All Forum Posts by: Jack B.

Got all the cash next day from him, he came to me. So I have a 3K deposit and first/last months rent, to the tune of about 8K. Will keep you posted on how the tenancy goes. This house is in an HOA and I plan on selling it in a 1-3 year time frame, either to reinvest or pay off another house with the proceeds. Not the best return on investment to deleverage a house but might be best for my needs if I decide to move back into it.

Aha, so other astute investors agree, they money sitting idle is not earning me anything, and it IS best to pull it out and reinvest it. Last night I determined that a HELOC is probably not the best method for long term rentals as the interest rate is variable. I can refinance with very little out of pocket costs, and a reasonable interest rate around 4.5% even as a rental. Now it's a matter of how much to pull out, out of which houses and where to put it. I think 70-75% is fairly safe to pull out of 2-3 of them, plus the properties would still cash flow.

@ Charles Morgan, I could buy one in Aberdeen, WA or one in Lakeland, FL now with cash on hand if I wanted to. I would have enough to buy about 4 properties in cash if I draw 75% of the money out of 3 out of the 4 houses and combined with cash on hand. 

I've been exploring Florida as a relocation destination for long term retirement, but career and such is still good in Seattle and no reason to leave the high paying job that funded all this yet. I could also do the same thing in Aberdeen, WA, but it is less desirable as a retirement destination to me than Florida, which I've been looking into and researching for the past year online.

I plan on taking a trip there to look at some properties this year before I pull the trigger, just getting strategy together right now. I've been to Florida once, over a decade ago and liked it. Does anyone know if the cost of a trip such as this would be tax deductible under the usual guidelines or do I actually  have to own property there to be able to deduct the expense?

There is a big difference between a repair and an improvement. A repair of $100 to fix a sink leak doesn't add value to the house. But painting the house, putting in new flooring, stainless appliances, granite counter tops, and sprucing the house up does add value. That's why the IRS distinguishes between repairs and improvements and the cost of improvements is added to your basis in the property. 

You can also rent the property for more when it is in spruced up condition, and the same goes for selling it. Since it is being paid for with money from tenants pockets, improvements shouldn't be merely debited. There should be a credit, in accounting parlance, to the value of the house. 

Last but not least, principal pay down and equity gains are profit, as soon as you realize them by tapping them. They aren't some kind of expense on your balance sheet, they are capital gains whether your realize them or not...

Lot's of posts on here about factoring principal pay down into your returns.

I can get a total of 200K out of my rentals right now. With cash on hand I'd have about 300K to invest when the opportunity arises. This would finally put the equity in my King County, WA area houses to good use. 

Thing is I'd have less cash flow (but still would cover mortgages and have some cash flow even after budgeting for expenses) and a higher interest rate than the sweet 3.xx rates I have now and less margin of safety in some ways. Tough to sell if the market turns and I only have 25% equity in each house.

Though it sure would be nice to have 300K on hand and maybe 400K by the time there is another major market down turn to invest in real estate, index funds, etc. I mean, at the end of the day, the equity sitting in the houses isn't earning me the money, the ownership of the houses is, regardless of whether I tap the equity or not. Since these are west coast properties in a HCOL area, the equity is where the majority of the gains are, not the cash flow, although that is good. But tapping the approx 130K a year in equity gains ever few years and reinvesting doesn't sound like a bad idea.

Heck, even with the equity I've gained in the short time (my annual equity increase goes up higher and higher as I add a property each 1.5 years) I could get about 3K extra cash flow per month if I bought four out of state rentals in Central Florida for 75K a pop paid in full. They have some nice houses in decent/safe areas for those prices. Even after PM and expenses I'm clearing 3 extra cash flow with that money reinvested instead of sitting there when it could be reinvested...

But what are the risks? I feel like this is the thing I've been missing, sitting restless looking for another strategy to increase my cash flow. This would do it. I mean getting 3K extra cash flow per month on top of other cash flow from the refinanced properties, wow, that would be awesome. I can easily live off 1K a month and go do whatever I want and just bank the rest. This seems like the game changer I've been looking for.

It's commonly accepted that principal pay down is really profit, even if not Cash on Cash, as it is still a credit to your asset column. Why doesn't that logic extend to maintenance dollars budgeted from the rental revenue?

Yes, that money is debited but it should really be credited as well because it adds value to your asset column, no?

If I use that money to paint the house and put in new flooring, a roof, etc. it is adding value to my house. So should one really consider it an expense with no return? 

 I hope that's not the case. His previous landlord rented to him for 5 years. The place was in good condition too. I suspect with his inflated lifestyle he is really pushing it. It seems like it's tough for him to come up with a few grand. 

The 3 day notice to pay or vacate will be promptly posted and delivered if he is late. I will also encourage him not to mess his 700 credit score up with an eviction, this many years after his bankruptcy. Tough to find decent housing with an eviction on your record. I know from the frustrated evicted/felons who call me trying to rent all the time because nobody will give them a chance. Seems like somebody did and they burned them, lol.

If he doesn't come up with the cash by the end of the month like our written agreement states, he forfeits his deposit, so that will be the true test. He has a high income, but is a big spender. Luxury cars, etc. If he becomes a problem he is on a 6 month lease (minimum the developments HOA will allow) that converts to MTM. I got a 50% higher security deposit from him because of his bankruptcy half a decade ago. But just feel uneasy that this guy thought I was going to hand keys to him without full payment like discussed and he tried to hem and haw his way out of it. My spidey sense with this guy is up. I'm now worried he is a scammer.

Oh, you'd better believe I have an air tight holding deposit he signed and I have a copy of my version of the receipt. 

What I don't get is if the guy is really a scammer. He's been renting from the same landlord for 5 years, and he made a joke about filing suit against me if his kids get scalded with hot water while signing the section of the lease where he verifies the water heater temperature. 

Not sure about this guy but he has until the end of the month to come up with the money to move in or he forfeits his deposit and no lawsuit is going to beat the RCW that allows me to keep it along with the signed contract stating such which I have a copy of. 

I am really stern about stuff like this because I've read sooo many articles in the news about how some novice landlord got scammed by a professional tenant because she didn't do a background check, didn't get rent upfront, didn't have a signed lease, etc.

I collected a hefty holding deposit from them a month ago to hold the place for them. Last night was our appointment to meet and collect first/last months rent, get the lease signed, and give them keys. Got it all done and I brought up twice that all that's left is payment (5K) and I'll be out of your hair.

Then started the hemming and hawing, oh, well I have a few checks going through, etc. I collected the keys off the table and told him as a matter of policy I treat everyone the same (he owns a construction business but had a bankruptcy and lost the MANSION of a house he was living in after the economy tanked and he filed bankruptcy) and don't exchange keys without first/last months rent.  He was embarrassed a little but understood. Offered to meet up with me coming to my house the next day (I visit tenants at their existing place of residence before renting to them). 

What miffs me is that he was well aware per his receipt for the holding deposit and our back and forth texts and emails that payment was due before exchange of keys and I drove out there late at night to meet up with him. I didn't get back home until almost 11 PM. Yet he didn't have the money so it was a wasted trip. Tenants...