All Forum Posts by: Bob Norton

@Spencer Gracia You have positive cash flow, because your vacancy and capex/maintenance are not monthly cash flows.  However, you are correct in adding them to anticipate future costs.  You are estimating your maintenance/capex at 21% of rents.  Why is this estimate so high?  Also, why are you paying for water and trash.  Typically, tenants are responsible for those costs.

Are you using average home prices and average rents for the Memphis area?  Or did you check prices and rents for a specific neighborhood?  You should be able to find a good rental neighborhood where the numbers work.

@Marcus Brown Yes. Generally a mobile home that is attached to the land has a fixed foundation and the wheels have been removed.  The affidavit just confirms that your intent is to make it an improvement to the land.

@Adam L. My estimate of the cap rate was just above 9%, with you limited data.  That's why I said it was worth looking into.  Apartments are selling around a 5% cap rate.  So, there appears to be opportunity here.  

The door price does not matter as much to me as long as the cash flow is solid.  The door price is simply a quick way to compare properties and look for opportunities.

You will need to do an inspection to determine the deferred maintenance and evaluate your CapEx rate. I'd get it under contract first with a generous time for due diligence.

You will also need to check the rents in the area to see if there is any room for improvement.  If they are renting at the top of the market, then you are going to need very good numbers on your maintenance and capex costs to determine if this is a deal.

@Spencer Gracia I recommend that you check your sources of information for your rental and cost comps. It is possible to get a negative ROI if your property costs more to maintain that your can get in rents. It may be that your method of calculating ROI is including bad information. We can't help you without the numbers.

@Fahadbin Alam When your deed gets recorded with the county after you purchase the property, then the tax authorities will update their property tax records and mail you a tax bill at the end of the year.  If there are any outstanding property taxes on the property at the time of closing, then your closing attorney should collect those from the seller and remit them to the local authorities.

With a single rental property, your tax return should be relative simple.  However, I find that people doing their own taxes miss a lot of deductions that they are entitled to, especially with real estate.  So, you could consider finding a CPA that specializes in real estate to make sure you are saving the most on your taxes.  That way you can focus on growing your rental portfolio instead of reading and learning tax law.

@Adam L. It appears worth looking into.  I'd be really concerned about deferred maintenance issues.  

@Marcus Brown You should file an Affidavit of Affixation with your county to convert the mobile home to real estate.  Then, there will be no doubt that your mobile home is a primary residence and that you qualify for the tax exclusion under Sec 121.

@Matthew Bailey Yes, you can rent the commercial space to your flipping entity for office space and reduce your overall tax rate (by converting active income to passive rental income).

@Davis Evans Congratulations!  Breaking even on your first deal is awesome!  

I hope you have a good relationship with your brother.  I did the same with mine and now I can't get him out of the property, or get any rent from him either.  

@Wayne Bolen I recommend what you are suggesting to my clients interested in investing in real estate. I recommend that they continue to invest into their 401k up to the company match and, if their 401k plan allows, to invest their contributions into the Roth option. Then, any excess funds they were investing in their 401k can be deposited into a real estate investment fund (a money market fund at their bank). When you've accumulated enough funds for a down payment for a rental, then purchase one. And, then repeat the process. If you can save up enough funds to use the BRRRR strategy, then go for that to build a porfolio faster.

If you leave your employer, then you can roll your 401k out to a self-directed IRA and begin using those funds for real estate investing activities. My favorite strategy is to lend to other investors using the BRRRR strategy or flipping houses.

Hope this helps.