All Forum Posts by: Rhonda Wilson

@Mitesh Baria  Well, from the numbers it looks like a very good deal. Nice high cap rate and high rent to price. Are you confident on the cost or repairs? You only have $2000 there and that doesn't go very far these days. 

The numbers aren't really adding up for me. One problem is the the property tax and insurance are included in the mortgage payment but also included in the annual expenses. What are the terms of the loan?

@Terry Lao We sold our residence last year. We won because we wanted to move to another state. We were happy to get a price that was acceptable to us - and yes, we made a profit. The buyers won because they bought a house they loved. It was a step up for them. Two years ago we bought an apartment building. The sellers made something like a $200k profit after only a few years of ownership. We invested in the building and improved it. A couple of years later, our equity has increased perhaps $300k. We won too. It happens all of the time that people win on both sides of a transaction.

@Tristan Colborg If all of your offers were to be accepted, you offers are probably too generous. Having offers refused is part of price discovery. Keep making offers and you will get your first property. 

@Todd Markey Before we purchased our first multifamily, a property manager said to me "If you're not willing to kick out a pregnant woman on Christmas Eve, you should not manage your own apartments." The comment was extreme, to be sure, but with more than a kernel of truth. 

Unfortunately, there are only two ways for it to end. They either move out or they don't. If you want to be nice you can give them either more time or a monetary incentive (cash for keys). I have dealt with this and if the tenant thinks you are soft and will not have the sheriff remove them at some point, then they will stay. It's a very unpleasant business and the reason why many people should not be landlords. I have given extensions but made it very clear that after the extension they will be removed in accordance with the law regardless of whether they have found a new place.

@Mark Sewell Indeed! If you have a beer and I have a beer, it is win-win. :D

Certainly not everyone wins all of the time. However, in a growing economy there can be a lot more winners than losers and gains, on average, can be positive, even highly positive. When an open system, like the economy, is presented as a pie graph with individuals, companies, groups of people or countries each getting a percentage of the whole, this is not a good model. In the model of a pie, no one can get more without taking from another. Consider the fact that US GDP is 24% of world GDP. Fifty years ago that percentage was about 38%. OMG, who took all of our wealth? The answer, no one took it. The US economy has growth by four times, but the world economy has grown over seven fold. Look also at GDP per capita, wealth per capita or any other metric. Americans are getting richer as is the world. Sure, wealth can transfer from one individual to another. However, wealth is also created and this creation creates winners without the need for a loser.

@Bryan DeSellem If you really believe in the deal, borrow from your 401k. When you can, pay it back. One thing to keep in mind is that you will have to pay it back in 5 years. Make sure that you have the cash flow to do it. 

People who invest in the stock market are a bit like people who visit the casino. They'll tell you about a gamble they made that paid off many times over. What they won't tell you is all of the money they lost on other bets. I've bought plenty of stocks in my life and some have been great. Some have not been great. In then end, most people are better off putting their money in an index fund and getting the average return. 

Investing in the stock market, especially through a 401k with a company match is smart. However, it does not have the advantages of real estate. Consider leverage. If you put $20k down and borrow $80k on a $100k property, a 10% increase in the asset's value is $10k. That is a 50% ROI. If that same money gained 10% in the stock market, your ROI would be 10%. If it's a rental property, the tenants are paying the mortgage, so even without strong capital appreciation, your tenants are slowly but surely paying down your debt and building equity for you. It doesn't seem like a lot at first, but over time, it's magical. What's more, any income you receive is highly tax advantaged due to depreciation.

To give an example, we have a property this year that will cash flow about $40k. On that we will get a $24k depreciation deduction. Thus, we are only paying tax on $16k of the cash flow. It's not that good on all of our properties, but I wouldn't say this is unusual for a highly leveraged property. Suppose a tax rate of 25% and instead of an after tax net of $30k for W-2 or stock income, we get a net of $36k. Honestly it feels like cheating but the law is the law. You are required to take depreciation. 

All that being said, this business is very hard work and the risks are very real. It helps to have a lot of patience and to be prepared for the worst because we all have setbacks. 

Up until now, every article I've read stated explicitly that rental income qualifies for the 20% deduction. I attended two webcasts from Marcus and Millichap and they seemed quite clear that income from pass-through entities qualifies with a few noted exceptions (like certain services). 

The Forbes article says 

"The Section 199A deduction is available to any taxpayer “other than a corporation.” This includes:

• Individual owners of sole proprietorships, rental properties, S corporations, or partnerships, and"

Of course, that is the interpretation of the expert who wrote the article. 

You can read the actual law here

https://www.law.cornell.edu/uscode/text/26/199A

I found no exclusion for passive income or rental income.