All Forum Posts by: MATT WARDEN

This is not always the case. In some areas, once an individual or entity owns more than x properties, they are classified differently.

There are exceptions, but for the most part, the Web advertising hype is over. People are realizing that brochureware sites are not effective marketing tools, and the ROI is so low no matter how many millions of hits such a site has. This is why the cost of even highly targeted advertising techniques like google adwords is a) so cheap, and b) tied to the click-through rate.

Josh, I am very glad that bp.com has a number of advertising customers who are happy with the ROI on their advertising dollars. That is a tribute to the quality of site you have developed here. As I have said previously, content is king, and if you have good content, they will come (and if they come, you can probably make some money advertising). But for the advertising customer without "king content", the ROI is extremely low. This of course is not the advertiser's fault, but the customer's. And for customers with a brochureware site, the ROI is hovering just over zero.

For brochureware REI sites, Web advertising really doesn't make sense, unless you are using google adwords and are targeting a geographical location. For example, if I had a site marketing my position as a real estate investor, buying adspace on bp.com is going to bring me little (if any) ROI. It would be much wiser for me to simply list the site on my business card and hand it out to people I meet, and this is exactly what I tell my clients who have similar sites in comparable markets.

Web advertising is mostly dead. Your only real remaining option is google adwords. The only reason to use Web ads over traditional methods is Web ads don't require any real work on the advertiser's part.

Yes

Expensive compared to what? A mass-produced novel? I have written a similar style book in the web development world, and it retails for $35.

I purchased MikeOH's book and it is worth every penny. I know how much he is making per-book (you can figure this out based on information on lulu), and I feel it's just right.

It is more of an orientation book to help one gain a true understanding of the fundamentals of the rental property business. Or, if you will, a re-education book aimed at helping undo the damage that has been done by unrealistic guru hype. Take a look around this forum at the questions that clearly indicate an opinion that this business is easier than it is. That's what this book is for.

Spending $50 to reduce your risk significantly is a steal.

A true understanding of what dealing with tenants really means. A true understanding of realistic financing expectations. Et cetera. If you are looking for the takeaway points, you should probably buy the book. It is not appropriate to summarize and distribute all the goodies in the book (although MikeOH more or less does that every day here on these boards).

The obvious question is: if they had the credit and income to purchase a house, and they are long-term tenants (so there is no transience reason for avoiding home purchase) why would they be willing to pay ~2x the mortgage payment while gaining zero equity? As MikeOH says in his book, your tenants are tenants for a reason.

You can only expense portions that are used for a business purpose and that you have documentation supporting the business purpose. Always consult a tax adviser for details about what is and is not acceptable.

Are you kidding? Unless you completely misread what I said and think I am suggesting that you should spend money you wouldn't spend otherwise, then I don't know how you can believe this. It is a question of whether you spend the money in tax year A or tax year B, not whether you spend the money or don't. I'm not sure how much clearer I can make this!

Annual insurance payment is not what we're talking about. That is a (relatively) fixed cost and should be built in. Not only that, but you may not have any flexibility there.

Additionally, whether the interest is a lot of money or not is a completely moot point. It doesn't matter whether it brings in 1 cent or 1 million dollars. It only matters whether the cost of taking the action (perhaps factoring in distraction from the business's vision and annual objectives) is less than or equal to the expected benefit. Here it is clearly less than the expected benefit (and would have no distraction), so one should do it.

That is all that is relevant.

The example may have been poor, but that does not resolve the general question. If you may need to replace a roof in the upcoming tax year, would it make sense from a tax perspective to replace the roof in the current tax year? And similar scenarios.

We are not talking about normal reserves. We are talking about what to do if one finds himself with excess. To do nothing with it and allow it to be taxed seems foolish, unless you need this income personally.

Again, this seems foolish. There is no cost to using ING at 4.5% (or 4% for checking) vs. another account at < .5%. In fact, I personally find ING more convenient due to access to the allpoint ATMs free of charge (I travel a lot for business and local/regional banks cost me a lot of money when I'm out of town and using an ATM).

No additional cost or effort and 9+ times the interest. This is a no-brainer. The money isn't there for the return, but that is definitely not the point.

Absolutely. The question being posed here is how one keeps the most of this cash for a longer period of time rather than making a large donation to Uncle Sam. The $1000 you just made can end up being $500 4 months later. Does it make more sense to spend that $1000 now to avoid a $1000 expense in the next tax year, allowing you to keep the full $1000 you earn next year for 15 months?

Did you read MikeOH's post? He made a pretty good argument.

The 50% is intended to be the conservative end of an interval within which the true average operating expense lies. If you go with this value and it's wrong, the worst that will happen is that you will have greater than expected cash flow. I'm okay with that problem.

REI is an investment strategy where each investment has a potentially high opportunity cost. That is, you can only make so many investments in a given amount of time. If you execute on a deal, that means the number of deals you can execute on in the near future goes down by one. Given that you can execute on so few deals, why would you want to be anything but extremely conservative? You do not really run the risk of "missing deals", because as a newbie rental property investor you can probably only execute on 1-3 per year anyway. And with each one of your deals, the financing likely becomes and more expensive*. Why would you want to be anything but extremely patient, extremely discriminatory, and extremely conservative? Yes, action is great, but not if it's action on a mediocre deal that will keep you from executing on the real deal.

*Of course, there are always exceptions, like if you have a good relationship with a smaller bank and can show a strong business plan with high, steady cash flow (which won't happen if you underestimate OE!).

Your post suggests that your rental property will cash flow even when the numbers say it won't, because:

[x] You think cash flow is anything left over after the mortgage payment
[ ] Your market is different
[x] You expect costs to be lower than established estimates from experienced investors
[ ] Your seller/realtor/wholesaler/mother/dentist said it was a good deal
[ ] You are banking on appreciation/tax benefits/accidental rent overpayment/lottery
[ ] You are planning on making a large down payment
[ ] You are willing to take a loss now for tenant-subsidized mortgage paydown
[ ] You learned a new technique and it only cost you $2k to learn from guru #593557

You are wrong. This property will not cash flow and you will lose a lot of your hard-earned money. Here is why you are wrong. (One or more of the following reasons may apply to your particular "deal", and it may have many other flaws not covered here.)

[ ] Your market doesn't change the numbers
[ ] You are ignoring or underestimating initial repair and maintenance costs
[x] You are ignoring or underestimating eviction costs
[x] You are ignoring or underestimating vacancy costs
[x] You are ignoring or underestimating office supply and advertising costs
[x] You are ignoring or underestimating asset protection costs
[x] You are ignoring or underestimating ongoing legal counsel and lawsuit defense costs
[ ] You are not factoring in the opportunity cost of your downpayment

Also, the following issues may also apply:

[ ] You don't like dealing with tenants
[ ] You are investing in property out of state
[ ] You believe you can use rents to reduce holding costs of a flip property without consequence

I suggest the following:

[x] Buy more realistic books on rental properties
[x] Walk away from this deal
[ ] Do more homework on this property before proceeding
[ ] Sell all your current properties
[ ] Quit investing in real estate