All Forum Posts by: Tom NA

Brice - I'm sorry but I don't understand your post. Too many ROI's and 100% vs. 1000% vs. 1900% to understand the example and point that you're trying to make. Can you be more specific with an example of what you're getting at? Show real numbers perhaps? As MikeOH has pointed out many times before, you can make an infinite return if you put no money into a deal but if the payback is $1, you better be doing a lot of deals to make it worth your time...

Also, Roth or regular IRA both grow tax-free so I'm not clear on the point you're making there either. Obviously tax implications of one are on the front-end vs. the back-end for the other but you seem to prefer Roth and I'd like to hear why. Or, are you just more generally claiming that someone's retirement account should be invested in RE vs. stocks or mutual funds? While I will agree that *if you know what you are doing*, RE can be a great path to wealth, I wouldn't advocate putting all your eggs there and ignoring other investment vehicles. Diversification is key.

I agree with Michael on this one though as a long-distance investor, I have no choice. Unfortunately, what I *expect* from a property manager and what I *actually get* from a property manager has tended to diverge greatly. I won't go into details of my multiple bad experiences but if you can do it yourself, that's ideal. My only good property manager is a friend that I went to school with - not sure if it's guilt or friendship or because it's not his real job but I wish that people who did this for a living could give the same service that my friend has.

Oh yeah, one thing I forgot to mention, if you look at your "effective" tax that you are paying to the Feds, you will probably find it to be much lower than the 28% that you think it is. Remember, this is the *incremental* tax rates, not *absolute*, and I'll bet that overall, you aren't paying out nearly that much of your income. Take a look at your past year's fed return especially and divide tax paid by AGI to see what your true effective tax rate is. Of course this doesn't change anything regarding how much you are paying in taxes but I would be shocked if after deductions and other things if this number approached 28%.

Great discussion here. I'd like to dig a little deeper into the motivations of AD1985. Is it that:

1. You just are looking for a way to minimize taxes and you *think* investing in RE is the best way to do that?
2. You have always wanted to get into RE investing and you also believe this will help out your tax situation at the same time?

If you can be clearer about your true motivations, the advice can probably be best tailored for your situation. For example, I'm no financial planner or CPA but I suspect there are a lot of other avenues to look down before you consider RE if you are purely looking to minimize taxes. In my opinion, if you aren't maxing out 401(k)'s and IRA's, that's where you should start. Next, if you have kids, 529 plans will help with any future earnings on investments (though not current earned income).

I can tell you as a person who does *not* work in RE full-time, with high income, you can count on no tax breaks whatsoever. The best I can do with my property from a tax perspective is break even as the government won't let me write off any negatives on passive income. Of course your situation may vary but be certain that you know *why* you want to invest in RE and clearly understand the ramifications, from a tax standpoint, liability standpoint, management hassle standpoint, etc.

Good luck.

It sounds like you have your work cut out with your husband. If he can't make a rational decision between putting food on the table and having a luxury such as cable tv, well... good luck. Keeping your head above water is one thing but without some serious sacrifices, how will you ever help the kids through college or finance your own retirement and healthcare when you get older?

I think Aly is right, if you set a target, I suspect you could find all kinds of ways to save money. I know if money ever got tight for me, I could very quickly find $500-$1000/month and then some that I could cut out almost immediately and it would hardly have an effect on my quality of life.

Sorry, I know that this post, like many of mine, is more Finance 101 than Real Estate 101 but honestly, I feel like there are way too many people on this board (and in this country) that don't even know the basics about money which to me should be a minimal requirement to even getting into Real Estate.

I also want to thank Minna for giving some advice as someone who's been there. I know that's much more meaningful than someone like me suggesting a bunch of things that I don't do myself because I've been more fortunate. I also want to wish Heather the best of luck as she is obviously taking in the advice and trying to improve her situation vs. focusing on why she can't.

Sorry, but if you're upside down on your first house, the idea of buying a 2nd one seems good why? I hope you see the irony. While you didn't provide nearly enough information, it's unclear that you can even afford house #1 so getting into more property sounds like it could be a recipe for disaster.

More simply put, if you're not in good enough financial shape to bring an extra $15k to the table to sell house #1 *and* put enough down on this newer house that you want to buy, then you're not in position to buy this newer house period - let alone own 2 houses. You don't go buy a new car everytime you see a "good deal" on one do you? This really isn't that much different.

Very brave of you to post about your predicament, Heather, knowing that it provides an opportunity for people to pile on and tell you how poorly you have managed your money. I'll try to keep it as constructive as possible as you need help, not a lecture. That said, here are some of the common places where people spend money that I would look:

1. First and foremost, any possible way to get back any of that $16k - that's your best bet at a big win. In an attempt to keep it constructive, I'll just state that in my opinion, you would have been just as well off betting it all on one spin of the roulette wheel in Vegas.
2. Do you have cable or satellite TV? If so, drop it.
3. I assume 2 cellphones for the family? No need - 1 max or live without like we did for many years. I know it sounds like sacrilege, but we all lived without cellphones 10 years ago and somehow we all survived.
4. High speed internet? Use the library unless you truly have the need.
5. Buy groceries and perishables in bulk; store brands - it all adds up.
6. What type of car(s) do you own? Can you trade down?
7. Vacations? I would put a hiatus on these for the near term. Visit local friends and family instead.
8. Magazine or newspaper subscriptions? Not necessary.
9. If either of you are smokers, I know that's very hard to overcome but a lot of money gets thrown away on that habit.
10. Find the lowest rate credit card possible or as someone else mentioned, perhaps even a bank loan - whatever can get you the lowest cost of money. Once you start paying interest charges on a Credit Card, watch out.
11. Take a critical look at your housing situation and sell/move if it makes sense.

Good luck.

For baltimore721, I'll tell you exactly how I suspect other people on your block are still in business as I have been down that path. I'll give you my real-life example:

o House purchased in 2004 for $205k with 20% down. Opportunity cost of $41k gone but not really considered when making investment since I was looking to move some money out of stock to diversify.

o Static expenses:

PITI: $975
HOA: $23
Prop Mgr: $100
--------------------
$1100

o Rent: $1400

o Net on a "good" month: $300

Seems like a decent investment to a rookie and it flows ok as long as the stars align. Anytime I have a vacancy - oops. When I needed a new air conditioner - oops. I know it will need a new roof in the next 5-10 years - big oops.

Still, I'm ok with this because: (a) This property has seen very good appreciation and even with the falling prices, could command well over $300k today; (b) I have excellent financial reserves which honestly are required if you enter a deal like I did. I can afford $10k for a new roof if I have to and I suspect others that are buying houses on your block are in a similar situation - they're not spending their last penny on these properties; (c) Someone else (my renter) is paying down my principal; (d) It provided the diversification that I was looking for - albeit in perhaps a poor fashion. Honestly, the numbers clearly say that I should sell the house but I have decided to keep it for the reasons above - I can afford to. Poor money management - in this case perhaps - but I suspect my money management is better than most so I'm not too concerned what others may think.

Now, none of this makes this a good investment and the same applies for your block. Just because people can afford to make poor investments and they do so, doesn't make them good investments. It's true that I got *lucky* with appreciation (though seeing that that house is in Phoenix, that gain has been eroding) but without a strong down payment and strong financial reserves, I could be in the same situation as many others.

A question for Mike:

I understand that you are primarily a cash flow investor but when does it make sense for you with your strategy to sell a property? Let's take your latest apartment as an example:

Current market value of around: $230k
Current monthly rent: $2.5k

I understand you only paid $30k for it but taking that out of the equation,
how/when do you decide to sell vs. hold? In this case, you bought with so much equity that it seems you could put that money to use in much better fashion than to have it tied up in this property. In other words, I know you wouldn't pay $230k out of your pocket for this property so why are you willing to keep $230k tied up in this property.

Thanks in advance for your thoughts.