All Forum Posts by: Paul Novak

 Marcus, I actually met a young couple in person from connecting on these forums that was living in Houston and moved to Milwaukee specifically because of what they heard about our multifamily rental market.  They are actually closing on their first deal this week.  There is another person leaving Texas to invest in Milwaukee.  Not much of a trend but seeing your comment made me think to post this.

I don't invest in Milwaukee I invest about an hour north in Sheboygan.  Having said that my sister lives in Milwaukee and I really like the area she is in.  She currently rents in Bayview and it's a nice area.

BP Community,

I am in the process of paying off my HELOC and shifting from debt paydown to saving up cash. My current goal would be to save up enough money to pay back my wife's 401K loan and then continue saving until we have a down payment to purchase our next rental property. While I'm in savings mode I want to maximize my returns by putting my money to work until it grows to the point of paying off her loan. We owe about $42K on that loan still.

I know conventional wisdom when saving for short term goals are to put the money in a savings account to protect against downside. Investing in the stock market short term greatly increases risk and tends to be more like gambling then investing. I also know that if you are going to invest for less than a year you will pay ordinary income tax on any gains vs. long-term capital gains. The same is true for interest paid on savings accounts. Lastly, I know the market is extremely overvalued right now.

My strategy for investing at a high level is low-cost index funds held forever in my 401K, Roth IRA, HSA, and taxable brokerage combined with long term rentals. My current rental property portfolio equity and stock investments over all those accounts is currently 50% – 50% split. I am not a gambler when it comes to my investments.

Having said that I am contemplating putting my saving in the market vs. a savings account short term for a few reasons. While I have been enjoying rentals and all the benefits that come with them financially, especially from a tax perspective, investing in the market would be more passive. Also, I am not getting rid of my rentals, and I can enjoy those benefits off of the properties I currently have. I could start saving, seeing the growth, and pivot to just keep dollar cost averaging into the market vs. purchasing another rental. We currently have 5 properties, 7 doors. We currently have the income from our W2’s that if the market was to correct and we would lose money we could absorb the hit. I think there could be more upside than downside based on market averages. The market has only had negative returns 22% of the time in the last 45 years. In that same time frame, it’s only had returns less than current savings interest rates 31% of the time.

I haven’t made a decision yet, but I wanted to use data to evaluate what direction we are going to go. Which made me think about making this post. I built a calculator that isn’t perfect but is directionally correct for how I am evaluating risk. I pulled the S&P 500 returns data going back to 1980. The worst year in the market over that time was 2008 at -38.49% returns, with the best being 1995 at 34.11%. This calculator allows you to adjust how much you plan to save per year and what your savings interest rate is on the savings side. This will break your annual savings into weekly buckets and apply the interest to calculate what your account value would be at the end of the year. On the investment side it mirrors the deposits but allows you to adjust your starting point for the market returns by adjusting the year in the blue box. Your total projection will adjust based on how the market did that year. To make adjustments to the calculator only change the inputs in the blue box.

The data from the S&P 500 is on the tabs at the bottom. With doing the work to put this together I figured I would share it with the group as maybe someone else could get value out of it. Below is a picture of what the calculator looks like. I can’t add an attachment to this post but if anyone wants the calculator just DM me.

This was a long time ago but I invested in REITs in my HSA because the dividends are always taxed as ordinary income vs. capital gains. Same premise but I don't think that REIT's are what people had in mind when they were talking growth potential lol.

For those of you who doesn't see the latest BP Money episode, Scott and Mindy shared how the US invests.  The screen shot below shows people by income classes.  At the left most side is the top 1% of income earners and at the right is the lowest to 20% of income earners.  Its interesting to see what investment classes they have their net worth in.  I thought I would share the data with the community.  The Fed has this data where it can be viewed over time in a lot of different ways.  If interested the website is https://www.federalreserve.gov/releases/z1/dataviz/dfa/compa...

I have been running into issues with the neighbors at one of my long term rental properties.  The property is great, the tenants are great, but unfortunately the property next door sucks.  We didn't have issues when we purchased the house last year or during renovations but since then the tenants have had constant issues.  The neighbors have constant traffic coming and going all hours of the night, it's believed to be drug traffic.  There are people constantly outside in the middle of the night.  The property is also becoming more run down with garbage left in the yard.

We did some digging ourselves and found out that this property is a rental property.  We found out who the landlord was and started by working with him directly.  I know if my tenants were causing issues I would want the opportunity to address these issues as a first step.  I believe the landlord's son lives in the property and is the problem.  The landlord is an older gentleman that doesn't seem to be taking any action.

We have moved on to the next steps of working with the Police and having the tenants work with the police to file formal complaints.  Up to this point the issues are continuing.  I think over the winter months there was less traffic but with the nicer weather coming back around the complaints have started again.  The tenants reached out to us today and copied us on the email they sent to the police.

Who else has delt with this and what actions did you take to remedy the situation?

I know it's not best practice but we do the same thing and we have 5 properties. We do all transactions and manage all money under the EIN number of our LLC. Business bank accounts, credit card accounts, etc.... Having said that our properties have traditional mortgages out in my wife and my name with our socials. Our bank told us they would struggle to give our business a mortgage when we purchased our first property. Now they have told us we just wouldn't be getting the best rates. We don't comingle funds between the two accounts. I haven't looked at transitioning the properties from us to our LLC for fear of the loan's getting called due. My bank assured me that they wouldn't do that. We have a great relationship with our local bank but we still haven't seen a point to make that change at this point.

Welcome to BP Jose.  I am an investor in Sheboygan about an hour north of you.  You will find a ton of great people in here with valuable advice.  If have any questions on how to get started feel free to reach out.  I love helping beginners get started.  Good luck!

I thought some others might be interested in reading this article.  It popped up on my Fidelity page today so I thought I would share it with the group.

We sound somewhat similar. While it pained me to do it once we started our rental business I switched from my wife doing TurboTax to hiring a CPA for the same reasons you have referenced. Honestly for us making the change was a great experience for us.

I still do my own book keeping and if you only have one rental I would think it should be easy to manage. To do our book keeping we now use a software program called Stessa which is sponsored through BiggerPockets. It’s free and for us with 5 properties 7 doors it works perfect. It would also work fine for just one property. Prior I was using Google Sheets.

While you will never become a tax professional and I do recommend getting a CPA I also think it’s good to learn more about tax strategy. A book that I read which was a really good read for a beginner was “The Book on Tax Strategies” this book is geared towards beginners and is on BiggerPockets for $7.99 here is the link. https://store.biggerpockets.com/products/the-book-on-tax-strategies-for-the-savvy-real-estate-investor

I have now had my CPA for the last 5 years and he has been great. He works for himself at his personal firm but knows real estate and answers questions for me all year free of charge. He charged me $560 to do my taxes last year which I think is a steal compared to what he helps me save in taxes. I think he does a good job based on my needs and I am not judging him based on price but rather the value he has added to my business. His name is Nick Reach based out of Mequon, WI. Maybe give him a call to see if he could help you? Hopefully this helps.