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Investment properties and tax write offs
- Thread starter kajasmom
- Start date
o
pyriel
Active member
imported post
mutton$ wrote:
As for the other question about the housing bubble.Sorry, I meant to say thatwhen the housing bubble burst is the best time to buy.It will come, I guarantee it. Whenwill it happen is anyones guess...
mutton$ wrote:
Birch, you are so funny... Mutton$, overextending is one of the pitfalls of real estate speculators. Even with what I am doing,the 4 plex i bought is a speculation (until I actually sell it). Anytime someone buy real estate, IN HOPE, of selling it later on a higher end is speculating. However, the 4 plex I bought could also provide passive income if I decide to keep it (which what makes it, in my category, an investment). It also pays for itself right in the beginning which helps reduce money coming from my pocket. Readers, please be careful with real estate speculation. Passive income is the key. Having your real estate increase in value later is an icing on a cake. Asfor your friend, i'd suggest for him to unload (if he really is in a bind) even if he does not make profit.By doing this, he lives anotherday to redo his strategy. If he waits till later and he endup notbeing able to come up with payment, his credit score may suffer. Bad idea if he wants tocontinue with real estate investing.
As for the other question about the housing bubble.Sorry, I meant to say thatwhen the housing bubble burst is the best time to buy.It will come, I guarantee it. Whenwill it happen is anyones guess...
michelleunit
New member
imported post
Hi everyone-
i'm new to the board and have a question, it would fall under this topic (please advise if i should have started another one).
we have a rental property (single family home near an air force base - it has been on the base closure list before, so that's a slight worry) that we used to live in, but relocated and kept it as a rental (renting to military only). we have an agent (who earns 10% per month - the property is about 300 miles away).this VA mortgage will be pd in 12 years. if you need more info,just let me know!
my question: i'm thinking we'll have it as income property when the mortgage is paid off. until then, we have a loss every month rent $800, agent fee $80, mtg pmt $774. is there a smarter way to be doing this? as it is now, i don't consider it an income generating property (although it is increasing our equity)
my husband sometimes thinks we should refi for 30 years, but i like the idea of having a property paid for in 12 years (a little sooner, if i can squeeze in a13th pmt every year-any benefit to doing that?). plus it will be something i can fall back on should something catastrophic happen. we are currently living in another single family residence (FHA mortgage).
our son will be attending college next year and possibly working, but living at home. we are wanting to be sure we are in a position to pay uncle sam as little as possible.
i am interested in the section 8 scenario, but not sure that i could do something like that long distance.
we are both veterans, so i'm not sure if i could get another VA mortgage or not. i think we have to live in that property for 3 years to claim a VA loan.
i know this is a lot, please forgive the cross-over of topics!
thanks again everyone-
michelleunit
Hi everyone-
i'm new to the board and have a question, it would fall under this topic (please advise if i should have started another one).
we have a rental property (single family home near an air force base - it has been on the base closure list before, so that's a slight worry) that we used to live in, but relocated and kept it as a rental (renting to military only). we have an agent (who earns 10% per month - the property is about 300 miles away).this VA mortgage will be pd in 12 years. if you need more info,just let me know!
my question: i'm thinking we'll have it as income property when the mortgage is paid off. until then, we have a loss every month rent $800, agent fee $80, mtg pmt $774. is there a smarter way to be doing this? as it is now, i don't consider it an income generating property (although it is increasing our equity)
my husband sometimes thinks we should refi for 30 years, but i like the idea of having a property paid for in 12 years (a little sooner, if i can squeeze in a13th pmt every year-any benefit to doing that?). plus it will be something i can fall back on should something catastrophic happen. we are currently living in another single family residence (FHA mortgage).
our son will be attending college next year and possibly working, but living at home. we are wanting to be sure we are in a position to pay uncle sam as little as possible.
i am interested in the section 8 scenario, but not sure that i could do something like that long distance.
we are both veterans, so i'm not sure if i could get another VA mortgage or not. i think we have to live in that property for 3 years to claim a VA loan.
i know this is a lot, please forgive the cross-over of topics!
thanks again everyone-
michelleunit
michelleunit
New member
imported post
pyriel-here goes:
we've had the property since 93 and when we refinanced it 3 years ago, we knocked a few years off of it (i think from 20 to 15?) my thinking at the time was to pay it off sooner than later. its looking like that was a bad decision? so this current mortgage original amount was 57430 @ 6%. insurance 1135, taxes 1925. yes, we've had repairs and expenses over the years, i didn't itemize them in the post (we did itemize them w/ our tax preparer)...appraisal district has us listed at 64900 that's probably a good figure. i don't know whatthe going rates are that i can get for a refi...at wells fargo it shows a payment of 553.00 (dunno how accurate this is) do you need the current balance?
now i'm wondering about the refi at 30....this would be the 2nd time to do a refi...i'm guessing you have a program to see if that's worthwhile? what does 'cash out' mean? you're not talking about an equity loan, are you? (sorry, i'm obviously uneducated here..glad to be able to ask you questions
)
i don't understand the factoring in of vacancy rate if the tenant stays for two years..(?) our current renters just moved in in july for a 12 month lease. they plan to be at the base for 3 years...so i guess we could increase the rent next year...
i feel like what i've done with this property probably would've sent you to the hospital with a heart attack....well better to learn from my mistakes sooner than later..
thanks for your help and .02!
michelleunit
pyriel-here goes:
we've had the property since 93 and when we refinanced it 3 years ago, we knocked a few years off of it (i think from 20 to 15?) my thinking at the time was to pay it off sooner than later. its looking like that was a bad decision? so this current mortgage original amount was 57430 @ 6%. insurance 1135, taxes 1925. yes, we've had repairs and expenses over the years, i didn't itemize them in the post (we did itemize them w/ our tax preparer)...appraisal district has us listed at 64900 that's probably a good figure. i don't know whatthe going rates are that i can get for a refi...at wells fargo it shows a payment of 553.00 (dunno how accurate this is) do you need the current balance?
now i'm wondering about the refi at 30....this would be the 2nd time to do a refi...i'm guessing you have a program to see if that's worthwhile? what does 'cash out' mean? you're not talking about an equity loan, are you? (sorry, i'm obviously uneducated here..glad to be able to ask you questions
)i don't understand the factoring in of vacancy rate if the tenant stays for two years..(?) our current renters just moved in in july for a 12 month lease. they plan to be at the base for 3 years...so i guess we could increase the rent next year...
i feel like what i've done with this property probably would've sent you to the hospital with a heart attack....well better to learn from my mistakes sooner than later..
thanks for your help and .02!
michelleunit
pyriel
Active member
imported post
Michelle,
Please bear with me for more info. Need current balance of the loan. Also, I need for you to guesstimate (per year) of your repairs. Just ballpark the figure. Will also need the money that came out of your pocket when you refinanced. Just ballpark the figure.
You mentioned Well Fargo as one of the means to borrow. It is very easy to borrow from them but their interest rate is very high. People who usually go to them (as well as other like them) are those who have a lower credit score. Is that the case here or you just went with them (or others like them) due to convenience. I usually use them for last resort or to purchase fast moving property.
I'll have a recommendation for you soon.
Michelle,
Please bear with me for more info. Need current balance of the loan. Also, I need for you to guesstimate (per year) of your repairs. Just ballpark the figure. Will also need the money that came out of your pocket when you refinanced. Just ballpark the figure.
You mentioned Well Fargo as one of the means to borrow. It is very easy to borrow from them but their interest rate is very high. People who usually go to them (as well as other like them) are those who have a lower credit score. Is that the case here or you just went with them (or others like them) due to convenience. I usually use them for last resort or to purchase fast moving property.
I'll have a recommendation for you soon.
michelleunit
New member
imported post
pyriel: balance 51355.81; average guestimate of annual repairs...200-300; money at refinance @400 (?)...we're with wells fargo cuz that's where the refinance company serviced the loan to, so we just kept it there for convenience (our checking accounts are there as well)
hope this helps you assess my damage!
thanks-michelleunit
pyriel: balance 51355.81; average guestimate of annual repairs...200-300; money at refinance @400 (?)...we're with wells fargo cuz that's where the refinance company serviced the loan to, so we just kept it there for convenience (our checking accounts are there as well)
hope this helps you assess my damage!
thanks-michelleunit
michelleunit
New member
imported post
yes i am postal (of course, not born in 00!) am 37, and am about 1/3 of the way to retirement and wanting to plan for it and enjoy it.
michelleunit
yes i am postal (of course, not born in 00!) am 37, and am about 1/3 of the way to retirement and wanting to plan for it and enjoy it.
michelleunit
pyriel
Active member
imported post
Michelle,
When it comes to borrowing money, don't ever limit yourself with one bank. Always get the best rate even though the bank is thousands of miles away from you. Best rate is always what you are looking for.
As of now, your cash on cash investment on your refinance is $400. I said this because this is money that came out of your pocket when you did your refinanced. Right now you have a negative cash flow with your property and you are losing 138% of your cash on cash investment. This means that every year, you are losing $552 and they are coming out of your pocket. TSK, TSK, TSK... In five years, you would have lost a total of 690%. This looks like my return here at TSP. You've been doing this for 3 years now. I'm sure, you wouldn't want to do this for the next 12 years.
Don't worry, there is a fix to this. Go ahead and refinance for 30 years using your current balance. If you can get a lower interest rate somewhere that would even be better. If you refinance for 30 years at 6% and if your refinance cost is $500 (your last one cost $400) you will then have a positive cash flow of 524% per year or $1,572 per year. In 5 years, your cash on cash return on your $500 dollar investment for refinancing (again) will come up to 1,572%. Your return is actually higher than this because if you factor in the negative cash flow of $552 that is currently coming out of your pocket + the $1,572 that you will be receiving, you will then have a positive cash flow of $2,124.00 or an equivalent of 708% per year or 2,124% for 5 years. Now that is better than any return you will ever see here at TSP.
Please see attached worksheet...It has two sides. The first one has the current and will show how much you like being a Santa Claus and the other one shows how you can start receiving your early christmas gift.
Now, I want you to invest all of that cash you will be getting. I will even hold it for you if you like. hehehhehehehehe
Michelle,
When it comes to borrowing money, don't ever limit yourself with one bank. Always get the best rate even though the bank is thousands of miles away from you. Best rate is always what you are looking for.
As of now, your cash on cash investment on your refinance is $400. I said this because this is money that came out of your pocket when you did your refinanced. Right now you have a negative cash flow with your property and you are losing 138% of your cash on cash investment. This means that every year, you are losing $552 and they are coming out of your pocket. TSK, TSK, TSK... In five years, you would have lost a total of 690%. This looks like my return here at TSP. You've been doing this for 3 years now. I'm sure, you wouldn't want to do this for the next 12 years.
Don't worry, there is a fix to this. Go ahead and refinance for 30 years using your current balance. If you can get a lower interest rate somewhere that would even be better. If you refinance for 30 years at 6% and if your refinance cost is $500 (your last one cost $400) you will then have a positive cash flow of 524% per year or $1,572 per year. In 5 years, your cash on cash return on your $500 dollar investment for refinancing (again) will come up to 1,572%. Your return is actually higher than this because if you factor in the negative cash flow of $552 that is currently coming out of your pocket + the $1,572 that you will be receiving, you will then have a positive cash flow of $2,124.00 or an equivalent of 708% per year or 2,124% for 5 years. Now that is better than any return you will ever see here at TSP.
Please see attached worksheet...It has two sides. The first one has the current and will show how much you like being a Santa Claus and the other one shows how you can start receiving your early christmas gift.
Now, I want you to invest all of that cash you will be getting. I will even hold it for you if you like. hehehhehehehehe
michelleunit
New member
imported post
hi pyriel-
wow--thanks for the xcel document...i've gone over it, trying to get a thorough understanding of the numbers...but you have toconfirm one figure to me. under 'cash on cash return for 5 years'...you have a figure called 'yearly cash on cash return'. is that the downpayment amount divided by 5 years? and then that amount is divided into the annual income?the math seems to work out to that. (note: our tax preparer never asked for an insurance figure, so i never included it on our deductions! now i'm going to have to file amendments on previous returns!!! perhaps it's time to change preparers!)
i hadn't hadthe 'business' of rental property explained to me in the terms you have set out. that is, where money paid at refinance is actually considered the 'amount invested' and that amount is what you base your return on investment. it brings the rental business into a new light for me. i thank you for shedding this light in my (and others') general direction(s)!!
my mindhas been thinkingof the mortages as a debts i personally owe (like a car loan)for the house and having renters help pay down the mortgage is 'building equity'. i have to train myself to think of it as 'return on investment (downpayment)' and go from there.
what do you find is the best way to seek out your properties?
michelleunit
hi pyriel-
wow--thanks for the xcel document...i've gone over it, trying to get a thorough understanding of the numbers...but you have toconfirm one figure to me. under 'cash on cash return for 5 years'...you have a figure called 'yearly cash on cash return'. is that the downpayment amount divided by 5 years? and then that amount is divided into the annual income?the math seems to work out to that. (note: our tax preparer never asked for an insurance figure, so i never included it on our deductions! now i'm going to have to file amendments on previous returns!!! perhaps it's time to change preparers!)
i hadn't hadthe 'business' of rental property explained to me in the terms you have set out. that is, where money paid at refinance is actually considered the 'amount invested' and that amount is what you base your return on investment. it brings the rental business into a new light for me. i thank you for shedding this light in my (and others') general direction(s)!!
my mindhas been thinkingof the mortages as a debts i personally owe (like a car loan)for the house and having renters help pay down the mortgage is 'building equity'. i have to train myself to think of it as 'return on investment (downpayment)' and go from there.
what do you find is the best way to seek out your properties?
michelleunit
pyriel
Active member
imported post
I'm currently doing another worksheet for you... How would you like to be paid back for all three years that you lost money? hehehhehe...
Fire your tax preparer. The difference between him and you is that he took a week course. My advice to you is to take a tax preparation course. I think it only takes a week. This will be money well spent and now you have a way to pay for the course. Once you learn what is required and what you can get away with you'd see things, like spending money,in a different way... By the way, did he tell you that the money you paid him for preparing your tax return last year is also tax deductible for this year? More to follow when I answer your question in "how to save taxes."
Here is a question for you and to others, what is your cash in cash return for TSP? The answer is zero. It is zero until such time that you start taking out money from your retirement. So if you are seeing Tekno's return of 14% and my measly 3% return for the year, the cash in cash return is still zero.... This means that I put in 10% of my pay (i'm military) and I am not getting anything back at this time.
Now for real estate rental like what you are doing. When you buy a rental house and you put10k to purchase a 100k house. Your investment is really only 10k. This is because 10k is what came out of your pocket. What you did is use Other People's Money (OPM) to get an investment for 100k. Try doing that with stocks, IRA, or TSP (NOT!). Once you get your money back from the positive cash flow, you are now playing with other people's money. Even if they foreclosed on your property or you sell it at face value, you already got your money back. And I am not even including depreciation, insurance expense, property manager's expense, repairs, appreciation, property tax, etc....
Sorry.... Got carried away hehehehe... Will post the other worksheet later...
I'm currently doing another worksheet for you... How would you like to be paid back for all three years that you lost money? hehehhehe...
Fire your tax preparer. The difference between him and you is that he took a week course. My advice to you is to take a tax preparation course. I think it only takes a week. This will be money well spent and now you have a way to pay for the course. Once you learn what is required and what you can get away with you'd see things, like spending money,in a different way... By the way, did he tell you that the money you paid him for preparing your tax return last year is also tax deductible for this year? More to follow when I answer your question in "how to save taxes."
Here is a question for you and to others, what is your cash in cash return for TSP? The answer is zero. It is zero until such time that you start taking out money from your retirement. So if you are seeing Tekno's return of 14% and my measly 3% return for the year, the cash in cash return is still zero.... This means that I put in 10% of my pay (i'm military) and I am not getting anything back at this time.
Now for real estate rental like what you are doing. When you buy a rental house and you put10k to purchase a 100k house. Your investment is really only 10k. This is because 10k is what came out of your pocket. What you did is use Other People's Money (OPM) to get an investment for 100k. Try doing that with stocks, IRA, or TSP (NOT!). Once you get your money back from the positive cash flow, you are now playing with other people's money. Even if they foreclosed on your property or you sell it at face value, you already got your money back. And I am not even including depreciation, insurance expense, property manager's expense, repairs, appreciation, property tax, etc....
Sorry.... Got carried away hehehehe... Will post the other worksheet later...
pyriel
Active member
imported post
michelleunit wrote:
michelleunit wrote:
Dang, I didn't answer your question. One year and five year cash on cash return. What is the difference. if you put in $500 to refinance and you get a postive cash flow of $1572 after everything is paid then your cash on cash return on your investment for the year is 314%. I put in 500 widget and after one year I get beck 1572 widgets then that is a 314% return. Just multiply that by 5 for 5 years. $1572 multipy by 5 = $7860 so in five years the return on your $500 is 1,572%. Isn't this mind boggling? Can you imagine getting that in TSP? And they say real estate is HIGH RISK. You want to know what is high risk? I just went 100i yesterday. Now, I am hoping that the market will go up. I can't do anything but wait for the market to bounce. That is high risk. With real estate, I just look for another tenant when the other one moves out. Plus I researched the property using that worksheet I provided so that I know I will be making money before I even purchased the property... Hope this helps...
michelleunit
New member
imported post
hi pyriel-
yes!--getting paid back for three years of loss would be awesome...the sad thing is the preparer used to work for the irs...so i thought the preparer, having had that experience, would be toour benefit. where do you recommend i take the tax prep course? and yes, we claimed the tax preparer's fee.
well i'm also interested in working the OPM system. is there already a thread on that somewhere that i haven't found yet? if so, where is it? if not, can we just continue on this thread (is that what this is called? or board?)
when you buy rental property and get a mortgage, are the rates higher because it's an investment property? i've been telling my son whenever he moves out, to buy a duplex, triplex or 4plex. told him that's what i would've done if i could start all over. so at least he can be ahead of the game and not waste his money on rent! i think he believes me!
also, can you give me some recommendations on how to learn about section 8? and the 1031 exchange too? are there specific books that cover this? thanks again for all your information, time and efforts to educate us! your efforts are appreciated!
michelleunit
hi pyriel-
yes!--getting paid back for three years of loss would be awesome...the sad thing is the preparer used to work for the irs...so i thought the preparer, having had that experience, would be toour benefit. where do you recommend i take the tax prep course? and yes, we claimed the tax preparer's fee.
well i'm also interested in working the OPM system. is there already a thread on that somewhere that i haven't found yet? if so, where is it? if not, can we just continue on this thread (is that what this is called? or board?)
when you buy rental property and get a mortgage, are the rates higher because it's an investment property? i've been telling my son whenever he moves out, to buy a duplex, triplex or 4plex. told him that's what i would've done if i could start all over. so at least he can be ahead of the game and not waste his money on rent! i think he believes me!
also, can you give me some recommendations on how to learn about section 8? and the 1031 exchange too? are there specific books that cover this? thanks again for all your information, time and efforts to educate us! your efforts are appreciated!
michelleunit
pyriel
Active member
imported post
Michelleunit, Go ahead and refinance for $55k instead of $51,356. The difference in monthly mortgage will be $22.00. If you do this, you will get all your losses back ($1,656)+ you get extra money to pay for the closing ($500) + extra money into your pocket ($1,488).
Your cash on cash return to your investment will also go up since the $500 you will use for your closing came from OPM and not from your wallet. See attached worksheet with 55k tab... The jump is significant... Your yearly cash on cash return jumped from 524% to $1308% per year. For five year cash on cash return it jumped from 1572% to 6540%. And my TSP return is a paltry 3.72% for the year.:X
I bet your tax advisor and your real estate agent don't even know about this....
Michelleunit, Go ahead and refinance for $55k instead of $51,356. The difference in monthly mortgage will be $22.00. If you do this, you will get all your losses back ($1,656)+ you get extra money to pay for the closing ($500) + extra money into your pocket ($1,488).
Your cash on cash return to your investment will also go up since the $500 you will use for your closing came from OPM and not from your wallet. See attached worksheet with 55k tab... The jump is significant... Your yearly cash on cash return jumped from 524% to $1308% per year. For five year cash on cash return it jumped from 1572% to 6540%. And my TSP return is a paltry 3.72% for the year.:X
I bet your tax advisor and your real estate agent don't even know about this....
pyriel
Active member
imported post
clester wrote:
1. smoke alarms. one per room and hallway.
2. GFI near water source: kitchen and bathroom
3. water heater; the drainage must be only few inches above the ground.
4. switches and outlets; ensure there no cracks in them
5. Must have power and water during inspection; here they want to see power and water bill before inspection just to be sure that power and water will be available before they inspect.
6. Lots of paperwork. Ensure that you photo copy your first one because you'll be seeing it again. must have checking account for direct deposit.
7. Make sure that there are no leaks when they turn the water on.
8. Make sure that all appliances and lights works when they turn them on.
9. Make sure all locks and doors are good before inspection.
10. Panel box ( i got hit on this, once) Ensure that all slots have a circuit breaker
11. Try to clean up the place before inspection and ensure that they are livable.
Tenant pays a co-payment that range from $25 to several hundred dollars depending on their income level. Section 8 will let you and the tenant sign a contract. There is nothing stopping you from attaching an addendum to that contract such as late payment fee and rules and regulations you might have. However, if your rules conflict with Section 8, their contract overrides yours. So, please read their contract carefully and then make an addendum to those that they missed.... Goodluck
clester wrote:
Some of the most obvious ones they look for are the following:
1. smoke alarms. one per room and hallway.
2. GFI near water source: kitchen and bathroom
3. water heater; the drainage must be only few inches above the ground.
4. switches and outlets; ensure there no cracks in them
5. Must have power and water during inspection; here they want to see power and water bill before inspection just to be sure that power and water will be available before they inspect.
6. Lots of paperwork. Ensure that you photo copy your first one because you'll be seeing it again. must have checking account for direct deposit.
7. Make sure that there are no leaks when they turn the water on.
8. Make sure that all appliances and lights works when they turn them on.
9. Make sure all locks and doors are good before inspection.
10. Panel box ( i got hit on this, once) Ensure that all slots have a circuit breaker
11. Try to clean up the place before inspection and ensure that they are livable.
Tenant pays a co-payment that range from $25 to several hundred dollars depending on their income level. Section 8 will let you and the tenant sign a contract. There is nothing stopping you from attaching an addendum to that contract such as late payment fee and rules and regulations you might have. However, if your rules conflict with Section 8, their contract overrides yours. So, please read their contract carefully and then make an addendum to those that they missed.... Goodluck
Show-me
Well-known member
imported post
Addendum's like not waterbeds, trash pick up, and no pets? Nothing like a leaking waterbed, garbage in the back yard, and cat urine. Arrgh! We had a tenant put a burn barrel in the back yard and they would put beer bottles, cans, and diapers in it. They don't burn! I.Q. test..............never mind.
Addendum's like not waterbeds, trash pick up, and no pets? Nothing like a leaking waterbed, garbage in the back yard, and cat urine. Arrgh! We had a tenant put a burn barrel in the back yard and they would put beer bottles, cans, and diapers in it. They don't burn! I.Q. test..............never mind.
pyriel
Active member
imported post
GHURA (section 8) sets the parameter for rent. They control them. Here in our region a 2 bedroom is $869 max, 3 bedroom is $1228, 4 bedroom is $1500, 5 bedroom is $1700. However, if you have a similar rental and you are renting it lower than what they are paying, GHURA will only pay you the equivalent of your non section 8 tenant. GHURA also computes what tenants will pay. You have no control over that. My tenants copayment varies from $25 to $400. I think they compute it by income...
Showme is right... Make sure you have addendum to stop those from taking over your rental unit. Leave emotion out of it. When they do something that is against the reg and rule, write them a letter and send a copy to GHURA. Here on Guam, they have a long waiting list so they have no qualms on terminating those that do no comply... Good luck...
GHURA (section 8) sets the parameter for rent. They control them. Here in our region a 2 bedroom is $869 max, 3 bedroom is $1228, 4 bedroom is $1500, 5 bedroom is $1700. However, if you have a similar rental and you are renting it lower than what they are paying, GHURA will only pay you the equivalent of your non section 8 tenant. GHURA also computes what tenants will pay. You have no control over that. My tenants copayment varies from $25 to $400. I think they compute it by income...
Showme is right... Make sure you have addendum to stop those from taking over your rental unit. Leave emotion out of it. When they do something that is against the reg and rule, write them a letter and send a copy to GHURA. Here on Guam, they have a long waiting list so they have no qualms on terminating those that do no comply... Good luck...
