All Forum Posts by: Bobby Narinov

This house is too expensive to be a rental.

I live in CA and I had a house with a mortgage of 270k and 30 years interest at 3.5%.

With a monthly (P&I) payments of $1200 and $2500/month rent I was barely making $500 if nothing breaks and there are no vacancies: P&I:$1,200, TAX:$500, Insurance:$100, landscaping:$50, warranty:$75, maintenance:$250(10%), vacancies:$250(10%), management:$250(10%) = $2,675. rent:$2,500. LOSS:$175 

I don't know where you live but you probably are not going to get it rented for over $2000.

I also had 330k in equity stuck there. So I decided to pull out my equities and use them as a downpayment in one or more properties that can give me multiples of $500 dollars.

I usually buy 3Bd2Ba which rent for more than 1% of the purchase price. I know BP recommends 2% but in CA it is impossible to find properties that rent for over 1% of the purchasing price.

I live in California but I want to expand in Texas.

How can I create a Texas LLC company?

Do I have to be physically present in TX when the LLC is created?

Can I use an out of state address as a mailing address of the LLC?

I bet everyone has one of those renters that are constantly causing problems. The ones That are constantly complaining about anything:

• The rent is too high (but never move out)
• There is a toxic mold in my house.(Maybe if you clean the cinder/dirt in that completely dry corner you would have none.) I know your handy man told me that this is not mold but he is lying.
• The plumber stole my husbands $250.00 toolbox when I left him unsupervised because I could not wait 10 minutes for him to finish and leave. (The plumber have a brand new set as a present from me and have never seen any toolboxes there.).
• I can never send you the check on time but can I come to your house at 10PM tonight (5 days after it is due) so I don't get late fee charges.
• Your handyman did not completely fix the problem in the way we wanted him to fix it
• Would you pay $300 to our handyman because he did a great job. I know you authorized only $150 (which was twice over the prevailing amount) but I didn't want to bother you.
• There are too many cockroaches even after you gassed and spray them. (Maybe if you bother to clean your kitchen and stop leaving food all over the place they would not come back so fast). 

How do you deal with people that are never happy with what they have and are pain in the A$$ to deal with?  

Are you sure about that? I though you cannot exchange a rental for a hotel. I also don't think a second home, vacation home, etc. can be exchanged for a rental home.

I would not recommend using your central HVAC while doing construction inside the house. The dust can get into the pipes and the furnace and you'll have to hire a duct cleaners to clean them and they are not cheap.

Also be very careful with the open heaters because they can start a fire especially if there are wood particles in the air. I am not sure if that caused it but I am looking at a triplex that was burned down while contractors were doing inside remodeling. Now the owners want to sell because it is too expensive to repair.

Apartment complexes usually come with higher expenses. One of the guests on the podcast suggested using 60% for expenses. This may be even higher if the landlord pays for expenses. The justification is that the apartment building tenants are taking less care than the SFR and smaller multi-family.

On the other hand I did try getting financing for an appartment slightly smaller than yours and several local banks were OK providing financing for it but after they checked the property they backed out. It was one of those deal that normally is called "don't wanna" property. The owner have pretty much destroyed it through bad management and deferred maintenance. Due to poor conditions, it was only 50% occupied. A deal with a lot of upside potential but the banks could not see it that way. They promised to finance me when I stabilize the property. Even 50% down was not enough to entice them.

Dont worry about 1031. Figure out what you want to do with real estate first. You can figure out the 1031 later when you actually decide to sell. If you are buy and hold investor this may be 50-60 years in the future (you are young) and by that time there may not be 1031 exchange or there may be something better.

I'm not a lawyer. I'm not an accountant and I cannot give you an advice but from what i've heard 1031 is a way to defer your tax bases until a later period. there are a lot of limitations though. The property you are buying has to be of the same type. the new property has to be more expensive than the old one (If it is not you may have to pay taxes on the difference). the owners of the old and the new property should be the same (i.e you cannot add or remove owners - it can cause taxable event). you also have a very limited time to identify and buy your second property. this is why 1031 guys specify this on their MLS. because they would like to delay closing until they lock their next property.

Why don't you buy an umbrella insurance? I have a 1M umbrella insurance and it costs me less than $20 /month.

 No I do not. One thing an investor needs to learn is how to best utilize his time. I don't believe my time is best spent fixing the plumbing. On the other hand spending 40 minutes to save myself $40,000 now this is a time best spent.

The question is what makes you an expert? Is it the fact that you have seen what a lot of people do when they buy real estate? Then in that case a monkey in the Zoo should be a human - they have seen plenty of what humans do. Or maybe the fact that you have placed over 100 bids and have purchased for yourself over 10 properties: 9 more than the average real estate expert agent. I'll let you decide.

Don't you think that if the real estate agent knew how to negotiate great deals he would be making more money by wholesaling instead of being a buyer's agent? Most of the RE agent-investors that I know are only using their license to represent themselves and almost never a buyer.    

I am not an accountant (nor a CPA, nor a lawter).

You should calculate your taxes last. And it is not so simple as you presented it. I recommend you use a CPA for the first several years (and forever, if your business increases).

From the gross, you should subtract all of your expenses plus amortization and what you are left is your taxable income. Now some expenses can have a huge tax implication. for example a remodeling is considered a capital investment and is amortized over 20+ (I think it was 27.5 years) while a repair is considered an immediate expense. So consult your CPA how to do the things in the most tax efficient manner.

In addition you have a real estate depreciation. This is a fake deduction through which you can depreciate an asset (you can only depreciate the building but not the land, so check your taxes on how much is your building cost) over the 20+ years. This will let you lover your tax liability even more. The loan is also not a 100% expense. Only the interest is considered an expense.

When you start your apartment RE investing, I would recommend you to find a CPA that specializes in RE taxes (preferably in RE appartments) and spend 1/2 day with him/her to explain to you how to structure the tings for maximum tax savings. Please do that when you start your business instead of waiting for the tax season (3 months later). During the tax season they are usually preoccupied and cannot spare time to talk(make sure you pay for the consultation). Also some of their recommendations may require an action on your side so if the year is gone, you cannot go back in time to do it.

Property taxes, insurance, utilities are also considered expenses. Driving to and from the property to show it to potential renters can also be considered an expense but you have to keep track of your miles (with date and timestamps matching your odometer). 

After all that, most of the buy-and-hold RE professionals are not making any sizeable profit so they pay no or very little taxes the first years of business. Once they start making profit, they 1031 the property into a bigger one(or two) and keep on doing it getting bigger and bigger while having only paper loses.

I can't stress enough how important is to consult a CPA or a TAX attorney when you start. (The CPAs charge less that the tax lawyers).