All Forum Posts by: Karen O.

A long term disability policy would also do the trick.  

If insurance premiums are paid for by an employer, the proceeds are subject to tax.  

If premiums are paid by insured, with after tax $, the proceeds would be tax free.

So sorry for your Mom's difficulties.  

Can we assume that even converting the first floor to Mom's living space, and possibly turning the upper two floors into a rental unit is out of the question?

If this isn't an emergency (lost their home due to circumstances beyond their control such as fire) and they wouldn't qualify under normal circumstances, then, no, you should not rent to friends 

Maintenance should be 8-10%

Capex should be 8 - 10%

And you should get the utilities separated.

Remember that she has a cap gain exclusion coming to her if she's lived in the property as primary residence for 2 of the last 5 years.  

She's allowed a $250k tax free cap gain ($500k if married).  

So, if her cost basis is $250k or more, she should probably sell & use the funds to purchase some place else and invest the rest.  

The math: 

$650k fmv/sales priceless 

$150k outstanding loan less 

$250k cap gains exclusion = 

$250k cost basis

If her cost basis is less than $250k, do the math and figure out if paying the cap gains tax is worth it at this time.  

If it were me, and mom could sell for little to no CG tax, I'd help her sell and move to a place with lower cost of living and housing costs and invest the rest for income.

The author of Tax Free Wealth is Tom Wheelwright.  He is the go too guy for R. Kiyosaki as mentioned above.  

However, if REI is to be in your future, know that paying taxes means you've made income subject to them and that's not a bad thing. Also, know that tax laws change and so unless you're going to be a CPA, you don't have to know it all.

Still, I suggest you start a little closer to home with Amanda Han & Matt MacFarland's Book on Tax Strategies published by BP.  I'd also suggest you "follow" them and Brandon Hall on BP.  They've been BP podcast guests and have written a number of helpful blogs.

Good luck.

Sec 8 is notorious in NYC for denying regular rent increases. And for hounding a landlord about repairs.  Don't know how they are in Westchester.  

Unless you are 100% sure about the current owner's level of upkeep, I'd bump the capex and R&M to 10% until you get a handle in things.  

Good luck.

Brilliant.  Congratulations.

Ah.  You mentioned self manage so I assumed Cherry Hill.  

Albany, NY is also highly taxed but not quite as much.  Still, unless you know the area really well or have connections there, I'd still suggest you budget for PM, at least in the beginning, just in case.  You can always discontinue or keep the funds in reserve to give yourself a bonus at year end if it turns out you don't need it.  

Good luck.  

If you haven't done so, you should use the BP rental property calculator.

Not knowing more specifics for this property, I make the following assumptions:

NJ is a high RE tax state. Cherry Hills tax rate is 3.1%.  If the purchase price is the same as assessed value. RE taxes of $5800.

20% down, 30 yr mtge at 4.75% with 2 points.

Closing costs of $5k wrapped.

Insurance of $125/mo.

Then, yes.  Your net would be $1100-1200.

However, if you set aside funds for vacanies 5%, maintenance 8% and capex 8%, as you should, your net drops to$600-650.  $400-450 if you also budget 8% for Property Manager.

Using these assumptions, it seems like a good deal though I would: 

Be sure to verify taxes and insurance,

Not assume it's turnkey, 

Verify that current and prospective rents are the same, and

Not assume anything about the tenants without confirmation.

Hope this helps.