Hi All, 

I am considering to buy my first investment property in Memphis, TN. I am totally new bee and my friend suggested me a Property Management Company. They take care from buying a foreclosure, renovating till renting out for me. This sounds really awesome and only thing looks like I am left is with downpayment but to me its too good to be truth. I have couple of doubts 

1) Is Memphis still a good area for a cashflow? 

2) I am in California, if I am getting 300 cashflow, what are the TAX implications ?

3) I do understand that there is a possibility of having a bad renter but what the probability of getting them more often?

4) I also understand that the property will be need repairs or minor repairs every time renter moves out but can I claim those in the TAX ? What are the chances that it would exceed my total cashflow? Lets say if my Cashflow is 300 per month so yearly  $3600 but if a bad renter would cost me $4000 then I see no point in such investment. Am I getting to worried?

5) I also heard that If I do such kind of investments, then I should create a trust and put my investment property under it. I am not sure how its is going to help me and do I really need it ?

Memphis is still one of the top markets. You can easily get $300 in monthly gross cash flow fairly easily. There is always a risk with tenants. If your home receives a good renovation and the tenants do not destroy the home your turn over cost should be minimized. I do not think you need to form an entity for your home. Just purchase a separate umbrella policy to provide even more coverage. 

Good luck 

CA will tax you on the income in TN. TN does not have income tax.

@Curt Davis : Thanks Curt for the information. I will definitely do more research on this. Thanks for pointers. 

@Alexander Price : That what I was looking for. Is the tax is over the over all rent ?  Can I ask for deduction for loan and repairs ? Is there any website which helps me to calculate the taxes for secondary property ?

Thanks you so much for taking time to reply to the post. 

Memphsi is an AMAZING market for cash flow! One of the best in the country that I have seen!

There will always be risks Involved with investing. The best thing you can do is connect with companies that will mitigate your risk. A professional property management company that requests slightly higher than normal deposits from tenants, screens tenants properly, and holds them responsible for damages made that are outside of the typical wear and tear.

Regarding tax vulnerability, try connecting with an investor friendly CPA who can advise you on how you on what routes to take for optimal savings. We have a great professional here in the Memphis market by the name of Jimmy Luke. He even offers consultations by the hour to answer any and all of your tax concerns!

Feel free to reach out if you need any help!

Happy Investing!

Hi @Rax Gupta ,

I'm not a CPA so you should definitely check with your CPA about the tax details. Also find a RE lawyer to learn about trust / LLC to decide if it's necessary for your situation.

2) I am in California, if I am getting $300 cashflow, what are the TAX implications ?

if you get $300 after all expenses and depreciation, then you will need to pay federal and CA state income tax for that $300.  

Expenses like property management fee, insurance, Memphis and Shelby county local property taxes, etc.

You also need to 

3) I do understand that there is a possibility of having a bad renter but what the probability of getting them more often?

That depends on your property manager and how they screen tenants.  I haven't had that bad of a luck yet (fingers crossed) but even with good screening I had late payments and eviction filings.

5) I also heard that If I do such kind of investments, then I should create a trust and put my investment property under it. I am not sure how its is going to help me and do I really need it ?

I don't know anything about trust but there is a lot of discussion on BP regarding LLC. IMHO, it depends on how rich you are and how much it's worth to you to be anonymous in the world of Internet and frivolous lawsuit. There are costs associated with LLC - CA franchise tax board annual $800 fee, tax filing, not sure about TN tax filing, etc.

It looks like you need to learn a few things before buying any RE.  Suggest you to search through BP newbie area and see what you can learn from there 1st.  If you have too much money burning a hole in your pocket, then be careful online because there is plenty of people who won't mind taking your money from you.

https://www.biggerpockets.com/real-estate-investing

Good luck figuring it out.

Henry

@Rax Gupta

I sent you a connection request. I can answer all your questions being in california and investing in memphis for last year

@Rax Gupta - Search BP hard for all your questions and concerns. With limited information on post it's hard to comment .Being new bee think twice before you choose your poison pill. For general REI education read the link and connect with the OP.

https://www.biggerpockets.com/forums/311/topics/22...

Good Luck

Vivek 

@Henry J. : Thanks Henry, truly valuable comments. Yep I am truly new bee and I am reading a lot but its always helps, learning from the ppl who are already in the business then from books :)

I am not sure how REI is profitable?

Here is the maths so far I have understood please correct me

Lets say property prices is

price: $77,000

Rent : $805

Principal and Interest: $324

Taxes: $80 ($30 property tax and city and county tax of TN)

Property Management: $80

Est. Insurance: $30.00

Cash Flow: $291

After CA taxes I am assuming 44%: $150

I am not sure I much I should put aside for maintenance but lets say $25:

Final Cash flow will be: $125

cost for LLC-CA is separate - if you go out with you one friends on dinner one time, $125 will be easily spend in CA.

Thank you 

@Vivek Khoche  @Aj Singh : Thanks for commenting, it will be great if you can share your experiences. 

@Rashard Alomari : Thank you for your comment, I will definitely be evaluating property companies once I am sure  I want to do this. 

Hi @Rax Gupta ,

Before you invest in anything, understand why you're investing first.  Understand the risk and pros and cons of each investment strategy.  Understand your personality and your risk tolerance, then decide if any investment strategy fits your personality.

For your example, I would add vacancy (8% ~ 1 month per year) to do the calculation. I also would use about $50/month for repair. The ROI looks really bad for OOS so not sure where you're getting this from. Also use zillow/trulia/redfin or realtor.com for area / house info.

I would highly recommend you to talk to your CPA if you have one to understand tax implications. if you don't have a CPA, then buy a book or google REI math to read up on it.

Additional BP links that may help you - 

BP calculator link - https://www.biggerpockets.com/buy-and-hold-calcula...

Buying Rental Property: A Step by Step Guide - https://www.biggerpockets.com/renewsblog/2013/02/2...

BP's tax strategy book - https://www.biggerpockets.com/store/the-book-on-ta...

Good luck figuring it out.

Henry