Questions from a new guy (regarding 2% rule, foreclosures, and taxes)
(I moved this from another area, so hopefully a moderator can terminate it from the wrong board, since I am not sure how to)
Hey folks! What a great site and community. I have been doing a lot of studying, and I have listened to several podcasts (admittedly all from this website) ; but I think I am ready to start finding properties (probably should be singular "property" since it is my first one).
My wife and I have successful non-real estate careers, so this would be on the side. My full time job is 30 hours per week (though with lots of nights, weekends, and holidays), but this allows me a lot of time for side projects, like real estate investing.
I want to focus on single family homes, as I am most interested in building long-term wealth, as opposed to maximizing rental income (though obviously this would be great , too). I was hoping, I could get some opinions on the following subjects...
1) How strict are you about the 2% rule? In the hot New Orleans market, checking rents on Craigs list and comparing to the MLS, it seems this will be extremely difficult to achieve. My wife and I have maxed out 401ks, and I am really trying to diversify from similar entities (other brokerage accounts, mutual funds, bonds, etc). Basically, Wall Street is getting enough of my money (though I am not going to avoid them altogether -- I just want some diversity). Long story short, is there a certain deal breaker percentage that no one should do?
2) Perhaps to get closer to that 2% I could look at foreclosures and auctions... how strongly would this be discouraged for a new guy like me?
3) I only want to buy locally (no long distance managing of homes). Do you diversify between the city and suburbs to help mitigate a potential Detroit-like circumstance?
4) As mentioned before, I want real estate for its long term potential. I do not need the money now, but I know I will in the future (hopefully not until retirement, but maybe even in 5-10 years). Can I apply my cashflow back to the mortgage and count that as an expense? I am sure that is a stupid question, but if I do not need the income now (but will before long!), I would rather not pay income tax on it. I have searched for this question on accounting sites, and I have not seen it directly addressed (which means it is probably not possible). What can one do with income to avoid taxes? (By the way, I am a by the book guy and I am NOT trying to sneak my way around or break any laws)
5) Do you always join your local REIA? It costs $200/yr, so it is not an end of the world cost, but I also do not want to just throw away money, because that is substantial. But I was surprised that it cost that much, and it seems like the guy who runs it is going to be making a nice profit off of owning it.
Anyway, thanks in advance! Hopefully, soon I will be able to contribute back!