All Forum Posts by: Account Closed

@Kenneth Huddleston 

In the North Texas region, as @Robert Steele noted, it is impossible to buy a newer (2002 and later) property without getting into an HOA. There are some good HOAs out there, you just have to learn how to work around their rules without pissing them off.

@Christopher Johnson

First, welcome to BP!

Second: You really need to find a niche you like. Have you read the "Ultimate Beginners' Guide" yet? If not, it is free, and a must read for anyone playing in the REI game!

Third: Never buy a house you can't afford... You said you were finishing up college, do you have a job? If so, have you considered getting a house that you can live in while you fix up and possibly flip? Strategy is key in REI, and the biggest part of any strategy is the exit plan. Your fear is many of our fears, but if we play the game smart, we will always have an exit strategy to get us out of the mess we got ourselves into. My suggestion to you, and to all young investors, buy yourself a home, then flip it for profit or into a rental unit. When you look for your home, use the principals that are taught here, 30% ARV (-) repairs for flips, 2 or 3% rule for rentals, or whatever principal works best for your situation!

Please note:  If you buy an owner occupied home, you can get into it for a lot less money than an investor can (compare 3.5% to 25%-30% down payment).

Good luck in your journey to becoming a professional, and be sure to check into the podcasts, they cover a lot of topics, and provide good information!

@Robert Steele

My place in McKinney Texas has an evil HOA, but I found a way to deal with them when I flipped my former home into a rental. Their bylaws are similar, stating that approval had to be granted before renting out the residence, so I told them that I was going to rent out the property, but part of the rental agreement is that I have my landscapers take care of the lawn, ($78 per month) and that the tenant has to agree to follow all bylaws set forth by the HOA, which I handed the tenant and made them initial every page. I ended up renting the house for an extra $100 to cover the landscaping. It worked out for me, the tenant, and the HOA. Perhaps you can offer something similar, which is what they really care about. They don't want the house to look like junk. Just my 2 cents! Good luck buddy!

I am having a hard time figuring out how to set up my rentals here in North Carolina. I have an LLC in Texas where my current rental is (I relocated this year), and I am trying to see if it is smart to open a new LLC here in NC. In Texas, I pay nothing per year to the state since I don't reach the $1.080 million revenue each year; however, here in NC, I will have to pay $200/year "for the privilege to operate in NC." That is the case for any LLC, foreign or domestic. Anyone from NC reading this have any input? I would think when looking to buy and hold in a state, they would want to look at this type of cost, especially if you are not local and want to create a little barrier between you and your rentals. I haven't taken the plunge to open a NC LLC yet, and I am hoping to get some insight as to what others are doing who operate in multiple states. Thanks y'all!

Originally posted by @Patrick Snyder:

I think most people become comfortable investing close to home, and can make good arguments for their choices. If it's me, I'd look for the lowest cost of ownership and maintenance, as well as purchase price. In addition, I would look for landlord friendly states, areas with a stable economy, and states that have low property taxes and low/no state income taxes. Having researched numerous markets in past years, and having more info now than five years ago, I would say Arizona, Texas, Nevada, and Florida fit the bill quite well.

While Michigan has several markets with good price-to-rent ratio, when you factor in everything else, I think you can do better. The Midwest has pretty high property taxes, and unlike a mortgage payment, they never get paid off. I have relatives in Phoenix who own a $350k house and their taxes are like $1200/year. The cheapest house I own (in Lansing )has property taxes that are around $1800/year, and that's for a house that I bought for 30k.

...

What is a high property tax?

In Collin County (Plano, Allen, McKinney) Texas, my $127k taxable value house costs $3,151/year (2.48%) in tax... That is pretty steep in my book!  

In North Carolina, my tax rates are around the 1% mark, depending on the county I am in.  For instance, a deal I am looking at right now in Mecklenburg County (Charlotte) has a tax value of $73k, and the tax is $962/year (1.32%).  This is in a higher priced county, but still!  The states you listed, at least Texas and Florida, have no income tax, but high (in my mind) property taxes... Just curious what your percentages are on your properties? 

Thanks!

Ok, spoke with my CPA, the exception to the new tax is if the rental agreement is for longer than 90 days. She said the new tax is nicknamed the "race weekend" tax to put a tax on the folks coming in for the races here in Charlotte... LOL! All is good since I don't do short term or month to month leases!

@Kyle Hipp  I agree, I would be required to tack it on to the rent, but we will start seeing rental rates increase, and I am looking at section 8 properties here in Charlotte. I am from Texas where there is no sales tax on rentals, so how would that work for Sec. 8 properties? Build it into the rental price and pay the tax, or do I have the tax as a separate line item like your example of buying a tv? Time to pay the CPA a visit I guess!

@Bill Sargeson  the tax you were looking at was specific to hotels and temp. lodging. If you follow this link, it will show you the new law...:

http://www.dornc.com/taxes/sales/rental_accomodation.pdf

House Bill 1050 (S.L. 2014-3), signed into law May 29, 2014 by Governor McCrory, provides that the gross receipts derived from the rental of a private residence, cottage, or similar accommodation listed with a real estate broker or agent where a person occupies or has the right to occupy such on or after June 1, 2014 is subject to the 4.75% general State and applicable local and transit rates of sales and use tax and any local occupancy tax imposed by a city or county. N.C. Gen. Stat § 105-164.4(a)(3) provides that the “rentals are taxed in accordance with new G.S. 105-164.4F.” 

I may rethink B&H here in North Carolina.  In the county I would operate in, there will be a 7.5% tax on the rent. Do I build that into the rent? So $1000 a month would have me tack on an additional $75 to cover the tax. I feel this is adding another level of taxation that penalizes landlords... State Income Tax, Franchise Tax, Property Tax, and now Sales Tax. I may keep my investments in Texas... Thoughts??

When I look at the 2%-3% rule, I don't look at the total cost of the property. I look at the investment amount. I try hard to go for a 33-34 month ROI, which is based on a 25% down payment and a 3% monthly ROI. To make more sense, here is a scenario I am looking at right now:

$55,000 Purchase Price

$13,750 Down Payment (Investment)

$266 PITI based on 4.35% @ 30 years and estimate on Tax and Ins

$413 ROI based on 3% of my initial investment

$102 Safety Funds (15% of PITI+ROI)

$781 monthly rent - Break Even (ROI) will be 34 months (rounded up)

Now, these are ball park figures, but overall pretty close to actual. Since my actual investment is only $13,750, I can see how the 2% or 3% guideline is achievable. I may have completely misunderstood the concept, but when I hear investment, I only think about the money I have put in, not the total cost of the property, since I won't be paying the full price(hopefully, right)... just my 2 cents...

I have a business account that has checking, savings, and a money market account attached.

Checking account: Paying bills and cashing rent checks

Savings Account: Maintenance hold back, tax hold back

Money Market Account (higher interest rate than my savings): Deposits

I currently only have 1 rental, so my accounting is quite simple. At one time, I had 7 rentals, and I use the same system today as I did back then. Excel spreadsheet set up similar to a general ledger. Columns are labeled as

Date

Income/Expense (Drop down with both choices)

Type of Income (Drop down with: Rent, Fees, etc.)

Type of Expense (Drop down with: Maintenance, Improvements, tax, insurance, etc.)

Vendor Used

Amount of Income

Amount for Expense

Each tab was listed by the property name, and the last tab has totals

I built the formula for each tab so that it would calculate each column that needed to be calculated and provided me with a running total. The last tab calculated the running totals of the other tabs and it would let me see what my money was doing. I could show how much I spent on maintenance for the year, total tax payments, insurance payments, miles driven, etc. Doing it this way helped me when it came time to get with my accountant. She would go over everything to make sure we were deducting what we could, and then would handle the Texas Franchise Tax filing for me.

Good luck to you!