All Forum Posts by: Account Closed

I heeded @Brandon Hall 's advice and immediately after buying my rental properties I posted them for rent (next day) - making them available and ready. I have proof of this for my records. While waiting for a tenant, I painted the units, installed flooring, etc.. Using Hall's recommended BARRRR method, I plan to expense the majority of the work (all individual projects well within the IRS de minimus $2,500 limit). However, in my accounting records, should these be keep seperate or should they be recognized as expenses in the months incurred?

Also, in regards to expenses paid when purchasing the properties (closing costs, inspections, appraisals, etc.), are these recorded in my ledger or are they kept separate and depreciated with the property? 

I am using Cash Accounting in case it's relevant. Thanks.

@Andrew Postell Very well written post thanks for sharing. For the purpose of my project, I am looking to borrow $70k to purchase the property, fully fund the rehab ($12.5k) with personal cash, rent it out and cash-out refinance 75% LTV (ARV of $115k) after the 6 month seasoning period. When the dust settles, I expect to have 'bought' equity at a discount (i.e. $28,750k equity for a net out-of pocket cost of $8k).

The strategy and numbers make complete sense; however, I am concerned that using a Personal or Business Line of Credit will cause issues when applying for the new Cash-Out Refinance mortgage. Can it simply be explained away or will it be viewed strictly as debt and, thus, negatively go against me?

@Kris Wong In case you or anyone else is interested, you can search the Bigger Pockets 'File Place' and find several Operating Agreements that will work for smaller investors. Of course, you can modify this as you grow. However, the more serious question should be 'Why are you opening an LLC to begin with?' There may be little use for one if you are not partnering with individuals other than your spouse. I say this because the 'Protection' aspect touted by the LLC has never been tested in court (so i've been told by a lawyer). Of course I could be wrong and it would not be the first time.

@Daniel Tisdale I am in Austin (Lakeway to be exact) and I can confidently tell you that I do not invest here. This is primarily because I am a buy and hold investor (Cash Flow is King) and damn near nothing cash flows near Austin. 

Seems to me you are drooling at the 'appreciation play' aspect of the deal. Mind you, we may (or may not) be near a market top so this could go sideways real fast. While I am bullish in the long term, I am skiddish in the short term. Also, If the property is priced to market, then it likely is not a good deal. The goal of most all investors is to get non-retail pricing (that doesn't necessarily mean wholesale pricing though). If the price works and you are comfortable floating the additional $4800 per year, then you should consider it - but move forward knowing what your true intentions are,  and that is speculation on appreciation. 

Also, just a side note, while you may spend an additional $400 per month to float the property, this will likely be offset by depreciation and fees. Unfortunately, knowing yoru exit strategy, depreciation recapture may work against your gains in the future.

If I were to obtain a personal line of credit to combine with my own capital in purchasing/rehabbing a property, how would this affect me when it comes time to cash-out refinance?

@Tom V. Don't get me wrong, the 401(k) has its place, and yes there are some millionaires who have become so through their 401(k). However, that tends to be near the end of their career when the compounding effect really starts to hockey stick.

And Tom, ultimately there is no right/wrong answer. There will always be those against the 401(k) and those for the 401(k). I contribute to my 401(k) and did so for years. Only recently have I cut back so I can funnel extra cash to purchase buy and hold real estate. Most people do not want to actually put forth the sweat, energy, and worry that comes along with actual investing. Instead, they would rather passive invest and just 'feel smart.' 

IMHO the best way to view the two is one is a basket of golden eggs and the other is the goose that lays the golden eggs. Why not just own a bunch of geese today that lay golden eggs NOW and into retirement? Also, straight-line depreciation all but totally eliminates capital gains on most income generated from rental properties. To summarize the article I linked before, there are many more benefits to active real estate investing. These include:

1. Income
2. Depreciation
3. Equity build up
4. Appreciation
5. Leverage
6. Value add

Here is the best comparison i've found between a 401k and real estate: https://www.tentomillion.com/rental-property-vs-401k-smackdown-how-to-beat-99-9-of-wall-street-money/

The 401k is only good for the upper-lower and middle class and some entry level millionaires. Wealthy individuals, in the multi millions tier, have much more exotic investments at their disposal. We also need to look at the 401K from a more practical perspective. For example, employer match does not constitute a "return". It is no different, really, than additional income except it's forced into that account for your benefit. So it's not as if you get a 100% return on a 5% contribution if your employer matches it. Also, 401K balances can be very misleading. Let's say you have $100,000 in your 401k. In reality (assuming you are eligible to withdrawal penalty free) only about $65,000 of that is yours. The rest belongs to Uncle Sam. Of course financial advisors will sell you on the whole "you can retire with $1,000,000, withdraw only $30,000 a year to live off of and avoid paying high taxes." But seriously, who wants to live like that? Not me. And also, taxes have historically always gone up and so the Deferred tax benefit of a 401k may end up being a negative and another 20 or 30 years whenever retirement comes around.

@Jacob Murphy Mine went out last year - haven't needed one since.  Unfortunately I do not know the model but it was smaller and about the size of a toaster. Paid about $150 I think. We had a mildew issue and the smell would not go away no matter what. It was always musty! Put this bad boy in the whole house with doors open over the weekend and WHAM - smell was gone. It's essentially an Ozone Generator. If you have Asthma, be careful using it and do not let yourself or anyone else be exposed while it is in operation. 

Here's a quote from Google on search topic "ozone removes odors":

An ozone generator will not only remove pet odors but other troublesome odors caused by mold and mildew, fire, water damage and others. Ozone is considered "natures deodorant" and can get rid of many types of nasty smells.

@Lanique Carroll I may be mistaken but I believe the general consensus here is that yellow letters work far better than post cards, albeit they may not be as convenient. Have you heard of YellowLetters.com? It's owned by Michael Quarles, one of the more successful Wholesalers interview on the BP Podcast.