Thread: Investment properties and tax write offs

do not have enough data to answer your ?...do not know your market/s.

what are the vacancy rates? if it is a killer deal why did useveral states away have a shot at it? why didn't the realator/banker/appraiser buy??

how will you manage/control a distant rental? tenants unions in some states like calif. will cut u up! taxes on non-homesteded properties in florida will kill ya!!!!

will you have positive cash flow? did you buy an REO (re owned by bank)? if so will they carry u at a low rate/payment? arm/interest only/balloon...get that low payment!

I like waterfront/beach prop (only so much avail. with super high demand)...feel you will have more time to run for the door if she goes down. like using a short term arm whilewe remodel. if we get stuck and can not flip the property ASAP we can always live in it, enjoy the view and refi to a fixed.

most of the time u want to hold the prop. two yearsto avoidcap gains...if u r in military may be a shorter term.



I can say that everyone is callingthis a bubble. but really rising prices is a trend...... and not a bubble until.......God forbid.

and if the re market really does collapse then we will probably go into a major depression and no one will come out on top other than a gold bug perhaps.

real estate is a much better investment than anything i know of......jmho

good luck and hope this helps u

tekno

PS: for those predicting collapse.......I dare you to sell your home and move to an appartment.

kajasmom wrote:

Have a question-We own our home in MD.A close friend who lives in Texas suggestedfor use to invest in rental properties in Texas, where houses are cheaper and will help in reducing our taxes. Another friend suggestion section-8 rental investment in Baltimore, MD. We have 2 young children, saving for their education, i am currently contributing 15% to my TSP and husband 12% in his job's retirement plan.
Any pros and cons to investing in rental properties with the current market? or should we just save the money

Your friend's advice: I'd say you have to do the number crunching. PM meyour email add so I can send you the excel worksheet that I use when I look at a property. All you have to do is fill in the blanks and it should tell you (in the surface) if the investment in TX will make money for you or not. You dtill have to do your due diligence.My advice is you should start in your own backyard so that you can learn to be a landlord. Once you become an expert, then you can start branching out to TX (I believe they are about 1,500 miles from MD). Reducing taxes is great but if your real estate investment is going to lose you money, you might as well pay the taxes (less headache for you).

Section 8: I have an 8 unit apartment full of section 8. I love them. Lots of paperwork but it is worth it. Uncle Sam pays me IFT every first of the month. Tenants can be handled easily because GHURA will not put up with that. However, you need to learn how to be a landlord so that you can easily take care of those who might give you problem. For me, I've never had problem with them. Our GHURA office here doesn't play games with my tenants. If they don't pay or don't follow whats on the lease agreement, I just write a letter to their case worker.

Sorry I can't be specific since I don't havea lot of info from you. I totally agree with Tekno that real estate is one of the best investment out there. You just got to know how to use it. Just my .02.

Pyriel

Some of you requested for the excel worksheet that I use before I buy a property. I am in the middle of purchasing a 4plex and I am attaching a copy of the same excel worksheet that I used to analyze whether the property will make money for me or not...

Seller and I closed on 20 April and he gave me 60 days to find financing (I was asking for 90 days but he won't budged). He did give me permission to start my renovation. At first he was hesitant but I told him that he can't lose since if the deal doesn't go through, at least his 4plex will be in better shape now than before. I found a bank that would give me financing and they wanted to close on 26 May 05. I informed them that I want to close on 1 July. The owner is in Hawaii and since he has been a little late on giving me the things that i requested for such as blue prints, lease agreements etc. etc.I told him that we will close on 1 Jul. He said ok. The reason why I kept pushing the closing date further is because it gives me time to fix the property. This way, I can make the 4plex more attractive for the new tenants I will be bringing in (I have 2 on the waiting list). The appraisal came in at $220K and the bank is willing to give me $30k equity loan once I close the deal (purchase price is at $160k so the property has $60k equity). Can you imagine that? I would get all of my money I invested plus more and all I will be doing is play with Other People's Money (OPM)... You sure can't get that from stocks...

Now my real estate agent had told me that if the property has been appraised for $220k now, it would surely appraised more once I am done with my renovation. He said that we should put it in the market for $210k. This is called flipping. However, since I am a passive investor, I think I will keep the property and just do what the bank is offering me and that is to get an equity loan. This way, I get all my money back that I invested and still get the passive and phantom income that goes with it.

Real estate and landlording is not for everyone. I happen to enjoy it. Right now I am under -2% in TSP for the year so it really gives me pleasure to see that I am doing ok with my real estate deals.

Goodluck to all... Pyriel

Pyriel,

Equity loans are based on variable rates, right?



See if this data would be of concern to the recent property owner who is leveraged for more house than they need. About 450 billion of ARMs will come up for refinancing in 2006, almost certainly at short-term mortgage rates that exceed the loans' initial levels. Does the Fed want to create a consumer credit crunch when that refinancing occurs? If they proceed with rate increases they will.

We all assume our own risk tolerances. But this industry is in the spot light - everybody wants a piece of the money action. I have a 5.23 acre plot that I get requests on to sell - from as far away as California. My contrarian nature has me nervous - I don't trust the Fed - they will come up with something to hurt everybody. They are presently after the Freddies and that may be the focal point. If they faulter everyones' rates will be adjusted upward - causing undue pain.

Birchtree wrote:

Pyriel,

Equity loans are based on variable rates, right?

See if this data would be of concern to the recent property owner who is leveraged for more house than they need. About 450 billion of ARMs will come up for refinancing in 2006, almost certainly at short-term mortgage rates that exceed the loans' initial levels. Does the Fed want to create a consumer credit crunch when that refinancing occurs? If they proceed with rate increases they will.

We all assume our own risk tolerances. But this industry is in the spot light - everybody wants a piece of the money action. I have a 5.23 acre plot that I get requests on to sell - from as far away as California. My contrarian nature has me nervous - I don't trust the Fed - they will come up with something to hurt everybody. They are presently after the Freddies and that may be the focal point. If they faulter everyones' rates will be adjusted upward - causing undue pain.

Birch, yes, it is an equity loan. however, if you do the numbers, it would show that the risk is very low or none at all if I was to do an equity loan. By doing it, I get all of my investment + more. so my cash on cash return investment right off the bat becomes 100% by doing an equityloan. Now what we have to look at is, does the property have enough passive income to offset additional pmt to the loan. Answer to that is yes.

The equity loan you are talking about that you need to be concern is how many of those 450b ARM is a home equity loan without passive income. I bet about 95%. You are right about this being dangerous but passive income investors don't look at this serously because they are not paying the mortgage; their tenants do. What they are more concern about is their income to expense ratio. More income + less expense is the name of the game. Home owners that max out their equity loan on top of their mortgage is categorized as having more expense + less income.

P

did you leave out proptery taxes ? utillies that you pay ? vaccancy rate.. ? also raising rent 250 bucks at one time ?

I have a 5 plex in cincinnati.. gov paid me 9000.00 last year in deductions ....
has a positive cash flow more than the SS I will receive at 62 and only about 5000 out of pocket to buy it... Sweet... return for 5000. Plus you have some time involved...

Skip

Skip wrote:

did you leave out proptery taxes ? utillies that you pay ? vaccancy rate.. ? also raising rent 250 bucks at one time ?

I have a 5 plex in cincinnati.. gov paid me 9000.00 last year in deductions ....
has a positive cash flow more than the SS I will receive at 62 and only about 5000 out of pocket to buy it... Sweet... return for 5000. Plus you have some time involved...

Skip

Skip, I don't pay utilities, tenants do. However, for my section 8 tenants, I do pay for them since Uncle Sams reimburses me for it. As far as property tax is concern and insurance, bank wants me to put it in escrow as part of the VA loan. This means that itbecomes a part of my monthly pmt.Property tax here is pretty cheap unlike the one in the mainland. Vacancy rate is something that I missed to put there. I believe that I did that intentionally because 3 each of the units are already rented and i have 2 each on the waiting list. funny thing about vacancy rate is that it goes into your pocket if your rental is full. Current tenants are paying $300, $300, and $400. They are definitely way below the market rent here on Guam where $500-$600 is usually the norm for a two bedroom. Seller is in Hawaii now and property was passed on to him. So he really doesn't know landlording. He lowered down the rate just so tenant will not complain. Wrong move on his part.

Because of the loan being VA, they are lending me extra money to purchase appliances that are energy efficient. I found these stainless steel stoves and fridge and got a good deals on airconditionings. This appliances should bring the value of the property a lot higher and makes it more attractive for tenants. Not to include the depreciation that i'll get from them over five years.

Isn't it great to know that your positive cash flow now will be more than your SS? The funny thing is you are getting it now and not when you turn 62. Thank you for verifying what i've been trying to say on this board.

Pyriel,

Couple comments: Your worksheet should include equity gained in 5 years. (Principal paid toward load and estimate of increase in value.) That equity is prime for use to purchase the next property right?

Looks like you got a very good deal for the complex, I would have thought Guam would have been more expensive. If that is indicative of real estate prices in Guam, I'd think you should be buying and holding as much as possible.

Do you think it would be possible to rent these units as vacation rentals? I remeber when I was in Guam, the Japanese tourist paid double to triple what Americans paid.

Are you renting to servicemen?

Do they still have **** fights in Guam or is bird flu worries hit there as well?

One other question, do you have a formula that you use to determine rental value (ie so much per bed room and bath room)? Or do you just base it off of what things are going for in the paper?

FundSurfer wrote:

Pyriel,
Couple comments: Your worksheet should include equity gained in 5 years. (Principal paid toward load and estimate of increase in value.) That equity is prime for use to purchase the next property right?
Looks like you got a very good deal for the complex, I would have thought Guam would have been more expensive. If that is indicative of real estate prices in Guam, I'd think you should be buying and holding as much as possible.
Do you think it would be possible to rent these units as vacation rentals? I remeber when I was in Guam, the Japanese tourist paid double to triple what Americans paid.
Are you renting to servicemen?
Do they still have **** fights in Guam or is bird flu worries hit there as well?
One other question, do you have a formula that you use to determine rental value (ie so much per bed room and bath room)? Or do you just base it off of what things are going for in the paper?

Fund, Hmmm... you really have been around.... You are right about the equity gained. Didn't even think about that. I guess it is because I don't hold value to it too much unless I am remortgaging or doing an equity loan. Japanes tourists are still here but they sold off all of their investments just like what they did in the mainland. No I am not renting to service member. However, if we do get (wishful thinking here) the aircraft carrier, I will definitely switch clientele and will cater to military.Right now, best paying customer is section8 under GHURA. No hassle with being paid on time because they are all EFT. Yes, they still have cockfights here but I have never seen one. Not into animal violence... No formula for rental value. I do look at the newspaper, internet, MLS listing all the time. After awhile, you start seeing patterns of the rental market. You will never see it in a day or two or even a week. You just have to keep reading and you'll see that they will either climb or they will go down. They are now climbing here...

Carrier??!? The young male locals won't like that much. We had lots of fights between some of the local young men and the servicemen as it was, when I was there. I guess they do have a deep water access.

Do you find your prospective rentals in the paper? FSBO's?

I just moved so I've been thinking about buying rental property. The problem where I live is that there appears to be a bunch of rentals already available. It is hard to make money if you have vacancy. I guess I'll just need to watch the market for awhile.

FundSurfer wrote:

Carrier??!? The young male locals won't like that much. We had lots of fights between some of the local young men and the servicemen as it was, when I was there. I guess they do have a deep water access.

Do you find your prospective rentals in the paper? FSBO's?

I just moved so I've been thinking about buying rental property. The problem where I live is that there appears to be a bunch of rentals already available. It is hard to make money if you have vacancy. I guess I'll just need to watch the market for awhile.

Im not holding my breath on the carrier. We just don't have to infrastucture to accomodate that big of a boom. If I am in the carrier, I sure would love to be stationed in Hawaii. I find my rentals from the paper and real estate agent. I usually do both. I just signed a contract with an agent yesterday to have one of my unit be put inthe MLS. He gets one month rent if he gets it rented. But i put a clause that I be allowed to look for my own tenant. If I get it rented first, then he gets nothing.

I always tell people to watch the market for six months. Do it by looking at newspaper, driving around,and the mls listing. IMHO six months is a good span of time for someone to really get familiarize with the market within a certain area. Get to know some real estate agent and tell them that you are planning to buy a property for investment. But don't buy right away. Keep looking. Somehow, you'll find out that you can start figuring out in your head how much a property is worth in a certain area. Start hanging out at home depot. You might as well start learning the cost of items there. This way, when you look at a property you can start guesstimating how much it will cost you to fix a unit. This 4 plex that i bought took me less than 10 minutes to figure out in my head that it will cost 10k to fix (guesstimate). So far, i'm off 2k but that is a pretty good ballpark..