All
Members
Companies
Blog
Forums
Podcast
Webinars
    User Log in  /  Sign up
  • Forums
    Newest Posts Trending Discussions Followed Forums Real Estate News & Current Events General Landlording & Rental Properties Buying & Selling Real Estate Deal Analysis See All
  • Education

    Read

    BiggerPockets Blog BPInsights: Expert Analysis Coronavirus Content & Resources Guides Glossary Reviews Member Blogs

    Watch

    Webinars Video Library Financial Independence Blueprint Intro to Real Estate: Rentals

    Listen

    BiggerPockets Real Estate Podcast BiggerPockets Money Podcast BiggerPockets Business Podcast Real Estate Rookie Podcast Daily Podcast (Audio Blog)

    Topics

    Business Operations Finance Finding Deals Property Management Property Types Strategy
  • Network

    Recommended Vendors

    Real Estate Agents Mortgage Lenders Companies Hard Money Lenders Contractors Investment Companies

    Search

    Members Events Jobs
  • Tools

    Calculators

    Rental Property Fix and Flip BRRRR Rehab Estimator
    Wholesaling Mortgage Payment 70% Rule Airbnb

    Services

    BPInsights: Property Insights Tenant Screening Property Management Lease Agreement Packages

    New Feature

    BPInsights (beta)

    Quickly analyze a property address or ZIP Code to compare your rent in your neighborhood.

    Analyze a property
  • Find Deals
    Real Estate Listings Find Foreclosures External Link Ads, Jobs, and Other
  • Bookstore

    Real Estate Books

    Profit Like The Pros Bidding to Buy See all books

    Featured Book

    BiggerPockets Wealth Magazine book cover
    BiggerPockets Wealth Magazine

    Written by financial journalists and data scientists, get 60+ pages of newsworthy content, expert-driven advice, and data-backed research written in a clear way to help you navigate your tough investment decisions in an ever-changing financial climate! Subscribe today and get the Oct/Nov issue delivered to your door!

    Get the Magazine
  • Pricing
Log In Sign up
User
Quick search links
Podcast Hard Money Lenders Books Washington
ForumsArrowStarting OutArrowFirst purchase...Did I screw up?
  • Newest Posts
    • Newest Posts
    • Unanswered Discussions
  • Trending
    • Top Discussions
    • Trending Discussions
  • Browse Forums
Search Nova
Topic: 1031 Exchanges Topic: Akron Real Estate Forum Topic: Alabama Real Estate Q&A Discussion Forum Topic: Alaska Real Estate Q&A Discussion Forum Topic: Alberta Real Estate Forum Topic: Albuquerque Topic: Allentown Real Estate Forum Topic: Anchorage Real Estate Forum Topic: Ann Arbor Topic: Arizona Real Estate Q&A Discussion Forum Topic: Arkansas Real Estate Q&A Discussion Forum Topic: Arlington Real Estate Forum Topic: Asheville NC Real Estate Forum Topic: Ask About A Real Estate Company Topic: Athens Real Estate Forum Topic: Atlanta Real Estate Forum Topic: Aurora Real Estate Forum Topic: Aurora Real Estate Forum Topic: Austin Real Estate Forum Topic: Bakersfield Real Estate Forum Topic: Baltimore Real Estate Forum Topic: Bankers, Lenders, and Mortgage Brokers Topic: Baton Rouge Real Estate Forum Topic: Beaverton Real Estate Forum Topic: BiggerPockets Business Podcast Topic: BiggerPockets Exclusive PRO Area Topic: BiggerPockets Money Podcast Topic: BiggerPockets Real Estate Investing Summit Topic: BiggerPockets Summer Reading List Topic: BiggerPockets Webinar Discussion Forum Topic: Billings Real Estate Forum Topic: Birmingham Real Estate Forum Topic: Bismarck Real Estate Forum Topic: Boise Real Estate Forum Topic: Boston Real Estate Forum Topic: Bridgeport Real Estate Forum Topic: British Columbia Real Estate Forum Topic: BRRRR - Buy, Rehab, Rent, Refinance, Repeat Topic: Buying & Selling Real Estate Discussion Topic: California Real Estate Q&A Discussion Forum Topic: Cambridge Real Estate Forum Topic: Canadian Real Estate Topic: Cape Cod Real Estate Forum Topic: Cape Coral Real Estate Forum Topic: Casper Real Estate Forum Topic: Cedar Rapids Real Estate Forum Topic: Chandler Real Estate Forum Topic: Charleston Real Estate Forum Topic: Charleston Real Estate Forum Topic: Charlotte Real Estate Forum Topic: Chattanooga Real Estate Forum Topic: Chesapeake Real Estate Forum Topic: Cheyenne Real Estate Forum Topic: Chicago Real Estate Forum Topic: Chittenden County Real Estate Forum Topic: Cincinnati Real Estate Forum Topic: Cleveland Real Estate Forum Topic: Coastal NC Real Estate Forum Topic: Colorado Real Estate Q&A Discussion Forum Topic: Colorado Springs Real Estate Forum Topic: Columbia Real Estate Forum Topic: Columbia Real Estate Forum Topic: Columbus Real Estate Forum Topic: Columbus Real Estate Forum Topic: Commercial Real Estate Investing Forum Topic: Completed Deal Diaries Topic: Connecticut Real Estate Q&A Discussion Forum Topic: Construction & Remodeling Diaries Topic: Contractors Topic: Conway Real Estate Forum Topic: Coronavirus Conversation Topic: Coronavirus Government Assistance Programs Topic: Creative Real Estate Financing Forum Topic: Currently Under Contract Topic: Dallas Real Estate Forum Topic: Davenport Real Estate Forum Topic: Dayton Real Estate Forum Topic: Delaware Real Estate Q&A Discussion Forum Topic: Denver Real Estate Forum Topic: Des Moines Real Estate Forum Topic: Detroit Real Estate Forum Topic: Do it Yourself Topic: El Paso Real Estate Forum Topic: Eugene Real Estate Forum Topic: Evansville Real Estate Forum Topic: FAQ Forum Topic: Fargo Topic: Fayetteville Real Estate Forum Topic: First Time Home Buyer Topic: Florida Real Estate Q&A Discussion Forum Topic: Foreigners Buying in the USA Topic: Fort Collins Real Estate Forum Topic: Fort Lauderdale Real Estate Forum Topic: Fort Smith Real Estate Forum Topic: Fort Wayne Real Estate Forum Topic: Fort Worth Real Estate Forum Topic: Fresno Real Estate Forum Topic: General Foreclosure & Pre-Foreclosure Forums Topic: General Landlording & Rental Properties Topic: General Real Estate Investing Topic: Georgia Real Estate Q&A Discussion Forum Topic: Germantown Real Estate Forum Topic: Get Foreclosure Help - Stop Foreclosure Forum Topic: Gilbert Real Estate Forum Topic: Glendale Real Estate Forum Topic: Goals, Business Plans & Entities Topic: Grand Rapids Real Estate Forum Topic: Green Bay Topic: Greensboro Real Estate Forum Topic: Hammond Real Estate Forum Topic: Hartford Real Estate Forum Topic: Hawaii Real Estate Q&A Discussion Forum Topic: Henderson Real Estate Forum Topic: Hialeah Real Estate Forum Topic: Hilo Real Estate Forum Topic: Home Owner Association (HOA) Issues & Problems Forum Topic: Honolulu Real Estate Forum Topic: Housing News & Real Estate Market Discussions Topic: Houston Real Estate Forum Topic: HUD, VA, and Tax Sales Topic: Huntington Real Estate Forum Topic: Huntsville Real Estate Forum Topic: Idaho Falls Real Estate Forum Topic: Idaho Real Estate Q&A Discussion Forum Topic: Illinois Real Estate Q&A Discussion Forum Topic: Indianapolis Real Estate Forum Topic: Indiana Real Estate Q&A Discussion Forum Topic: Innovative Strategies Topic: Interest Rate Drops Topic: International Real Estate Topic: Investor Deal Diaries Topic: Investor Psychology Topic: Iowa Real Estate Q&A Discussion Forum Topic: Jackson Real Estate Forum Topic: Jacksonville Real Estate Forum Topic: Jersey City Real Estate Forum Topic: Job Loss/Company Closings Topic: Joliet Real Estate Forum Topic: Jonesboro Real Estate Forum Topic: Kailua Real Estate Forum Topic: Kānèohe Real Estate Forum Topic: Kansas City Real Estate Forum Topic: Kansas City Real Estate Forum Topic: Kansas Real Estate Q&A Discussion Forum Topic: Kentucky Real Estate Q&A Discussion Forum Topic: Knoxville Real Estate Forum Topic: Lakewood Real Estate Forum Topic: Landlord Problem Solving Topic: Las Cruces Real Estate Forum Topic: Las Vegas Real Estate Forum Topic: Lewiston Real Estate Forum Topic: Lexington-Fayette Real Estate Forum Topic: Lincoln Real Estate Forum Topic: Little Rock Real Estate Forum Topic: Local Real Estate Networking Topic: Long Beach Real Estate Forum Topic: Long Island Real Estate Forum Topic: Los Angeles County Real Estate Forum Topic: Louisiana Real Estate Q&A Discussion Forum Topic: Louisville Real Estate Forum Topic: Madison Real Estate Forum Topic: Maine Real Estate Q&A Discussion Forum Topic: Managing Your Property Topic: Manchester Real Estate Forum Topic: Manitoba Topic: Marketing Your Rental Topic: Marketplace Topic: Maryland Real Estate Q&A Discussion Forum Topic: Massachusetts Real Estate Q&A Discussion Forum Topic: Meads Real Estate Forum Topic: Memphis Real Estate Forum Topic: Meridian Real Estate Forum Topic: Mesa Real Estate Forum Topic: Miami Topic: Michigan Real Estate Q&A Discussion Forum Topic: Military Investing Topic: Milwaukee Real Estate Forum Topic: Minneapolis Real Estate Forum Topic: Minnesota Real Estate Q&A Discussion Forum Topic: Mississippi Real Estate Q&A Discussion Forum Topic: Missoula Real Estate Forum Topic: Missouri Real Estate Q&A Discussion Forum Topic: Mobile (Alabama) Real Estate Forum Topic: Mobile Homes & Mobile Home Park Investing Topic: Modesto/Merced Real Estate Forum Topic: Montana Real Estate Q&A Discussion Forum Topic: Montgomery Real Estate Forum Topic: Mortgage Payment Suspension Topic: Mt. Pleasant Real Estate Forum Topic: Multi-Family and Apartment Investing Forums Topic: Nampa Real Estate Forum Topic: Naperville Real Estate Forum Topic: Nashville Real Estate Forum Topic: Nebraska Real Estate Q&A Discussion Forum Topic: Nevada Real Estate Q&A Discussion Forum Topic: Newark Real Estate Forum Topic: New Brunswick Real Estate Forum Topic: Newfoundland and Labrador Real Estate Forum Topic: New Hampshire Real Estate Q&A Discussion Forum Topic: New Haven Real Estate Forum Topic: New Jersey Real Estate Q&A Discussion Forum Topic: New Member Introductions Topic: New Mexico Real Estate Q&A Discussion Forum Topic: New Orleans Real Estate Forum Topic: New York City Real Estate Forum Topic: New York Real Estate Q&A Discussion Forum Topic: Norfolk Real Estate Forum Topic: North Carolina Real Estate Q&A Discussion Forum Topic: North Dakota Real Estate Q&A Discussion Forum Topic: Northwest Territories Real Estate Forum Topic: Norwalk Real Estate Forum Topic: Nova Scotia Real Estate Forum Topic: Nunavut Real Estate Forum Topic: Oakland Real Estate Forum Topic: Off-Topic Topic: Ogden Topic: Ohio Real Estate Q&A Discussion Forum Topic: Oklahoma City Real Estate Forum Topic: Oklahoma Real Estate Q&A Discussion Forum Topic: Omaha Real Estate Forum Topic: Ontario Real Estate Forum Topic: Orange County Real Estate Forum Topic: Oregon Real Estate Q&A Discussion Forum Topic: Orlando Real Estate Forum Topic: Overland Park Real Estate Forum Topic: Pearl City Real Estate Forum Topic: Pennsylvania Real Estate Q&A Discussion Forum Topic: Peoria Real Estate Forum Topic: Personal Finance Forum Topic: Philadelphia Real Estate Forum Topic: Phoenix Real Estate Forum Topic: Pittsburgh Real Estate Forum Topic: Pocatello Real Estate Forum Topic: Portland Real Estate Forum Topic: Portland Real Estate Forum Topic: Prince Edward Island Real Estate Forum Topic: Private Lending & Conventional Mortgage Advice Topic: Property Insurance Questions & Discussions Topic: Providence Real Estate Forum Topic: Provo Real Estate Forum Topic: Quad Cities Real Estate Forum Topic: Quebec Real Estate Forum Topic: Questions About BiggerPockets and Official Site Announcements Topic: Raleigh Real Estate Forum Topic: Rapid City Real Estate Forum Topic: Real Estate Agent Forums Topic: Real Estate Crowdfunding Forums Topic: Real Estate Deal Analysis and Advice Topic: Real Estate Development & New Home Construction Topic: Real Estate Events and Happenings Topic: Real Estate Guru, Book & Course Reviews and Discussions Topic: Real Estate Investor Marketing Help & Advice Topic: Real Estate News & Current Events Topic: Real Estate Not-So-Successful Stories Topic: Real Estate Quizzes Topic: Real Estate Rookie Podcast Topic: Real Estate Success Stories Topic: Real Estate Technology, Social Media & Blogging Topic: Real Estate Wholesaling Questions & Answers Topic: Rehabbing and House Flipping Topic: Reno Real Estate Forum Topic: Renters Discussion Topic: Rent to Own a.k.a. Lease Purchase, Lease Options Topic: REOs Topic: Rhode Island Real Estate Q&A Discussion Forum Topic: Richmond Real Estate Forum Topic: Rio Grande Valley Real Estate Forum Topic: Riverside Real Estate Forum Topic: Rochester Real Estate Forum Topic: Rockford Real Estate Forum Topic: Sacramento Real Estate Forum Topic: Saint Paul Real Estate Forum Topic: Salem Real Estate Forum Topic: Salt Lake City Real Estate Forum Topic: San Antonio Real Estate Forum Topic: San Diego Real Estate Forum Topic: Sandy Springs Real Estate Forum Topic: San Francisco Real Estate Forum Topic: San Jose Real Estate Forum Topic: San Luis Obispo Real Estate Forum Topic: Santa Fe Real Estate Forum Topic: Saskatchewan Real Estate Forum Topic: Savannah Real Estate Forum Topic: Scottsdale Real Estate Forum Topic: Seattle Real Estate Forum Topic: Short Sales Questions Topic: Short-Term and Vacation Rental Discussion Topic: Shreveport Real Estate Forum Topic: Sioux City Real Estate Forum Topic: Sioux Falls Real Estate Forum Topic: South Bend Real Estate Forum Topic: South Carolina Real Estate Q&A Discussion Forum Topic: South Dakota Real Estate Q&A Discussion Forum Topic: Southeast NC Real Estate Forum Topic: Spokane Real Estate Forum Topic: Springdale Real Estate Forum Topic: Springfield Real Estate Forum Topic: Stamford Real Estate Forum Topic: Starting Out Topic: St. Louis Real Estate Forum Topic: Stockton Real Estate Forum Topic: St. Petersburg Real Estate Forum Topic: STR Strategies Under Travel Restrictions Topic: Surprise Real Estate Forum Topic: Tacoma Real Estate Forum Topic: Tallahassee Real Estate Forum Topic: Tampa Real Estate Forum Topic: Tax, Legal Issues, Contracts, Self-Directed IRA Topic: Tax Liens, Notes, Paper, & Cash Flows Discussion Topic: Tempe Real Estate Forum Topic: Tenant Screening Topic: Tennessee Real Estate Q&A Discussion Forum Topic: Texas Real Estate Q&A Discussion Forum Topic: Thornton Real Estate Forum Topic: Toledo Real Estate Forum Topic: Topeka Real Estate Forum Topic: Tucson Real Estate Forum Topic: Tulsa Real Estate Forum Topic: Tuscaloosa Real Estate Forum Topic: Upstate New York Real Estate Forum Topic: Utah Real Estate Q&A Discussion Forum Topic: Vancouver Real Estate Forum Topic: Vermont Real Estate Q&A Discussion Forum Topic: Virginia Beach Real Estate Forum Topic: Virginia Real Estate Q&A Discussion Forum Topic: Waipahu Real Estate Forum Topic: Waipahu Real Estate Forum Topic: Warren Real Estate Forum Topic: Warwick Real Estate Forum Topic: Washington D.C. Real Estate Q&A Discussion Forum Topic: Washington Real Estate Q&A Discussion Forum Topic: Waterbury Real Estate Forum Topic: Westchester County Real Estate Forum Topic: Western NC Real Estate Forum Topic: West Gulfport Real Estate Forum Topic: West Virginia Real Estate Q&A Discussion Forum Topic: Wichita Real Estate Forum Topic: Wilkes Barre Scranton Real Estate Forum Topic: Wilmington Real Estate Forum Topic: Wisconsin Real Estate Q&A Discussion Forum Topic: Worcester Real Estate Forum Topic: Wyoming Real Estate Q&A Discussion Forum Topic: Yukon Real Estate Forum
Create post

First purchase...Did I screw up?

79 Replies

  • Share on Facebook
  • Share on Twitter
  • Share on LinkedIn
Rotate Log in or sign up to reply
user profile avatar
  • Posts 31
  • Votes 51

Craig Dieterich

posted about 2 months ago

I found a small, fully remodeled duplex for $35k in a depressed area of South Carolina with good renters in place bringing in $900/mo in rent, but it had to be a cash deal because it was slightly over appraised price and I also could not find any lender willing to lend that small amount. It will bring in $10,800 in annual rent, but after all expenses (property tax, management, water, and insurance) it will net about $8000 annually. Am I going to get screwed on taxes because I don't have anything to write off (loan interest)? Was it wrong to pay cash for this? What should I have done different? I live in California, so am I going to have to pay South Carolina income tax as well as CA? Is there anything else I didn't think of?

Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subjects:
Rentals, Flipping, and Traditional Financing
  • Posts 99
  • Votes 55

Annie Johnson
Rental Property Investor from Edmonds, WA

replied about 2 months ago

Have you read David Greens' book on long-distance REI? How did you analyze the deal? Seems like your ROI number is good to me.

Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subject:
Team
  • Posts 185
  • Votes 101

David Robinson
Lender from Huntsville, Al

replied about 2 months ago

@Craig Dieterich What area in South Carolina? Curious is there any upgrades you can do that would be a tax write off and help appreciate the value of the property?

Rotate Log in or sign up to reply
user profile avatar
  • Posts 31
  • Votes 51

Craig Dieterich

replied about 2 months ago

No upgrades needed. It's totally turnkey and will not need anything for awhile. This property is not likely to appreciate much. That's not why I bought it. I bought it to have passive income.

Rotate Log in or sign up to reply
user profile avatar
  • Posts 1.2K
  • Votes 2.0K

Mark Fries
Contractor from Jacksonville, FL

replied about 2 months ago

@Craig Dieterich

Buy it, stop over analyzing.

Rotate Log in or sign up to reply
user profile avatar
  • Posts 1
  • Votes 3

Danick Joseph

replied about 2 months ago

Hey man, your numbers look good to me. I’m still learning, but with limited financing options I think you did the right thing buying it cash.

Rotate Log in or sign up to reply
user profile avatar
  • Posts 24
  • Votes 29

Cindy Bacigalupo
Flipper/Rehabber from Aliso Viejo, CA

replied about 2 months ago

@Craig Dieterich

Sounds great! Congrats! I can connect you with people who buy notes if you ever need but great numbers!!! I’m also in SoCal and would take that scenario all day long!!

Rotate Log in or sign up to reply
user profile avatar
  • Posts 6
  • Votes 16

Doug Haiar
from Hudson, Colorado

replied about 2 months ago

@Craig Dieterich when we make money we have to pay taxes no way around it.

Rotate Log in or sign up to reply
user profile avatar
  • Posts 24
  • Votes 29

Cindy Bacigalupo
Flipper/Rehabber from Aliso Viejo, CA

replied about 2 months ago

@Craig Dieterich

You need a great Cpa as you build your empire and be sure to get extra insurance such as an umbrella policy. I hope you didnt buy In Your personal name. Time to look into your options there ; ) LLC, trust, scorp.

Rotate Log in or sign up to reply
user profile avatar
  • Posts 76
  • Votes 100

Thomas Greer
Real Estate Consultant

replied about 2 months ago

20% coc (3x grm) with no large improvements seems cool to me. 

As long as there is no large unknowns/risks (renovation done right, no title issues, not built on ancient burial site) I would call it a win. 

Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subjects:
Tenants, Flipping, and Team
  • Posts 287
  • Votes 53

Ari Hadar
New to Real Estate from Israel

replied about 2 months ago

It seems like f area and the 3% rent to purchase price indicate it. 22.8% cap rate, coc, roi(home run numbers) 

You must look at the rent roll to see if the tenants really pay this rent. 

The condition of the house is crucial to find deffered maintenance so you don't have huge repairs and capex(inspector mandatory) 

Are  you paying for pm as well. You need good one to prevent vacancies. 

Rotate Log in or sign up to reply
user profile avatar
  • Posts 41
  • Votes 21

Kendall Staggs
Investor from Huntington, Barboursville

replied about 2 months ago

Deal seems good as long as you can keep the rent that high. You can't avoid paying taxes on the money you will make. You will have depreciation as an additional write off. You'll end up with approximately $6,700 * (1 - Your tax rate) as your after tax annual return.

Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subjects:
Traditional Financing and Real Estate Finance
  • Posts 274
  • Votes 133

Blaine Alger
Investor from Waco, TX

replied about 2 months ago

From first glance, the numbers look killer.

I would not worry about getting screwed on taxes because you still have the 27.5 yrs of deprecation to factor in. (I would go find a good RE accountant).

Don'y over think it. The #s look good and it cash flows, you will figure out the rest as you go.

Congrats!

Rotate Log in or sign up to reply
user profile avatar
  • Posts 88
  • Votes 75

Joe Edwards
Investor from Northern New Jersey

replied about 2 months ago

@Craig Dieterich

Looks like a home run to me. 35k with no improvements needed and your COC is off the charts. I would bury my cash in that kind of sand box any day. Way to go!!!

Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subjects:
Traditional Financing, Managing Tenants, and Flipping
  • Posts 7.7K
  • Votes 7.8K

Caleb Heimsoth
Rental Property Investor from Durham, NC

replied about 2 months ago

@Craig Dieterich how much over appraisal value are we talking here?

My cheapest ever property I paid 25k for and it too was a duplex, that rented for 820 a month (total), so very similar to you.

What I learned and what you’ll learn too, is maintenance will kill you. It’ll eat all your rent. You’ll still cash flow some, but the return doesn’t justify the risk, given these are in bad areas. Mine was in a terrible area. I sold a year later for 38k (with no rehab) and had no major maintenance issues while I owned it, so my total return was quite good.

If you own this long term I am fairly confident in saying you’ll make no money, because you’re a long distance owner, and managing these types of properties is best left to locals

Rotate Log in or sign up to reply
user profile avatar
  • Posts 250
  • Votes 263

Jake Hottenrott
Accountant from Belleville, IL

replied about 2 months ago

@Craig Dieterich - I like @Cindy Bacigalupo 's comment.  Talk to a CPA, figure out your plan, work with an attorney for entity set up (if you need it, when you need it and how you need it) and don't plan for today, plan for tomorrow!

Rotate Log in or sign up to reply
user profile avatar
  • Posts 31
  • Votes 51

Craig Dieterich

replied about 2 months ago
Originally posted by @Blaine Alger :

From first glance, the numbers look killer.

I would not worry about getting screwed on taxes because you still have the 27.5 yrs of deprecation to factor in. (I would go find a good RE accountant).

what is the 27.5 yrs of depreciation to factor in?

Also, for others concerned about the property condition. It was rehabbed (new windows, new roof, new floors, new water heater. The whole thing is only 850 sqft. It's build out of brick and has no HVAC system to worry about. Just wall heater/AC units which are also new) and I had an inspection done. He found 5 minor issues and the seller corrected them. This property should not have any maintenance costs for awhile. Another good thing is one of the tenants is a disabled veteran, so his income is guaranteed. 

 

Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subjects:
Team, Maintenance, and Taxes & Accounting
  • Posts 6.7K
  • Votes 9.7K

JD Martin (Moderator) -
Rock Star Extraordinaire from Northeast, TN

replied about 2 months ago
Originally posted by @Craig Dieterich :
Originally posted by @Blaine Alger:

From first glance, the numbers look killer.

I would not worry about getting screwed on taxes because you still have the 27.5 yrs of deprecation to factor in. (I would go find a good RE accountant).

what is the 27.5 yrs of depreciation to factor in?

Also, for others concerned about the property condition. It was rehabbed (new windows, new roof, new floors, new water heater. The whole thing is only 850 sqft. It's build out of brick and has no HVAC system to worry about. Just wall heater/AC units which are also new) and I had an inspection done. He found 5 minor issues and the seller corrected them. This property should not have any maintenance costs for awhile. Another good thing is one of the tenants is a disabled veteran, so his income is guaranteed. 

 

Thoughts, in no particular order:

1. Time tends to even out mistakes in real estate. People who get burned are usually people who have to sell, not those who want to sell.

2. Your description sounds like a decent little rental without a lot of costly systems. Central heat & air are expensive both to repair and replace, so if you have units where people are decent and satisfied with wall units that is a win. Frankly the place sounds like a good find based on what it is (brick, small footprint, etc).

3. You won't get much tax help on this. Let's say your basis is $36k - you paid 40k and the property basis is 90% - your annual depreciation is $1300.

4. Paying taxes, after you've exhausted all legal deductions and other advantages, is a sign that you're making money. Plain and simple. 

 

Rotate Log in or sign up to reply
user profile avatar
  • Posts 31
  • Votes 51

Craig Dieterich

replied about 2 months ago
Originally posted by @Caleb Heimsoth :

@Craig Dieterich how much over appraisal value are we talking here?

My cheapest ever property I paid 25k for and it too was a duplex, that rented for 820 a month (total), so very similar to you.

What I learned and what you’ll learn too, is maintenance will kill you. It’ll eat all your rent. You’ll still cash flow some, but the return doesn’t justify the risk, given these are in bad areas. Mine was in a terrible area. I sold a year later for 38k (with no rehab) and had no major maintenance issues while I owned it, so my total return was quite good.

If you own this long term I am fairly confident in saying you’ll make no money, because you’re a long distance owner, and managing these types of properties is best left to locals



@caleb Heimsoth My concern is with taxes on my profits. You seem to be the only one here who thinks this is a bad investment, and I'm very curious as to why. I paid $35k for it. (It was appraised at $31k). It is fully rehabbed with brand new everything. There should not be any maintenance for a long time. I factored in a local PM at 10% which is only $90/mo.

If I net $7k/year after expenses, then it pays for itself in 5 years and everything after that is passive income for the entire time I own it. I'm not concerned with appreciation of the property. Please explain where you're coming from. What am I missing? Thanks

 

Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subjects:
Real Estate Finance, Maintenance, and Taxes & Accounting
  • Posts 1.2K
  • Votes 1.5K

Matt M.
Contractor from Easton, PA

replied about 2 months ago

@Craig Dieterich

Taxes, water, management, and insurance is only $2800/year? And $450/month rent per unit? There’s some cheap areas here in Pa, but I haven’t heard of $450 rent in years. I’d keep it until you pay yourself back from rents, then dump it. Especially not being in the area.

Rotate Log in or sign up to reply
user profile avatar
  • Posts 31
  • Votes 51

Craig Dieterich

replied about 2 months ago
Originally posted by @Matt M. :

@Craig Dieterich

Taxes, water, management, and insurance is only $2800/year? And $450/month rent per unit? There’s some cheap areas here in Pa, but I haven’t heard of $450 rent in years. I’d keep it until you pay yourself back from rents, then dump it. Especially not being in the area.

 @Matt M.  Why would I spend 5 years paying myself back, then dump it without ever benefitting from the passive income it will generate? Also, this property is not in PA. And $450 for a 1/1 side of a duplex is not expensive.

So much conflicting advice here! LOL

Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subjects:
Traditional Financing, Managing Tenants, and Flipping
  • Posts 7.7K
  • Votes 7.8K

Caleb Heimsoth
Rental Property Investor from Durham, NC

replied about 2 months ago

@Craig Dieterich you say it was rehabbed, does that include the roof and plumbing and all that? When was it built? For example, your roof goes out, that’ll cost you 5k. That’s around 6 months of rent.

What if your tenant leaves? It’ll cost you 2k or more to rerent it. That’s 2-3 months rent. Anything major eats up months of rent because your rent is so low.

Rotate Log in or sign up to reply
user profile avatar
  • Posts 31
  • Votes 51

Craig Dieterich

replied about 2 months ago
Originally posted by @Caleb Heimsoth :

@Craig Dieterich you say it was rehabbed, does that include the roof and plumbing and all that? When was it built? For example, your roof goes out, that’ll cost you 5k. That’s around 6 months of rent.

What if your tenant leaves? It’ll cost you 2k or more to rerent it. That’s 2-3 months rent. Anything major eats up months of rent because your rent is so low.

@caleb Heimsoth   The condition was explained. Yes, brand new everything including a roof, water heater, etc. There will not be any maintenance expenses for quite some time. Also, I paid cash for this, so even if it's vacant for a month, I'm not losing money by needing to pay a mortgage without tenants in place. Anyway, this thread got a bit off topic. My point of creating this thread was concerns about taxes with no write offs due to being a cash purchase and trying to find ways to save on taxes or other creative ways to find write offs, etc. What are the pros and cons of buying with cash vs loan? I think I need to contact a CPA that specializes in Investment properties as advised by some of the other members.

 

Rotate Log in or sign up to reply
user profile avatar
  • Posts 1.3K
  • Votes 2.4K

Steve K.
Real Estate Agent from Boulder, CO

replied about 2 months ago

@Craig Dieterich “There will not be any major expenses for sometime.”= famous last words. The numbers look good on paper but what Caleb is saying, based on his personal experience in this exact market segment, is that cheap low rent properties often end up being paper tigers because one or two unexpected issues can easily devour several years worth of cash flow. I hope it works out for you, just make sure to budget for some maintenance and capex plus vacancy/tenant issues because you will have some for sure and the rent isn’t a lot of money when it comes to maintaining a property over time, especially if you’re out of state. I personally wouldn’t finance this even if you can find a lender, as the mortgage payment will just make it even harder to achieve positive cash flow. The saying “cheap is expensive” pertains to properties like this. There’s no way quality work was done on all the items you mentioned with a purchase price of $35k unless the seller took a major bath. Price to rent ratio is great, but there’s a high probability this falls into the “too good to be true” category. Hope Caleb and I are wrong, but we both have experience with low end properties and they rarely turn out well over time unless the owner is a local who is hands on. Being out of state you’ll probably lose any potential profit on maintenance/tenant/capex issues. Good luck!

Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subjects:
Taxes & Accounting and Rentals
  • Posts 420
  • Votes 222

Jonathan Oh
Investor from Los Angeles, CA

replied about 2 months ago

@Craig Dieterich Numbers look great on paper. But with such a low price point for a fully remodeled duplex, I can't image this being in a decent area. Cheap properties are cheap for a reason. But im not too familiar with the market, so I could easily be missing something. But if this is in a depressed neighborhood like you stated, just make sure you're comfortable with the downsides of investing in places like that. Good luck!

Rotate Log in or sign up to reply
  • 1
  • 2
  • 3
  • 4
Resources Read, see, and learn more!
Link Real Estate Investment Calculators
Link BiggerPockets Blog
Link Path to Purchase
Link Mortgage Loans
Link Find a Contractor
Link Real Estate Agents
Link Hard Money Lenders
Link Real Estate Listings

Top Contributors

Dominique B.
Dominique B.
Washington, DC (Metro)
8.94
Score
Esteban Jimenez
Esteban Jimenez
Seneca, SC
4.56
Score
Antonio Cucciniello
Antonio Cucciniello
Manhattan, NY
4.33
Score
Ryan Copeland
Ryan Copeland
Columbia, SC
4.23
Score
Joe Splitrock
Joe Splitrock
Sioux Falls, SD
4.15
Score

Starting Out Trending Discussions

  • Contribute to Roth or put that towards real estate investing goal
    109 Replies
  • Low income neighborhoods?
    14 Replies
  • Good markets for first time investors?
    18 Replies
  • Where to start/can I start?
    10 Replies
  • First short term rental!
    20 Replies
Log in Sign up

Log in

Forgot password?

If you signed up for BiggerPockets via Facebook, you can log in with just one click!

Log in with Facebook

Or
btn_google_dark_normal_ios Created with Sketch. Continue with Google

Let's get started

We just need a few details to get you set up and ready to go!

Use your real name

Use at least 8 characters. Using a phrase of random words (like: paper Dog team blue) is secure and easy to remember.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.

Or
btn_google_dark_normal_ios Created with Sketch. Continue with Google

Why create an account?

Receive a free digital download of The Ultimate Beginner's Guide to Real Estate Investing.

Connect with 1,000,000+ real estate investors!

Find local real estate meetups and events in your area.

Start analyzing real estate properties, we do the math for you.

It's free!

Explore

  • Membership
  • Community
  • Education
  • Marketplace
  • Tools
  • FilePlace
  • REI Resources
  • Perks
  • Glossary
  • Reviews
  • iOS App
  • Android App

Company

  • About Us
  • Press
  • Advertising
  • Careers
  • Stats
  • Contact Us

Important

  • Editorial Guidelines
  • Terms of Use
  • Rules
  • Privacy
  • FAQ

Social

  • Facebook
  • Twitter
  • YouTube
  • Instagram
© 2004-2021 BiggerPockets, LLC. All Rights Reserved.