All Forum Posts by: Michael K.

Hey Brent, welcome! How'd you get into your first deal? What do the numbers look like?

@Ross Kline It would be a hard no for me with that kind of negative cash flow. Ensuring that you have positive cash flow on each of your deals is what's going to allow you to keep building your business. Otherwise, your properties are just going to drag you down. Remember that you will always be up against retail consumers, i.e. people who want a nice place to live, spend too much time on Zillow, and aren't thinking logically about prices. Keep your head up and you'll find a deal that pencils out, there are still plenty of markets where deals can turn a profit, just need to look harder (and more creatively) now.  

@Robert Jordan Hi Robert, not a CPA either, but I've learned a lot by preparing taxes on my own properties these past few years. As I understand, you're looking at two different things here. The standard deduction is not directly applicable to your rental income (Schedule E). Everything house-related - gains and losses - are counted separately. So if you had 30 thousand dollars in rental income and 20 thousand in expenses in a given year then you would be looking at a 10k gain. Except, once you add in depreciation, repairs, etc. you might get close to 0 or even show a loss. Passive losses like these can accumulate until they are needed in later years, but can't be counted against your active income (W2,1099) unless you qualify for the real estate professional status. Any leftover gains from real estate activity will then be calculated as part of your AGI, just like your ordinary income, dividends income, interest payments etc. Hope this helps!

I've done it and I didn't find it to be too difficult. It's easy to find young people in college or recently graduated that can't afford a place all on their own but still need somewhere to live. It's great if you have friends or acquaintances that are willing to live with you but strangers are ok too. I like to check their online presence, Facebook, Linkedin, Instagram, etc to get a feel for their personalities. Also, know that if you are renting out an extra room in your own unit you can be pickier about who you choose, not like a typical rental where you can easily be accused of discrimination, if you get a weird feeling about someone then don't give them the spot, you don't have to rent to the first person that comes along. 

Sounds like you have a complicated situation that is going to take a bit of time to work through. I do have a small suggestion on what you can start doing today. You mentioned child support payments. Not sure if your child lives with you or not on a regular basis, but rent hacking could be a good way for you to get started. Rent out a house in your name and then rent out the individual bedrooms to other people. You can get some landlord experience under your belt while also significantly reducing or eliminating your own rent payments. If you can do that you might have an easier time getting the rest of your finances in order. PM me if you need more advice. Good luck!

A quick way to do this would be to see which buildings have apartments listed for rent. If a big building does not have any active or recent rentals that would be a red flag for me. Generally speaking, if you are interested in going this route I would look at small 3-4 unit buildings, they are more lax about things like rentals and Airbnb, just don't anger your co-owners. Large buildings may have rent caps and lenders will care more about their owner occupancy rate than small buildings which are not scrutinized in the same way. Hope this helps!

Last thought, you can also just walk up to a doorman and ask if they have any units for rent in the building.

@Justin Brown Congrats on getting to this point! Couple of things to point out. #1 Just because the tenants are on Month to Month leases doesn't mean you can get them out of there in 30 days. Could be up to 120 days depending on how long they have lived there. #2 If they are good tenants and the property turns a profit at the current rent level then you might not need to rush to get rid of them. #3 If they are not paying rent then it could be harder to get them out of there, which could require filing and eviction. You might be able to expedite the process by having the current landlord start the process of ending their leases, you could put that term in your attorney letter or initial offer letter as one of your requests. Hope this helps! 

@Michael Van This is an interesting question that is hard to answer. The important thing to remember is, there is no such thing as perfect in investing, only better and worse. The two primary metrics that we talk about are Coc and Cap Rate. Cash on cash return depends on how you finance a property, so you might show a great CoC on paper but that is only because you are super leveraged in the deal and have put up very little equity. Cap Rate, which unlike CoC does not account for financing costs, provides another way to analyze the property. Cap rate is most similar to traditional ROI, so it also provides us with a way to compare returns in real estate to returns on other assets like stocks and bonds. Purchase price/net income = stock price/dividend.

Both numbers are important and should be looked at when deciding whether or not to take the plunge on the property. Exact percentages will vary from location to location and property to property, so we will want to make sure that returns on our property fall in a similar range as other properties that have sold in the same area of the same type and condition. Apart from these percentages, healthy cash flow (i.e. income at least 1.5x monthly expenses) and the wiggle room to afford a visit from a handyman or a vacancy here and there are both soft metrics that I would focus on. 

 Hi Antonia! Welcome to the scene. Which areas in Chicago are you most interested in/ familiar with?

Looks like you may have already got the 2022 CAR lease, but let me know if not. Couple thoughts on what you've said. I understand the desire to want to protect yourself if a tenant leaves early, but having done the LL gig for a while now, i'm realizing thats not the greatest risk we face. If a tenant breaks their lease early by running off in the middle of the night (and i've had this happen), then at least we still have an empty apartment ready to rent out. I would prefer this situation over the tenant that sticks around without paying rent and forces an eviction. If a tenant leaves your unit early and doesn't provide a forwarding address, it's difficult to take legal action agasint them - and the cost of attorney fees might mean that at the end of the day it's not worth it.