All Forum Posts by: John Morgan

@Raden Mantuano

I'm a newbie too and totally get your enthusiasm. 5 out of the 6 properties I bought had major things break on them in the first year. Talk about Murphy's law! I won't get into details about what broke or about tenants moving out with damage to a property etc. But I took a major hit and probably won't make money on them for five years or more if you factor in what I spent on each SFH.

You always expect things to break down and better have 10k in cash reserves for each house for when things break. Fortunately I did have a cash reserve for this but I spent on average 10k per house. Over a five week period last summer I spent over 33k on four of the properties. It’ll take me years to recoup based on cash flowing only $300/month per property off 15 year loans.

Just have plenty of dough available to pay for maintenance and unexpected things breaking. And realize once a pipe bursts, foundation settles, HVAC goes out, roof needs replacement, tenant stops paying and ruined the carpet and walls, appliance goes out, pest control for rodents and squirrels out of the attic, landscaping dies because tenant doesn’t water or take care of it, window breaks, house catches on fire because a dryer overheated, tree limb falls causing damage to a roof, plumbing leaks inside walls of the house and the list goes on. I expect just about all these things to happen at some point. Which they did within 18 months of buying the properties. That’s part of being a landlord. But have a ton of cash sitting in the bank so you can pay for it when it happens. And expect a few of these things to add up to thousands of dollars spent, while the rent stays about the same or goes up a little over time. One major expense can wipe out a decade of your cash flow. Especially if you’re not doing a traditional mortgage where principle is being knocked off the loan each month. Maybe the housing market will go up and you make a huge profit, but if it doesn’t you’re kind of screwed.

@Jess White

Landlord provides the fridge, tenants provide the W&Ds. That’s how most people I know in Texas do it at least.

@Alex Mendoza

I'm in north Texas too. Competitive market out here with lots of real estate investors snapping up properties with cash. I bought a flipped 3-1 SFH in Arlington off the MLS that was reduced two times a year ago for 100k with 20k down. Rent is $1,050 and that's about as good as I could find in the Dfw area. I also bought an old beater in ft worth for 48k in sept. Had to pay cash for that though. Both of these properties had tenants in place so that's what I go for. Less hassle of trying to get rehabs done quick. You still have rent coming in and somebody else is paying the utilities. Then I fix them up if needed. The one in ft worth I'm raising the rent to $1,200/month after I put in an HVAC system this week.

@Ali Boone

You don't get taxed putting $ in the front end of a Roth IRA. Well, technically the money you take home from a paycheck is taxed so any money you make has been already taxed. When you take your money out at 59 1/2 from a Roth you don't get taxed at all. That's why this is such a good deal. Everyone should load up on a Roth IRA and do the maximum amount per year of 6k if you can swing it.

You can also take whatever amount you put in (the basis) at any time for any reason. So I recommend using a Roth as an emergency fund. In the meantime, invest in stocks and let that money grow in that Roth IRA. It'll do much better than having it waste away in a savings account barely earning any interest.

And if you want to grab a chunk of it like I did to buy real estate, you can without paying any taxes as long as your not taking out any more than you’ve put into it over the years. 

I formed an LLC in Texas for my 6 rental properties last year. A letter from the Texas Comptroller of Public Accounts says my company's first franchise tax report is due in May. What is this and do I need to file it for my LLC? Are there any other annual fees with having an LLC? I'm new to this obviously so thank you for any info!

Also, one of my properties is a vacation nightly rental in Missouri. Do I need to file anything with MO for my one property there..like a foreign entity or any other annual permit? My attorney says I don't. Only if it generates a lot of money..like over a million. And he says I don't need to pay any annual fees or permit for my Texas LLC. He said once he set it up for me, we're good to go and nothing further needs to ever be done with keeping it registered. Just wanted to double check since he's not a CPA.

@Tyler Hogan

That is correct. Once you pull out the money you’ve put into it over the years, you can’t put it back. You can still put in the max per year if your income isn’t too high. And I think you might need to have a Roth for at least 5 years to be able to pull money out like this tax free so double check on that. 

Here’s why I did this. I knew it would take a few years to build up enough money to use it for a big purchase in real estate. So I was patient and would rather have my money work for me and grow tax free while I waited. I bought and sold several stocks and built up a nice nest egg in our Roths. I put in a total of 92k over the years and it grew to 320k. I also wanted it for emergency money in case something happened and I needed money right away without any tax hits. You never know if something like that comes up! So I didn’t have much of a personal savings account for emergencies earning only 1% in a taxable savings account  I let my money multiply in our Roths buying stocks instead.

I pulled out 62k for my first real estate investment four years ago tax free and it took only two or three days to be wired into my bank account. This helped me get started in real estate. Making a cash purchase for your first property gives you a lot of options. Then it snow balls from there.

I’m up to 6 SFRs now generating 3k/month in passive income. Some people may argue and say never touch your retirement investments until you retire. I disagree. As long as you have a 401k or something else other than real estate, you’ll be fine as far as diversification. And our Roth’s still have about 300k in them today (from our original 92k that we put in over the years minus the 62k we pulled out) which is better than nothing. We haven’t been able to contribute to them in five years due to income level being too high. But I’m guessing it’ll be worth 1.5 million tax free when I retire, so it’ll still help in retirement when that happens. 

@Tyler Hogan

I would stash away as much in your Roth right now. That's what I did until I found a good deal on a property I really wanted. I took out 62k worth of principle from my Roth to snag a good all cash deal. I wasn't taxed a penny because it was just the principle I had put in over the years for my wife and my Roth's. I have no regrets at all for doing this. I took out a HELOC for the remainder of the cash I needed for this deal. You've got a 401k and you're young. I would keep stashing away with the intent of using that money in bulk for an investment property. Good luck.

@Makala Lee-Norwood

Here's what I did with 5k to get into real estate investing. I put it in a Roth IRA. Within the Roth I bought and sold stocks over the years. I tried to put in 4 or 5k a year in my Roth as well as my wife's Roth. You can always take out what you put in without paying any tax. You just can't take out anything above what you put in (the basis). Four years ago I pulled out 62k from our Roths to buy my first investment property. I knew only 5k wouldn't be nearly enough so I kept saving all I could to accumulate more in my Roth so I could snag a property with a cash offer some day. It's all about delayed gratification. Be patient and don't give up on your goal. I now have 6 rental properties. It doesn't happen over night so be patient and keep spending less today so you can have a big cash pile to make and offer some day. Once you get that first one under your belt it gets easier. You refinance that property and buy another. And keep going.

@Rose Backlin

It’s a two bedroom cabin at stonebridge that sunset nightly rentals manages for me. 

@Jeff Johnson

Pull up that long www.bigger pocket forum topic link I posted and you’ll find the 800 page legal brief on it. Someone else posted this and I got it from them.