All Forum Posts by: James Triano

@Karen Chenaille

I would contribute only as much to your 401k as you can to achieve the full employer match.  This is what I do.  I find that my real estate returns are high enough to compensate for the tax advantages that a 401k provides post-match.  I'd cut back on the 401k, pay the car off, then build up your funds and buy another property.  

Also, I completely agree with @Cory Binsfield on not putting cash flowing real estate into IRA's. The tax advantages that go along with rental properties do not help you in a tax deferred/advantaged account. These investments are best served with after-tax income. However, if you're interested in flipping properties, using a SDIRA may work.

Something that really helped me out on this subject was a white paper that was done by Betterment.  I'm not advocating investing with them but this paper really helped me understand the nuances of different tax strategies and their relative investments.  

https://www.betterment.com/resources/research/tax-...

Completely agree with @James Martin - you don't need to have separate accounts.  Just be diligent in tracking the individual amounts within each account via Excel or Quickbooks.  

To the point on losing interest income, James is certainly correct and that's why I chose to do it this way.  However, in today's rate environment, those losses are minimal at worst.  Although, I do gain a small amount of satisfaction knowing the bank is paying me a few bucks a month :) 

@Andrew F.

What's up man!?

Glad to see you on here.  Let me know if you ever want to get together and chat real estate.  

We have a couple of flips going on down by my house if you ever want to do a walk through.  Happy to help you out anyway I can.  Also, I'm going to be doing a 1031 exchange on one of the properties I have (in the North Hills) and am looking to buy another one mid-2018 south of the city.  Maybe we can work something out and do one together.  

Hope all is well!

@Ben Volkman

I have a two account system that I use with an operating account and a reserve account.  Exactly like what @David Barnett mentions.  I do have a third account that holds my tenant's security deposit just so there is zero chance of commingling funds.  Probably excessive, but oh well.  

I receive rent into my operating account, then pay my mortgage, taxes, and insurance (all in one payment since my bank requires escrow).  Next, I transfer the remaining funds, which are estimated amounts for vacancy, repairs and capex into the reserve account.  Mind you, this is all done with automated bank transactions.  This reserve should continue building over time and I will not touch it unless it gets really large - what a great problem to have! 

Then, I pay myself (which goes to my personal savings account - for use when buying a new property) the remaining cash flow.  This is what I would call the compounding impact of my rental property as this money is helping me build up more funds to invest in another rental property.  

@Ben Volkman

I would track it within in excel and just have two bank accounts for your real estate related business.  If you have multiple properties, you can use separate accounts for them but I wouldn't set up separate accounts for all of those expenses. 

@Jay Dean

The Millionaire Next Door

The Richest Man in Babylon

Rich Dad's Cash Flow Quadrant

The Intelligent Investor

The Millionaire Fast Lane

The 4 Hour Work Week (not necessarily finance but great nonetheless)

I'd say you could put these books in any order but I've read all of them and they're all great.  Happy reading!

@Matthew Fitzgerald

Drawing on a HELOC is not considered income. It's simply moving your equity from your home and putting it into a bank account (or other liquid means). It is net neutral to your net worth (aside from HELOC fees).

Also, I've heard a lot about people just using a bank account to track expenses.  Your bank account doesn't account for depreciation of your property.  As long as you're accounting for this elsewhere, that may be fine.  You need to consider depreciation which is a huge tax advantage for real estate.  You can create a simple spreadsheet that can do these calculations for you.  I have one myself and am happy to share it with you if you would like.  

@Andy Robertson

Giving you a blanket dollar per square foot is simply not feasible without knowing details of your market.  In Utah, it could be $50/sq. Foot or it could be $100.  My best advice to you is to 1) Read J. Scott's book on Estimating Rehab Costs and 2) Go talk to people in your local market.  Whether that be actual contractors or other investors.  You're going to need to find a contractor to rehab your properties anyway so you might as well make the contacts now.

Also, understand that your per sq. Foot costs are not going to be exactly the same as you move up in home size.  Your finished will be more expensive for a larger home than they will be for a smaller home.  You may be able to settle on vanilla appliances and flooring in a 1500 sq. Foot house but will not be able to on a 5,000 sq. Foot house.  

@BJ Butler

No, you can't have them pay your mortgage and then not claim the income.  That's no different than them giving you cash, then you paying your mortgage.  It's still a form of repayment or compensation.  You can have them pay you back in two payments that span tax years, if you both agree on it.  

Also, this is not a gift.  This is earned income on a business activity.  So your source that reminded you that you have to pay taxes on gifts over $10,000 is only somewhat accurate.  That does not apply to a business activity.  You've essentially acted as a bank and will pay taxes on any income you generate from it.  Sorry this isn't the answer you were looking for.  You should probably get in touch with a CPA on this as well. 

@Jason C.

Here's what I would do:

1) If the home you are living in is somewhere that would lend itself to becoming a rental property, I would take your trust fund, purchase a multi-family home where you can house-hack and live for free (or a reduced monthly amount), and rent out your current home.  This is actually what I did (sans trust fund).  Keep a mortgage on your original home (the $85k) and have a mortgage on the multi-family. Let's say this will use up $75k in down payments and renovations. 

2)  Then, payoff your credit card ($2.6k), auto loans ($23k), and student loans ($55k).  Get this stuff done and never worry about it again. This leaves you with almost $70k left over ($225k - $75k - $55k - $23k - $2.6k = $69.4k)

3) Take $20k and add it to your emergency fund of $4-$5k and stick it in a Vanguard high yield bond fund. Don't ever touch this money. This is your rainy day fund in case your world falls apart. Leaves you with $50k plus an incredible amount of disposable income each month because your housing expenses are very low (possibly $0), you have no consumer debt, and you have money in the bank. Also, take advantage of your 401k employer match and max out your Roth IRA of $5,500 per year.

4) Take your $50k and build any business you'd like.  Flip a house, buy another rental, open a hot dog stand, whatever.  Then know that in another 5 years you'll be able to re-invest another $250k into your business(es) of choice.