All Forum Posts by: Stuart M.

I was thinking in a long term view.  Take two examples, tell me which you'd buy.

House 1:

100k house, 5k down, 20k in repairs

Rents for 2k

Cash flow is 500/mo

House 2:

500k house, 25k down, no repairs

Rents for 4k

Cash flow is 0 after PITI, Insurance, etc.

House 1, in 30 years you own a house free and clear that is worth 217k, and if you saved the 500/mo at 7% return, 640k in the investment acct, 857k total.

House 2, in 30 years you own a house free and clear that is worth 905k, even ignoring cash flow from rent raises for year 2-30.

A few notes.

In both cases, I assume house appreciation tracks inflation (2%) as it has on average for a long time.  If you assume greater appreciation, House 2 does even better.

I included no "cash flow" for house 2 but I assumed 2% increase in cash flow for House 1 yearly.  However, House 2 would probably begin to cash flow in year 2 at first rental raise, and I didn't include any of that in the long term projections.

Also, why do people consider House 1 to "cash flow" if the mortgage is paid down $137 in month one and you get $500 cash ($637 total), but House 2 doesn't "cash flow" even though the mortgage is paid down $684 in month one?  Both are off an initial 25k outlay.  Both seem like money in the bank to me.

It seems to me that we're investing in land here (there is not much of a price difference between a water heater for a 500k house and a 120k house or a call to unclog a toilet - in fact, those numbers work against House 1 - and usually a majority of the difference between a 500k house and a 120k house is the dirt it sits on) and if that's the case, aren't we aiming to leverage as much money as possible to buy as much land as is possible, in the long run at least, and have some tenants make the payment for us in the meantime?  Seems like appreciation is the key.

What's your take on this.  What am I leaving out, missing, etc, I'd like to hear other opinions.

I want to find price to rent ratios for my local area, down to block level, or neighborhood level.  I mean, I live in South Florida, so a one size fits all number doesn't help me in any way discover the areas that I want to find.

Yet every place on the internet that used to have them, say, in map form, don't have them anymore.  It's like they just gave up on that webpage.

So is there some place on the internet that I'm missing? Where can I find the data I need, short of getting access to the MLS, scraping a ton of data, doing the calculations myself, etc.

 I'm not from Canada, but here in the US, these things are tracked.  The majority are off government assistance of any type within 3 years, and what we call "welfare" down here (TANF) over 60% are off of in one year - and this study was done DURING the great recession!

I wonder, we consider healthcare for poor and old people "government assistance" down here and everyone else has to pay their way, do you feel your doctors in Canada are indirectly perpetuating a system that encourages people to be leeches on society, because healthcare is even provided to the "able" up there?

It is a shame that this voluntary life style choice has been passed on from generation to generation.  Next time you see the Dr, pay cash like many hard working Americans do unlike Canadian leeches.

A side note, we have a system that GUARANTEES 4% of people will be unemployed, at a minimum, at every given moment.  How exactly is it their fault when their number gets called?  My momma was one of those "leeches" who took all the welfare money and now she has 3 grown, successful, contributing children.  Maybe we would have been better off if society put us out on the streets?  (Oh, and college ain't essentially free down here either.  Is there anything Candians' don't think the government should provide them?)

Or maybe we can just leave the social commentary off BP.

One more question I haven't really thought out, but tell me if there's a path here.

There's a 10k limit on property taxes.  Businesses can write off the entirety though.

What prevents you from moving your house into an LLC if your prop taxes are over 10k and paying rent to the LLC who can now write off the whole deal (property taxes, unlimited interest, etc.) Oh, and your standard deduction just doubled to 24k.

OK, lets go back to your original example.

You buy a 2M property that profits 400k, but you're limited to 50k deduction (2.5% of 2M.)

What if the numbers were different - you buy a 1.5M property (or combination thereof) and the profit is 300k, keeping you under the 315k income limit.  The 2.5% limit is 37.5k deduction.  However, say you also own a property management company that charges you 300k to manage your property, and that company makes the 300k profit.  You are under the 315k income limit, so it doesn't matter that its a service company.  And the 2.5% (37.5k) limit no longer matters, right?  You get the whole 60k deduction, right?

Or does the 2.5% limit not apply at all if you are under 315k profit?

I remember when this was going to be "tax reform" to "simplify" the tax code.

I wonder how long it will be before CPAs all agree on the way around the 2.5% limit.

Deleted.

 I was under the impression that anything you do before it is placed in service is added to the basis.

Tell me that his take is correct instead!  Some of us have 8 days to make decisions!

OK, my new LLC is providing property management to my rentals and just so happens that it works out to cost ~$400k per year. Now does my property management LLC get the whole 80k deduction?

I haven't, but I imagine if I had to, my first step would be to acquire credit cards that had a total limit that was double what I was taking out so that none of them are over 50% utilized.  I'd also look for cards that allow you to write checks directly to yourself (barclay cards for example.)  Also look for cards that have the longest terms for single fee 0% ongoing (or as close to it) balance transfers (most common is a 3% fee, some credit unions are 0% fee but higher interest, some barclays cards are 1-2%.)

Look at repayment terms - some cards make you pay back 1% per month (barclays cards), others up to 5% per month.  So, for a 50k balance, card A has a min payment due of 500/mo, card B would be 2500/mo, even though they have the same balance.  Look at how they calculate the min due - 2% of balance plus interest for example.

Your min payments are going to be wild for a while.  Like, probably a min of 1.5k per 100k, and that's assuming you can get a bunch of barclays cards, and could be closer to 3k or 4k per 100k, where as a mortgage would be $500/100k.

There are two ways to get the $ off cards that don't allow you to write checks to yourself.  One way is to find a card that does, write the check, then transfer the balance to the other card, then write the check from the first card again.  Problem is you'll get hit would double fees on the first card this way.  The second way is to transfer balance from a card that has no balance, you'll have a huge credit, and then in a month or so they will allow you to request a refund, and they will mail you a check.  This is a higher risk strategy and a good way to get a company to shut your card down nowadays.

Oh, and be careful, once you start loading up cards, the cards you haven't gotten to yet might reduce your limits to something like $1k.  Amex cards for example, if they see you incurring huge balances.  And some of your cards may drop your limit to just above what you owe once they see what you're doing, others may close your cards altogether.

And finally, when you go to refinance, now your credit score is lower because you have all this debt.  Make sure you'll still be able to refinance and not get stuck in a trap.  Having a spouse helps here, especially if one of you makes a lot more than the other - the one with the lower income can incur most of the debt, then put the house solely in the other spouses name when you buy it, and have them refinance when it comes time.  Though someone else will have to tell you the limit on a cash out investment property refinance.

Did you look at hard money loans? Is there a reason you can't get a mortgage?  If you have the credit and income to get enough cards and afford the min payments, it seems hard to believe you don' t have the credit and income to get a mortgage. I'd try to find as cheap as possible of a house if I was doing this.

So, taxes/insurance are $100 (50k mortgage @4.5% is $250/mo, you say total is $350 a month.)

Why not just refinance the whole 79k at 4.5% for 30 years, payment is $400+$100, now you're making $100/mo on $0 invested.

Your $29k additional investment is returning $150*12/29k, or 6.2%.