All Forum Posts by: Michinori Kaneko

Hi!

i'm new to rental investing too, but here is what i did.  First, come up with game plan.

1. Do you want to invest locally or out of state.  I think Knoxville is hot market now so maybe good to invest locally. I invest in Indiana.

2. Decide what route you want to take (e.g. flip vs rental). i think rentals are easier to grasp at first. SFH or MFH or something else?

3. speak to multiple real estate broker and property managers (if you are intending to use them).  Find the ones that are hard working and you would like to continue working with. 

4. based on your strategy, learn about what you need to look out for when you look for properties.  For instance, for rental, you want to look for ones that don't have lots of yard, because when its vacant you would have to pay a lot for mowing.  you don't want builtin pools for the same reason.  Multiple garage is a plus, etc.

5. based on what you find out from no4, find properties that fit the criteria. Run them through your PM/RE Broker.  see what they think (how much can it rent for, does it require significant amount of work, is the area a good growing area, etc.)

6. Crunch numbers, if it makes sense make an offer!

Hope that helps!

Hi, 

when i started looking for investment properties, i started looking at Austin as well. I had friends near by, and i knew the market was hot. I quickly realized that you can't have positive cashflow in the area.  I live in NY, and the reason I was looking at other state was because of the same reason.  I settled for investing in Indiana.  Of course, appreciation is probably likely in Austin, but you are also paying every month to cover for shortage of the cashflow. If you want to play the appreciation game, NYC is better bet than Austin.  I would rather have positive cashflow though (that's a visible gain as opposed to betting on probably, but not 100% return on appreciation).   

Just my 2 cents. Hope that was helpful.

Hi Rob,

I live in NY currently, but I used to live in NJ before and worked at NY.  I'm pretty certain that NY taxes any income that originates in NY only (and NJ taxes you for all income if you live there, thus most people living in NJ and work in NY pays taxes to both states).  I'm obviously talking about income taxes here, but I wouldn't imagine there is a specific different tax code for rental income. 

If you really want to be sure, you can try punching in some hypothetical numbers in turbo tax and see if it generates tax on more than just your rental income.  turbo tax should be free until you actually submit the taxes so you should be able to see the taxes you would owe on your hypothetical numbers without actually submitting/paying.

Thank you.  

@Antoine Martel why do you suggest Wyoming?

@Dick Stevens this is very helpful thanks. If I talk with my bank and I have good financials, then maybe they would allow me? I will speak with him first before doing so.  Thank you!

Hi, I just went into contract for my first rental property a week ago. the property i'm purchasing is already in contract with my personal name, as I read many articles about how setting up an LLC is overhyped. I had every intention to form an LLC eventually when my portfolio got larger (and my potential liability gets larger), but now i'm leaning towards having my own business account segregated from my personal accounts right away. Because of tight closing timeline i don't think I have enough time to setup the LLC and change all the paper work. So here are few questions I have:

1. Is it easy to switch title on the property from myself to an LLC I form at a later date? My property is financed via conventional loan. 

2. Obviously, my first few cashflows will be done via my personal accounts.  Is there an issue from keeping business separated from personal, if I maintained a really detailed excel file that lists all cashflows that's related to my business until my LLC is setup and I have a business checking/savings account setup?

3. which state should I form my LLC at? I live in NY, but my investment property is in Indiana.  I read an article online that even if you register your LLC out of state, you will still need to register the LLC at your local state as Foreign LLC (and you end up paying fees for both states).  

Thank you for your help in advance. 

why don't you negotiate "seller financing".  then, once you get the title to the house, you sell it, collect equity, payback the loan (to your parents), and invest the remaining in other investment properties?

thanks @Alan Grobmeier  I did mention #3 and #5 (and #6 somewhat), but good to know about the rest :)

Hi, as a new investor as well, i went back and forth between SFH and MFH. It's really just a trade off between risk and return (no risk no reward) so it boil downs to what you are comfortable with. I ended up starting out with SFH (and probably stick with it). Here are some pros and cons:

SFH

Pros:

better tenants (if you can afford it, why would you share a home with someone?) that may stay longer than 1 year.

can off load expenses (mowing the lawn, carpet cleaning, etc.)  to the tenant

more liquid (only investors would buy multi family, where as SFH, can be purchased by people looking for primary resident as well)

Cons:

Less GROSS rent (typically)

more roofs and other capex to repair

MFH

Pros:

More rent

less capEx

even if some units are vacant, there may be SOME income to cover your cost (but not always)

Cons:

most likely attract not as established tenants. more possibility of eviction or tenants not taking good care of the home.

if you are managing it yourself, it's a headache to deal with multiple tenants (more work, more complaints)

you are liable for expenses around maintaining the common areas

I think you just need to run some numbers based on your area and see what you are comfortable with. MFH would have higher vacancy rate and faster turn over than SFH in general, and you would need to layer in additional maintenance expense that you would need to pay for SFH. Hope that was helpful!

Hi,

I would think cashing out is the best route.  On top of $750 cashflow, are you also making more on the principal repayment?  It's great that you are making 18% return on your initial investment, but you have to consider the "investment" you've made over the years too (aka principal repayments).  what's more relevant here is opportunity cost (if I sold my property now and invest that amount, how much more or less can i be making?).

Note that like kind properties 1) does not have to be in the same area, you can invest in other states or cities that generate better returns, and 2) it doesn't have to be 1 to 1, you can buy 5 properties with your $350K, and that'll probably generate a lot more than $750 a month.  Check this link:

Price to Rent Ratio in US Cities

looks like texas is a good place to start.  

Hope that helps!

Hi,

I'm just starting out on real estate investing.  I've put significant chunk of my monthly pays into stock market/mutual fund since I was in college.  I just went into contract on my first investment property last week, so i'm almost at 100% stock (Have small money in bitcoins and other "alternatives" if you count those). I intend on increasing my allocation to real estate over time (without selling out of my stocks/mutual funds - they have significant unrealized gain so it will trigger a pretty large taxable gain if i sold them). 

To answer your question about financial advisers, its easier for common people to invest in mutual funds and the stock market. it's more liquid, and all you need to do is buy a mutual fund. not much research required. you just set it on auto pilot.  with real estate, you need to put in more effort into finding the right property, crunching numbers, communicate with vendors stake holders, etc. there's a lot more work. 

In short, stock market is easy money (in a longer term) and you can do it with smaller sum of money (or at least that's the perception). real estate requires effort, illiquid, requires larger capital upfront, but if done well can do very well. Major advantage point of real estate is taxes. with stocks/mutual funds, unless they are in ROTH IRA or ROTH 401K, you are taxed on the realized gains. You can also invest in traditional IRA and 401K which will DELAY your tax payments, but that's not the same as tax avoidance. For rental properties, you can avoid most of the tax on your rental income for about first 10 years or so from just depreciating your home + interest payments (if you finance your purchase). After 10 years, you can do a like kind transfer and get a new home without paying tax on the gain as well (and then your first 10 years of rental will be tax free again!). I'm not as knowledgeable about flips, but I imagine there are many ways to get around paying taxes on it as well (or at least delaying them).

i don't think if you are doing well in real estate you need to follow 90/10% rule at all, but i do recommend you look into investing a little into the stock market, at least to max out your IRAs and 401Ks (especially, if your employer provides 401K match, you should definitely make sure you get the full match, as that's free money).  I also recommend that if you do decide to go 100% real estate, make sure you have some rental properties.  Flips may be lucrative and good to build capital, but do you really want to be spending time in your 70s and 80s looking for properties to flip? instead, if you have sufficient rental properties to have enough passive income to cover your expense, you can live freely doing whatever you'd like :) 

That was long, but hopefully it'll be helpful to someone!