have another $3,000 payment coming up and 3 more years of payments if you lease but you have nothing else to show for it.  If you purchase the vehicle, sure it costs you $50,295.26, but you at least have a vehicle to drive at the end of your payment terms.

People typically rent vs. own homes because 1) They can't afford to buy.  2) They want to be more mobile.  3) They don't want maintenance.  All very good reasons.  If you consider the principal repayment is a forced "savings" and you reduce that from your monthly payments, chances are it is actually cheaper to buy.  Just something to consider, I know CA is a different world.  

My suggestion is to finance it as a purchase (if you must), get it paid off early by additional cash from your investments, and keep it for 10 years.

@John S.

Yes, even if you did not buy the property, you should be able to deduct these expenses.  Again, this is obviously subject to the fact that you had everything planned ahead of time and have a paper trail, etc.

Something to note: if you're simply reporting this income as part of your personal tax return vs. reporting this on a business tax return, you may have a more difficult time in the event of an audit.  If you're going to be doing some of this activity in the future (doesn't seem like it according to your original post) you should send up a business entity to record this activity in.  It will keep a much cleaner line between personal/business expenses. 

@Merrill Delimont

Unfortunately, you cannot "reinvest" your monthly cash flow profits into any sort of tax shelter unless you put it into a retirement account such as a Traditional IRA or Solo 401k. One thing you may want to look at is the depreciation of fixed assets on the property. Be sure that you're including depreciation on all of your appliances, any sheds/storage areas, and of course the actual house structure.

As a rule of thumb, if your depreciation isn't more than your principal payment in your mortgage, you'll be paying taxes (since your principal isn't tax deductible).  Also, be sure you're deducting all of your mileage to and from your rental property.  Those are two of the more commonly overlooked deductions.

If you're maximizing deductions and still paying taxes, Congratulations!  That means that you've created such successful investment that Uncle Sam wants a piece of it!

@John S.

I agree with @Cynthia Hartley.  I am not a CPA but do work in Finance/Corporate Accounting.  When we set up a new business unit under our corporate umbrella, even without $1 of revenue, we absolutely deduct all travel expenses related to "start-up".  So, as long as this trip was 100% business and it was planned to be so well in advance (make sure you have the paper trail), then yes, you can deduct it. 

@Scott Trench

I absolutely know this feeling.  As we're coming to the end of 2016, I sat down and review all of the goals I set at the beginning of the year and review the progress I've made.  While it felt like a struggle all year, I was pleasantly surprised with how far I've come.  I felt that this year was such a strong year for me and I can feel the snowball picking up steam.  Every day I spent in the heaps of plaster and lathe, doing drywall work, coordinating contractors, and doing the books at 6 AM on Saturday mornings has been completely worth it.  

There is a ton of progress still to make and lots of daily actions to take but you're right, this hill doesn't seem so steep to climb anymore.  At times early in my own journey, I was only saving about $500 per month after I bought my first house.  I then moved into a cheaper place, rented it out and boom, my monthly savings went to $1,500.  Since then, I've been trying to exponentially grow that monthly number through real estate.  I've now almost tripled my net worth over the last 18 months and have substantial investments and projects underway, a long way away from where I was 5 years ago.

Great work, Scott - hope 2017 continues to help you get even further over the hump.

@Ethan Cooke

Unfortunately I don't know much about the CA real estate regulatory environment. I'd check with your state Real Estate Commission and with any of the accredited educational services offered in CA. I'm sure you could also find some additional information by CA agents/investors here on BP. 

@Ethan Cooke @Joshua Lane

Downsides:

1.  License education - this takes anywhere from 60 hours - 120 hours of education depending on where you live.  This not only costs money in courses but also costs you time.  Time you could otherwise be spending analyzing/finding deals.

2.  Brokerage legal requirements - becoming licensed means you operate under a completely different set of regulatory requirements than the average investor

3. Continuous expenses - most likely monthly expenses paid to your broker in the form of advertising, technology, desk fees, E&O insurance, etc.

4.  Paperwork - you're now in the details of transactions and working through the scheduling of inspections, scheduling closings, writing contracts, preparing documents, etc.  This is time you could otherwise be using to find deals

It may sound like I am against having your RE license as an investor but I believe the pros outweigh the cons in my situation.  It gives you great flexibility and can provide you with a financial benefit if you do enough deals and are okay with keeping up on continuing education.

@Kristopher Hanks

I agree that the rental strategy is a way to mitigate this risk.  I'm in a similar boat where I have a couple of rentals as well.  However, to generate additional capital to purchase buy-and-holds, I'm working on a flip (and a few more down the line).  It helps keep my relationships open with contractors, keeps me busy, and is going to really get my snowball moving.  Thanks for the perspective.

@Scott Hollister

I'm not sure what the sources of the article are because it's just another mainstream news article which, as we all know, can be very misleading.  However, with it being on the front page of the WSJ, I know that this will be picked up by quite a few people.  However, I completely agree with your sentiment on "how can you win?"  I think over the past few years, real estate has really begun to heat up nationally and it continues to do so.  I will continue working my plan with an constant ear on my markets to make sure that I'm okay.  It was just interesting to see how many investors are jumping into the game these days.