All Forum Posts by: Jeremy H.

@Patrick Roberts

That's a lot of words to say you're advocating tax fraud since there may be a low likelihood of getting caught...

The homestead exemption is for your primary owner occupied residence. If you are renting the house out (not living there) you can not legally take a homestead exemption. Regardless, the OP said she was moving so she would take the homestead exemption on the house she moves into. 

@Nathan Gesner summed up the cash flow scenario perfectly. 

The $300 cashflow is a gross number though - you will invariably have expenses that will eat into this number. Generally speaking - repairs/maintenance (10%), CapEx (10%) and vacancy (5%). How will you plan to manage? Property manager is generally around 10% as well.

My thoughts - this is a GOOD start. You've started and will be able to learn by doing. If it was me, I'd go ahead and create an LLC w/ a bank account and all that. Talk with a CPA or read tax strategies (you may be able to save yourself some money). Worse case, you may break even or even lose a little the first year. Years 3-5 will likely start looking better though!

For 99% of situations (the one you are asking about) - I pay for the building "as is". Am I buying it after it's been renovated and rents have been raised? No. Do I care about your pro forma 5 years out that makes all kinds of optimistic assumptions? No. I'm paying for what I'm getting right now

That being said - I could pay slightly more for something where I know, or have a very good idea something is going to happen - such as road access, utility access, new developments of some sort etc 

Or less (probably wouldn't buy) if something bad is going to happen - railroad tracks, dump, Sec 8 housing built near by etc 

I'd be tempted into doing an STR (maybe with a higher down payment to ensure cashflow, just run ROI numbers) or an apartment complex - I personally wouldn't mess w/ small stuff. Even developing a mobile home park, affordable townhomes or self storage.

A "miserable corporate job to no where" isn't all that bad - health insurance benefits, 401k matching, probably some sort of discount stock purchase plan, stability, lenders like it. Sounds like she has a good W2. 

Netting 30k/month isn't a small feat - especially without putting in consistent work. You really need a business or a commercial asset in my opinion - contractor bays, oil change type centers -something that everyone uses. Think if one house grosses 1k/month, then it may net say $500/month (after maintenance/repairs, CapEx). You're asking for 30k month - that's 60 of those houses...in a few years. Not saying it's impossible, but that is a full fledged business. You really need an infrastructure to run something like that - systems, people...and you have to keep it going.

Also - if you invest that 500k in an S&P 500 tracker - you'll average 8%/year - 40k. Not too shabby for literally 0 work or thought. 

I would also take a look at your expenses - 15k/month in Michigan? Is it really that HCOL of an area? 15k/month = 180k/year. FIRE would essentially be pulling 4% a year so she needs around 4.5mm. The two of you together at 30k/month = 9mm. I think you'll need some time to get to that number, honestly. 

The other serious honest question you have to ask yourself (you're wanting in invest a lot of capital - and your sister's at that) - how successful have you been in RE? What do your yearly numbers look like? What's your overall ROI and cashflow? Have you been more or less successful than you predicted? Why?

Lol that's actually kind of funny - but as others have said, that is nothing more than the cost of doing business. 

You can often uncover major things with a little research before you view the property - Ages of appliances, HVAC system, foundation/cracks, plumbing leaks, small electrical things (bring an outlet tester), signs of previous leaks, termite damage etc. Take pictures and take notes. 

The inspection may reveal things that you missed or didn't know to look for (damaged roof, humidity levels in walls/ceilings etc). 

I personally like the BRRRR strategy - it's not easy to pull off but it's simple and it works in theory.

First off, the cash-out refinance requirements have gotten tighter w/ the "seasoning" period. Or you can go a DSCR route (sometimes with no seasoning) but the terms suck. So you have bad financial terms working against you along with finding properties, making deals, getting financing etc

Secondly - for me it's time consuming. For small MFH/SFH you have to find the deal, inspect, estimates and decide what to do, make a deal, get financing, get contractors, manage contractors, pay contractors, then turn it over to a property manager. All for a single property...It's a lot of work...for what kind of return?

Now you have to scale. Doing two properties? Need double the workers. Taking phone calls or making cold calls? Need a marketing team or call center. Need to find properties? Someone's got a make a list of those properties and filter them down. Analyzing and estimating? Someone's gotta do it. The theme here is you will need a team - very quickly. This is not easy to do consistently and effectively. And you have to constantly put work in - this system doesn't turn unless you keep pushing it. 

I'm personally making my exit - I never did assemble a team (it costs money for one, then you need the manpower and time to manage it). Time and money - how much extra do you have? Willing to give up nights and weekends with your family? 

That being said, I've been moving into development. With a construction team and contractor. The team is already there - they do everything. You run the numbers on the project and stress test it. It's one project, that's more hands off and offers great returns. 

I personally would sell the house - it's negatively cash flowing ~100/month, if you were to add in repairs/maintenance, CapEx, vacancy, rising insurance/property tax costs I would think you're actually losing more than you estimate (luckily it's new so you are on the very low end of that right now). If you had a PM it would be even more.

You cannot maintain a business with negative cashflow. 

The alternative is to hope for appreciation - this may or may not happen. If it does happen, how long does it take? What's the opportunity cost of letting that equity sit and taking a loss each month? That money would likely be better allocated elsewhere.

What's your equity look like? It's crappy, but you may take a loss selling as well due to realtor commissions and general selling costs (concessions the buyer may ask for). 

It is what it is - if anything you lose a little and learn some lessons going forward to apply to your real estate investing career. 

Honestly I'd keep the brokerage exactly as is - invest in an S&P 500 tracker and forget about it. 

You have kids - do a 529 plan and max it out 

You will retire one day - max out your 401k yearly, IRA, Roth IRA (or backdoor to Roth IRA)

You will have health expenses one day - max out your HSA 

From here I'd invest in Real Estate. I'd personally sell the townhouse (doesn't sound like it cashflows or would make a good rental property) - you may have no capital gains if you have lived in it the past 2 out of 5 years - I believe the first 250k for single filers is exempt from taxes and the first 500k for married couples. You'd fall in this catgory. 

Then take the 400k - 275k = 125k (that you will net from the sale) - invest a portion of it in your S&P 500 tracker. I'd pesonally do 75k-100k. Then the last 25-50k I'd diversify with - whether that be apple stock, nvidia, btc, or a rental properties. You know have a brokerage with 375-400k which will make you a millionaire in a few years 

I am just wondering what the urge is to dump the brokerage account - are you doing all of the above? I would not touch the brokerage account until you are maxing out everything else you can. 

That is just my personal opinion

I fill out a spreadsheet w/ the bigger ticket items - roof, siding, AC (this one has a mini split), hot water heater, flooring. Smaller items like fixtures, countertops, cabinets I don't worry about as much. This is a small property so the smaller items don't amount to too much. 

For this particular duplex - upstairs flooring will come up - looking around $1500 for LVP installed. Roof would be around $5000. Brand new mini split AC installed around $1000. Siding is the big ticket item here. Hot water heaters are tankless and new. Fixtures are new. Countertops are ok - would do a butcher block here - looking around $500 installed (can be sanded, refinished, sealed, epoxied over etc). Plumbing is all brand new. In $2024 I spent $56 on repairs/maintenance between both units. I have this in a spreadsheet and generally divide by how long I think that particular item will last to come up with a monthly cost. 

Insurance costs I think were predicted reasonably. No one (ask the people who had to move out of their home due to insurance costs) is predicting insurance costs doubling, tripling in 2-3 years. This duplex is still cashflowing after absorbing the increased insurance costs. In fact it still almost hits the 1% rule. Do you typically take your insurance estimate, then multiply it by 3, and use that as an expense? I doubt anyone does because that wouldn't make sense. 

I don't see how rent point has to do with absorbing high insurance costs. If your rent is $3000 and your expenses are $2900, you still can't absorb a high insurance increase. It really has to do with the spread between rent (income) and expenses. Insurance on a 1mm property will also go up a lot more than a 100k property. 

I'd actually like to hear your methodology on buying. I understand you have a lot more experience than me (and experience is often the best teacher) but I still think I have done some things right with this property and I think it works out long term. This was my first property, I've owned it for about 3.5 years, and "started" in RE about 4 years ago (all stock market investing prior). I can take a step back for a minute though. A lot of the social media "guru" stuff has gotten me to be an extremely quick skeptic here lately. So I can admit that and that I am very far from being an expert. 

I claim you eat crayons. Doesn't mean that markers don't exist. You may need to look under the couch for those. 

It's a good deal that works bud. Bought for 104k cash, rehabbed and did a cash-out refi. Left almost nothing in the deal and got a great equity capture at the buy. On top of that (even with the insurance rate increases here) it STILL almost hits the 1% rule in terms of cashflow. While the absolute value may not be high - I have a rehabbed duplex (can you say practically $0 repairs/maintenance/CapEx for the next 10-15 years since I rehabbed when I bought it?) that sits right on the parade routes, a block from the college campus, and block from a bunch of restaurants and bars. Maybe a month of vacancy total in the past 3 years.

I'll take that deal all day. Maybe slow down on the crayons bud, you're looking a little green.  

Good luck.