All Forum Posts by: Michinori Kaneko

Hi @Steve Vaughan Barclays is currently paying 1.9% on its savings account, which I think is pretty high up there (and considering no fees/minimum requirements).  you get 0.5% bonus on that for dream accounts as I mentioned (but only ever 6 month i think).

Hi @Tim Hoffman

What is your current tax bracket? If you are already at the top tax bracket, then there is no point in spreading out the conversion. You are 52 years old, and you have 30+ years of life expectancy, so I think converting to Roth is the smart move as then you will not get taxed on the rental income. Converting to Roth also allows you to perpetually keep the fund in the account if you don't need to use it. With normal IRA you HAVE to start taking distributions at age 70 (?) so if you have enough outside of your IRA then that's another reason you should convert.

Your tax rate may or may not be higher in the future. it depends on how large your "real job" income is vs your rental income is.  If your real job income is significant then when you retire your tax bracket may be lower.  If that's not the case, then again, there is no point in delaying the conversion. 

It's been many years since I last took a tax class, so I'm not 100% sure, but when your kids inherit your properties after you pass away, they receive it at step up basis (which means the "cost" will be upward adjusted to whatever the market value of the property is at the time of inheritance).  But I could be wrong or the laws may have change without being aware so I'd confirm with someone that's practicing individual tax. 

Hope that helps!

I did some research on checking and savings account. These are for people starting out without forming an LLC, but wants to keep their "business" separate from their personal. If you have an LLC setup, you need to create a business checking and savings account. Again, this is good PERSONAL checking and savings accounts you can create:

Checking - Charles Schwab Checking Account - this account has no fees, no minimums, and has Interest!!! you need to link it to Charles Schwab trading account, but its free to create trading account too, and there needs to be no transactions between the two either.  

Savings - Barclays Savings account - one of the highest interest rate banks I see. Online only (no local branches). you can only withdraw or transfer out 6 times a month (there will be fees after 6 times). No minimum, no other fees.  You shouldn't need to transfer more than 6 times a month on savings account so very good savings account.  They also have something called "Dream Account" where you get extra 25bps of interest for depositing 6 consecutive months, and another 25bps for not withdrawing any money for 6 consecutive months (hey every $ counts!)

Hope this is helpful for some people :)

I was referring to your last comment about how stock market is for people who don't value time and bad at math. anyways let's look at it this ways.  

DOW was under $800 in 1970s. it's now at $26000. If it takes only 4x more time to purchase 32x value, how is that decrease in real income? Now i will say the price is skewed because there is a larger wealth gap and wealthier people are driving the price appreciation more. 

Also it DOESNT take more time to invest in stock.  It takes a lot more time to accumulate the down payments and fixing costs.  You can invest in an ETF for $30 if you wanted to.  it takes more time to research for house to buy and put work into it.  it takes 2 minutes to buy an index fund. Yeah, it's much easier and cheaper to invest in stock market.  i started investing in S&P index funds when i was in college making $400 a month on my part time job (and yes that was before 2008 crash so i went through the crash). i have a whooping 14% annualized return over time.  

Most people don't get started early enough you say.  how is that any different between stock market or real estate market? 

i'm not saying stock market is better or worse. I'm just saying your statement is incorrect and you are comparing apples to oranges. your flip is not the same as passive investments in stock. Your time is not the same as "average" person earning $26 an hour. your real estate knowledge is not "average". you spent time to study and become skilled and knowledgeable. your time is worth more than $26 an hour.  So great, you made a lot of money in 17 hours, but you are only comparing yourself against "average" people who are less skilled and less capable to yourself.  those people can only early $450 in the same 17 hours.  They don't have the capital you have to invest in real estate.  I don't understand how that translates into stock market is for dumb people that don't value their time. 

@Marc Izquierdo Why don't you just look for debt investors? That ways you can refi out of the deal and cashout the investors and keep the property in perpetuity for yourself. I honestly don't think IRR is a great return metric, especially for housing, as IRR assumes that you take any proceeds from investment and reinvest them in similar returning investments. with real estate, this is impossible as whatever cashflow you get from your rental properties is not going to be enough to purchase another house.

In my opinion, ROI or ROE is the best metric to use, but why show average? just show what it looks like annually using a line graph. Then it shows that your ROI gets better and better as you hold onto investment longer. You can even compare your ROI vs S&P returns or something to show that your returns are (hopefully) better than the stock market.

Another thing you can do is come up with what's called PME (Public Market Equivalent). You take the cashflow from your investment, and assume that you invest/distribute same amount from a public market index. For instance, if you invest $20K in your new home, you create a hypothetical track record that "purchases" a share of whatever index you want to use (probably S&P or a REIT index). then, every time you have cashflow from your property, its treated as selling the index. At the end of the day, you are basically calculating an IRR on your property vs this hypothetical investment in the index to show that your investment would have generated a better IRR than if you've invested in an index (Yes it's a function of IRR sorry!).

Hope this helps!

Definitely do not quit your job until your whole selling business gets rolling. you need money to make money and if things don't go well on your first few deals you are out of luck.

@Account Closed

You are comparing apples to oranges, and making a very strong statement that is not true at ALL. you don't need to buy every stock in an index to invest in an index. there is something called mutual fund or ETFs.  ETFs has no minimum, you can buy $30 if you want. Yes stock market has crashed, but let's look at it this way, if you had bought a share of S&P index at the peak of 2007 before the crash, you would still be up close to 90% today. That's sill like 6% annualized return, not bad considering you perfectly timed the worst time to get into the market.  If you timed it well and bought at the dip, then your return is closer to 13%.  That's a great return.

As I mentioned, you are comparing apples to oranges because you are comparing a passive index return vs a flip.  You mentioned 17 hours of work, did you consider the time it took you to find the property, fill out all the documents, close the property and finding a seller, buy the materials, etc? How much time did you really spend? How much time did you spend on learning how to flip? I could have invested in Long Island Ice Tea stock right before they changed their name and made 290% return in one day, and guess what that would have taken me 2 minutes to click buy and click sell.  

The truth is, Stock market has three types of investors.  1) Passive investors, 2) Active Investors that don't know how to actually analyze stocks, and 3) Active Professionals that knows how to analyze stocks.  First time is good for people who don't want to spend a lot of time but make a decent return (on average, if you buy and hold an index fund it'll grow 7~8% a year, that's not bad at all), somewhat equivalent to buy and hold rental property.  Second type is probably the people who are you are referring to, people who sell their stocks when market is tanking and buy the stocks when its peaking.  Third type is where the real money is at.  Hope this post was educational for you.

Btw, I work in investment management field. People who are in this business are all good at math. You can't analyze stocks without knowing math. A guy that i worked with at my last firm was a star trader, he made $128M in one year. Can you still say stock markets for people that's bad at math or don't value their time? how many hours would it take you to earn $128M?

I don't think you can claim 100% of rental income if the rental is under both your names and you are not legally married.  why did you put both your names as landlord if the property is under your name? 

Note you can only claim 50% of rental income, but I assume the mortgage and the property is only under your name.  I believe this means only you can claim the interest deduction, property tax deduction, and depreciation deduction, so the 50% that is reported by your fiance would be 100% taxable without any deductions.

@Jim C. CapEx is capital expenditures. it's big ticket repair items like Roofs or windows, etc.

@Jonathan Barreneche

you should talk to local brokers to see what the local markets are like.  For instance I asked multiple brokers what kind of vacancies I should anticipate in the market i'm investing in, and they all told me 1 month is more than enough, so i use 1 month (8.33%).  Management Fee - you should decide which management company you want to use and use their actual quotes.  Each management company has different pricing model (make sure you capture the tenant replacement fees, if the PM is charging for that). For annual appreciation, you can talk to brokers also, or some websites like this will provide some general stats for you. I think either zillow or realtor.com has average appreciation in your zip as well....? For repairs and CapEx, it would materially differ by what your rent will be. For instance, a really nice home renting for $2000 you probably won't need to save as much as one renting for $500 because the price of maintaining/repairing a home doesn't differ THAT much (roof is still a roof, maybe if its larger home it'll cost a bit more). i don't see the benefit in splitting out repairs/capex so i lump them into one bucket. i use 1 month (8.33%) for my analysis as well, but the home i recently purchased just replaced the roof and HVAC 2 years ago, so I'm not expecting a large CapEx anytimes soon.

You also want to incorporate tax and insurance if you haven't included those in your models.  

Hope that helps.