All Forum Posts by: Mack Benson

@Ryan Greene, if you are waiting until next year to go for your first deal you will always be waiting until next year. Unfortunately we don't know if we've hit the bottom or the top until it's well in the rear view mirror. As long as you are underwriting conservatively and not forcing deals to work out on paper you should be okay. 

In today's environment you may want to stress test the deal to see how bad things can get before you break even just to make sure you are conservative enough in your estimates. If you typically underwrite to a 5% vacancy, how does the deal look at 10%? If it look good with the in place property taxes, how does it look if there's a 25%, or 50% increase because the city/county/state are running a deficit and need to raise funds in 2 years? Those are just some things to think about while stress testing.

I'll end with a quote attributed to Abraham Lincoln, "Things may come to those who wait, but only the things left by those who hustle."

@Michael Thrower, I think Jim is right. At $14/hour your annual salary is a little under $30k/year to support a family of 3. I believe your first step should be to find a way to increase your net pay. Are there advancement opportunities where you work? Are there transferable skills you have that are applicable in another line of work or with another employer? Can you take an additional job? 

Many experts recommend saving 10% of your income in an "investment account." If that is something you are able to do now great! I would continue saving until you are able to afford to purchase your first rental. I don't know the area where you live so checked zillow and there are a number of inexpensive homes for sale right now, but again I don't know the area so I don't know what is a good area or what is bad or the rental demand.

Another thing you can do is find investors in your area and speak with them. Is there some skill you have that they can utilize? Even hustle is a skill many investors can use so don't sell yourself short. Take a look at what you know how to do, what you are willing to do and want to learn and go out and speak with people.

@Bart Bielski, I think there are at least two things you can do right now or at least in the near future that won't cost a whole lot and may help bring you closer to your real estate goals.

1. 1. The first thing is take inventory of your skills and goals. Saying your have aspirations to real estate isn't a very helpful statement. You need to have clarity. Do you want to be a flipper? Do you want to buy and hold single family homes? At 20 I don't think anybody believes you should have it all figured out the other part is taking stock of your skill set. What skills do you have? Are you an extrovert? Are you good at organization, sales, building? All of these skills and more could be helpful to the right investor.
2. 2. The other thing you can do is attend as many meetups as you can, either in person or virtually. Ask questions, talk to presenters, hosts, and attendees. Basically talk to everybody. You'll get the hang of it and at some point somebody will likely mention they are struggling with something you took note of in your strengths exercise. That is your chance to step up and knock out a home run.

What I was told when I was starting out looking for SFR's is that you shouldn't worry about income tax because your deductions will just about or totally wipe out your liability. If you want a professional's opinion I would consult with a CPA.

If you want an amateur's take I can offer what I do. I know that in my area my effective tax rate between the federal and state income tax is going to land between 30% and 35% of my income. The simplest thing to do is take your cash-flow after expenses but before debt service and multiply it by your effective tax rate, that will give you an estimate on the taxes you will owe. It's a pretty dirty number because it doesn't include the interest deduction or depreciation.

To calculate depreciation, and assuming you are not cost segregating, you need to know the value of the property at purchase (your purchase price,) but you would need to have a separate value for the improvements and the land because land does not depreciate. Take the value of the improvements and divide by 27.5. You can take this depreciation value and subtract it from your estimated taxes to give you your new income tax amount. Most likely this number will be in the negative range so it could wipe out other income you have from a W2 or other income source. 

@Petur Karlsson I would caution this approach. If you bill your tenants more then the cost of their utilities many jurisdictions could consider you a utility company and you could be required to comply with local and state regulations regarding utilities.

The biggest problem I see is I don't see how the power generated by the solar panels could be an expense that would allow you to charge it back to the tenant. You could probably bake in a flat fee for "environmental upgrades" but I'm not really sure that would fly in your market. I doubt it would work in mine but somebody's got to be the first.

If you're dead set on adding solar to an income property I would imagine it should be able to be depreciated as capex but it may be able to be an expense, I'd check with your CPA.

@Balaji Gandreti I agree with reaching out to @Tim Swierczek

I'm not familiar with the area but from what I can pull up on Zillow it looks like the area is pretty depressed. I see houses in the neighborhood listed at $45k for a 3/1 which seems very low. Do you know what the population trend is in the area? Is the population shrinking or growing? If it's shrinking are you sure that you can get $650/unit and if you can, how long will that last? The area median income seems pretty low too, somewhere around $35k/year. While that doesn't disqualify $650 rents it does make me hesitate. Trulia doesn't list any crime but in areas with that low of a median income and houses being listed so low I question the crime data, I would assume it to be higher.

Outward appearances the deal looks to be good but I would be apprehensive unless you know the area and demographics. I would run the numbers and see if it makes sense go to your next step and I would definitely walk it if it's close enough, maybe you would get a good idea of the neighborhood that way.

Many investors use Rentometer as a guide or search for like kind properties on Craigslist/Zillow/Apartments.com etc.

For a house hack you should be able to qualify for owner occupant financing. I would suggest working with a local mortgage broker who can provide you with a list of options. Some good options may be an FHA loan or USDA. I'm not well versed in the USDA loans because I've never purchased a owner occupied property in an eligible area but I do recall a mortgage broker speaking about the benefits. Working with a broker you will have a good idea of what you need to do to qualify and how much you might be able to afford. They would also have access to many options which may possibly include local banks or credit unions. When shopping for or interviewing brokers I would ask them about the options they have available and not let them try and shoehorn you into a certain product, let them present you with multiple options so you can choose what is best for YOU.

Here is the USDA eligibility map. 

Always be networking. Even if you aren't currently in a position to start sending out offers you can still network with other investors. The most valuable thing you can have in your tool belt is a deep network especially when starting out.

I would focus on networking events and meetups in your area. If you are on social media you can also look for local Facebook groups which is a great place to find local investors and ask questions pertinent to your market.