All Forum Posts by: Mike Hottinga

Just a follow up. I talked to my tax person, she has rental properties of her own (big plus in my book). She said that I can open another bank account for the rents/deposits/expenses or I can just keep track of the money in an Excel type spread sheet. I already account my personal finances in Excel format so I will be sticking with this for now. In a week I am going to stop by her office so that she can give me some input as to how I am accounting for everything. Also, she said that a sole proprietorship is fine for now, but to plan a LLC in the future after I have a few properties.

I am still going to call and talk to a few other CPA/accountants just to see who specializes in what and what their opinions are on my current situation.

I read Scotts book about a month ago now and I have to say being 27 that it has completely changed the way that I look at my personal finance situation. I now keep track of my personal finances like a business, inputting everything in to a spread sheet that I created. I do this so I can see where I am spending to much and where I can save. Like Scott described in Set for Life I am making cuts to by budget that will make a real difference with out hating it, like saving $50 on entertainment (decrease in life enjoyment) vs finding my 2 roommates and cutting my mortgage from $1250/month to $150/month and cutting utilities to a 1/3 for me. That money is now available for me to invest else where to build wealth, not just to buy more things.

Employer:

My company matches 4.5% of pretax income for 401K, I contribute 5% currently. My company offers a 457 plan that I plan to bridge some of the gap between retirement from my employer to working for myself, hopefully managing my real estate business. I contribute 5% to this account. I have both of these accounts invested with Vangard in various index funds (very low management fees) and a bond Index fund. This capital has also allowed me to obtain financing on my first SFR that I am now house hacking.

Personal:

I opened a Roth 401K account and max it out every year (5500 limit). After 5 years I can pull the principle out at any time and use it to invest with without penalty.

I am loading my savings with "dry powder" so I with have the capital to take advantage of future opportunities when they present them selves. Beyond this, I am not sure what I will do with the money, but what  great problem to have.

I have read 4hr Work Week, Set for Life, and Millionaire Next Door since June and I feel I have accomplished more in the 2 months since I have read these books than I have in the previous 5 years. If I had not read his book, my plan A for life would be just like every one that I work with, work 40hr weeks till I am 55-65. Now my goal is to be financially free ASAP and go on my own path.

@Matthew Perry I will be going to set up a new account asap. Should it be a small business account or just a personal checking/savings?

@Matt Horwitz

@Matt Horwitz That is an awesome screening strategy, I will give it a try. 

Hello fellow BP members!!

Let me start of with some background. I bought my first SFR this year in Arizona and have been doing small cosmetic upgrades to the property. I decided to rent my 2 extra rooms to house hack, greatly reducing my expenses. My first roommate moved in 2 months ago and I have been collecting deposit, rent, and utilities through PayPal because we both have it (we work for the same company). My 2nd roommate is moving in on the 1st now that his credit/background/interview have all gone well. I would like to buy a multifamily in the future, to house hack possibly, as soon as I fulfill my primary residence clause in my mortgage contract.

Now for the questions.

What would be the wisest way to set myself up as far as collecting rents, deposits, utilities? I am working the next 16 days and have not sourced a great CPA/accountant to speak with yet (I requested some recommendations from friends yesterday).  Should I set up a separate bank account for the rents, deposits, and utilities to segregate my personal income/expenses? I have explored Cozy.co as an option, any recommendations on other programs?

Do I need to set up a business entity like a sole proprietorship or LLC as this would now be considered a business? Or do I just file taxes like normal and claim the rent as additional income? I have been saving all my receipts relating the property.

I will add additional questions as I move forward with my new adventure.

Mike

Hello BP community,

Question: Did I screw myself and lose the opportunity to use an FHA loan with say 5% down?

Back story:

I bought my first SFR as a primary resident with 20% down on a conventional loan. I would like to buy a 3 or 4 plex as my next property, rather than another SFR or duplex, but saving 20% again will take me 8+ years. I am currently renting a room in my house and I would finance the next property as a primary residence and house hack for a year. I think a cash out refi is out of the question as I do not think I could rent my house for what the mortgage would be if I did that. (Prices here are extremely high compared to rents). I do not think I have enough equity for a HELOC either. House appraised for $270K, I bought for $260K so $52K down. I realize what FHA stands for, but the only restriction I see listed on FHA.com is that you can only have one FHA loan at a time. Nothing in the rules, that I read, stated that your first FHA loan had to be your first actual loan.

Thanks BP

@Rachid B. sound like you made up your mind already, but if you gave some more info with how the numbers break down on each property we can give better advice than generically saying, "multifamily is the way to go." Also consider how friendly the states are towards landlords, Texas > NY from what I read. Also consider the leases and tenants that you will be inheriting.

I have an investment SFH property in Houston that's bringing me $1600 a month. $5000 annual tax, $300 HOA annually, $1400 insurance, low maintenance fees. $75k equity. mortgage payment $571 but I have been paying $1000/month (if I keep it at that, the house will be paid off in 11 years).

-What is considered low maintenance fees? $50? $500?

-PM cost?

-Cap Ex. budget?

-Does the property need rehab?

-$5000 + $300 +$1400 + $100 (low maintenance guess?)+ $0 (no mention of cap ex)+ $0 (property management?) = $6800/12 months = $567 expenses. $567+$571=$1138. I think you should be closer to $1300-1400 in monthly expenses with Cap Ex and PM. So $100 to $200/ month cash flow for this door.

-You will need to buy a plane ticket to see this property

There is a fourplex for $150K in Trenton NJ that's bringing in $3000 a month, but that comes with $1300 a month on average expenses.

-$1300= Taxes, insurance, maintenance, PM, Cap Ex?

-Will the property need  any rehab?

-Will you self manage because it is in NJ?

-$150,000 30 year mortgage with 5% down at 5% is around $1064 a month. $1300 + $1064= $2364.  $3000-$2364=$636. $636/ 4 doors =$159 per door if these numbers include everything.

-You can check on this property more without a place ticket.

I have broke down the numbers as best I could based on what you provided. The multifamily makes more $ if $1300 is your actual total cost.

Diversify a little and own both types in my opinion. Is a cash out refi out of the question? Instead of choosing one or the other, why not own both properties

Cash out refi or get a HELOC (Home Equity Line Of Credit) on your SFR for the down payment on the 4 plex? Utilize the equity you have.

@Chris A. Sorry, I was up late and didn't see the other pages to this thread. My bad. Thank you for keeping up on the thread.

@Chris A. Any more updates? I have been considering turnkey properties as my market is at 0.5% (price to rent) and dropping.

Posting on mobile device is harder than I thought, sorry for the messy above post. I screen roommates harder than ordinary tenants. Imagine trying to evict a roommate from your own home, you see them every day. Background checks Credit checks Call references (personal, work, facebook profile)