All Forum Posts by: Tom NA

I also live in CA and own in AZ (and a couple other states). While I have always *filed* an AZ return, I've never had to actually *pay* taxes in AZ. This is because after taking depreciation and other deductions against my rental income, the net income is never enough to be over the threshold that would require me to pay state taxes.

I'm not a CPA but rather, do my own taxes. Since I'm not a pro, I would encourage you like the others to seek expert advice as I may be wrong in how I'm allocating across states.

Wow, I'm surprised at the responses in here but then again this is a RE board so perhaps I would see soemthing different on a stock board for example. I also have a good-paying job but I max out my 401k, max out my ESPP, and drop a whole bunch into my kids' 529 accounts. Certainly it's a personal preference but to consider in each of these:

o 401k: Even without matching (which I personally do have) there *is* a tax-deferred benefit that should not be overlooked - those who claim there is no benefit without matching are wrong. Emptying retirement accounts to depend on your savvy in real-estate feels very risky unless you really know what you're doing. Remember, most wanna-be real estate investors end up as failures and certainly my RE investments have been marginal at best (I never claimed to be good at this!). However, what I do know is that as long as I keep dropping money into my 401k year after year, I will have a large retirement account that positions me for a comfortable retirement.

o ESPP: Depending on your plan, you likely have an opportunity to purchase at up to a 15% discount over a 6-month period (3-months for my company). Anyone who doesn't do this is just throwing away money. I would take a *guaranteed* 15% return over a 3 dor 6-month period all day every day. Once the period is over, you can sell and get the cash anyway so all you're really doing is slightly delaying your access to the cash. Unless you're really good, unlikely you're going to get this kind of return regularly in real estate.

o 529: This is more a personal preference as I know many have different thoughts on how much to provide for your children's education. I was fortunate that my parents supported me as much as possible and I feel strongly that I want to provide what I can for my kids. Thus, for my preference, I am prioritizing putting money into this account, which I do on a montly basis as well as in bigger chunks annually.

Ultimately, I'm a proponent of a balanced portfolio which is really what I have - stock accounts, retirement accounts, education accounts, personal residence, investment properties. As you look to move your assets into RE, Ben, take a good look at how effective you really believe you can be doing this as a hobby. You may find that you are better off easing into this and monitoring your success vs. immediately diverting so much of your other investments. Part of my ability to limit risk was that I dabbled with capital that I could afford to lose - I don't consider something like my 401k as an asset that I can afford to lose.

Good luck!

Hi Chris,

I see that there is a more detailed plan and a solid dose of reality behind your long-term goals which is great! I'm mostly just an arm-chair real-estate investor so I'm not as qualified as many to speak to how realistic the timing is on your goals but getting $600-$800k in equity within 5 years seems like a very large task with a lot of things going just right and perhaps a bit of luck along the way. I would look at how much you expect to gain from each deal and how many deals you can expect to perform within 12 months. If you need to build up $150k in equity per year, in addition to just paying your own living expenses in northern California, you need to be bringing in $200k/year from the start which sounds pretty lofty for even an experienced investor.

Regardless, I love your attitude, desire to learn, and passion for investing and have no doubt that you will have success along the way!

-Tom-

Hi Chris,

Welcome. It's good to have goals but I recommend having a trajectory to get to those goals. Going from nothing to $3-4 million in assets in 5 years is a tall task. I'd work on the smaller goals that will get you there first. How will you get your first client? East Bay is a slow market and agents are a dime a dozen. How are you going to find properties and investors for wholesaling? What about your ability to find properties and resources to successfully flip? Are you in a position to finance something right now?

Hopefully it's just lost in the excitement of your bigger plans and you didn't mention it but I think you need to focus on a plan to get yourself off the ground. You'll never reach your end goal without a good short-term plan to get things started. You are about to finish step #1 when you take your exam - make sure you know what steps 2 and beyond are.

Good luck. I look forward to hearing stories of your successes.

Robert - I agree that you don't necessarily always need to have the "hair trigger" reaction but you really need to know your tenants. I learned the hard way by giving people the extra leeway and later on ending up with months of unpaid rent *and* a judgment that I can't collect on. I'd much rather get them out sooner rather than later if the end result is going to be the same anyway. A vacancy is more desirable than a deadbeat.

On the other hand, I do have a tenant that is occaionally late and I have bent over backward to work with them as they've been in for 5 years and I know they are always doing their best to come up with the rent. So I guess with my various experiences, I assume the worst when I hear your story but if you can prove yourself to me, I'm willing to bend just a little over time.

Sorry, A Lak, perhaps my post wasn't clear. I wasn't asking how much rent, utilities, etc. you could get from the rental unit. I was asking how much you need so that *you* can keep a roof over your head and meals on the table. My point being that while your debt may only be 20%, your monthly cash flow after all expenses may currently be next to nothing. Being conservative by nature, I personally feel that with little to no incoming cash and no cash reserves, purchasing a rental property is an incredibly risky proposition, especially for someone with no experience. Trying to figure out how to purchase multiple sounds like potential financial suicide.

Without even having all the details, I think I'd advise against investing until you bolster your financial situation. What I'm seeing:

o $350/month debt
o $1750/month income
o ???/month rent
o ???/month utilities
o ???/month other personal expenses

Do you really even have a positive personal cash flow? You've already indicated that your cash reserves are quite low based on your inability to pay off your debt.

I know real estate is supposedly the way to make money without having much of your own and using leverage is one tool but it sounds to me like you'd be one vacancy, eviction, or roof repair from filing for bankruptcy. My advice is to get your own financial house in order, including emergency funds, and then think about venturing into an endeavor that the 10 times more difficult than advertised.

Wow - that is some post! I won't go into the fact that your message is unreadable as that's stating the obvious. But I would advise that if you want help, be succinct. Nobody wants to read a 3-page stream-of consciousness with no structure.

Like Jon, I got through part of your post and I think that's all I needed to see. His advice as always is spot on - state the simple facts and you will easily get an eviction. 95% of what you wrote is immaterial. Just present to the judge the lease, all payments received, and let that do the talking. Bedbugs, a/c units, etc are not relevant. Don't create drama - which is really what you've done with this post - but just stick to why you want to evict. I might suggest that you have an attorney represent you since they will be well versed in how to act in court. Based on your post, I'm afraid you might ramble and take the focus away from the pertinent facts.

A few thoughts:

1. Unless you change your mindset, you are not cut out to be a landlord. You have been letting your tenant take advantage of you for almost a year now! They should have been evicted 9 months ago. To be blunt, you're not a bad landlord because you neglected to take care of the property or were unresponsive (which seems to be your concern), you're a bad landlord because you let tenants walk all over you.
2. Not only should you be filing for eviction, you should be filing to get a judgment as well. The tenants owe you an amount of money and you can garnish their wages to get that money. I won't go into collectability here as I have yet to collect on any of my judgments but nevertheless, you should do this to show them that you also know the rules and that you mean business.
3. Now this may be reading into your post too much but based on the vivid detail you provided, you are way too emotionally invested. Take a step back and remember that this is a business venture and a business relationship. Deal with each issue independently as it arises and move on. Don't let things build up and make each issue dependent on another. Your ability to make a repair should not be based on the timeliness of a rent payment or the nature of the last conversation you had with your tenant. Fix what *needs* to be fixed, when it needs to be fixed. Ignore the fluff. For example, my tenant would never get a new door.
4. Personally, I'm not a fan of buying/owning rental property without a nice rainy day fund to help take care of repairs, evictions, vacancies, etc. It sounds like you might not have the financial resources to handle the ups and downs of owning a rental property. Only you can judge if you're positioned financially to weather unexpected expenses.
5. If rent on this unit is barely paying the mortgage, it's a losing investment and you should sell it anyway.

I hope I wasn't too harsh. I've been in your shoes too - to an extent. I've let people stay too long, or at I've given incompetent property managers too much autonomy. After a couple evictions, I don't do that anymore. Rent is late on the 5th and notice is posted on the 6th to start the eviction proceeding. No excuses - I don't care about your disability, pregnancy, or any other issue. If your unit requires maintenance, I have that taken care of immediately and it has no connection to you needing to pay rent on time.

Good luck.

I live in it. As long as my wife and boys are there with me, I have all I need and I'm in my dream house.

Indeed your tenants may want to pay rent (that they don't have) with a credit card. I've had someone try to do that via PayPal but I told them I wasn't going to pay the processing fee.

A couple things if you are going to accept credit cards for payment. First, you cannot charge the credit card fee to your tenant - it's not legal. However, you could set the rent at the higher rate and discount for payment by check. Second, if you accept credit cards, be prepared to deal with all of the protections afforded a credit card customer. You may end up dealing with things such as chargebacks which will result in you chasing money that you shouldn't have to. I'd rather know definitively that I have my rent, without fees, and once paid the tenant can't file a claim to cancel the payment.