Real estate reality

[97guns]

Just thought I'd share a little 2 month real life timeline. In the past 2 months I've had a furnace fail and now a leaking kitchen sink at one house that went unreported for months and now has water damage in the cabinets and countertop, luckily I'm on concrete slab and that will be the extent of the damage.

I have 1 tenant that is now 2 months back and I may have to start eviction next week and the tenant with the water damage has not paid yet, he may be using the leaking sink as a crutch not to pay and we have to address this today.

On the flip side I do have 3 property's that have had the same tenants for 7 years and they have each given me over $85k in rents during this time

[rennigade]

From what Ive seen/read/heard its difficult to evict anyone in california. Hopefully you can get the deadbeat out.

I never understood why its so difficult to kick out a squatter. What a strange time we live in that someone can break into a property, stay there and the law allows them to do so.

[Singuy]

And this is why I express a lot of caution when it comes to investing into rentals. From my past experience, the return was barely worth it..and this was without dealing with evictions and massive leaks.

So far I am still getting a solid 8% return from crowdfunding realty investing. Haven't missed a payment and I don't need to deal with any of the nonsense.

[TexasHusker]

And this is why I express a lot of caution when it comes to investing into rentals. From my past experience, the return was barely worth it..and this was without dealing with evictions and massive leaks.

So far I am still getting a solid 8% return from crowdfunding reality investing. Haven't missed a payment and I don't need to deal with any of the nonsense.

That's pretty darn good.

Problems with land lording often have a lot to do with what types of properties you renting, and how good a job you are doing screening tenants.

If you are renting lower income housing, the returns are very high, but so are the problems - repairs, maintenance, deadbeats, etc.

If you rent to upper middle income and in newer houses, it is much more stable, but potential returns are less.

I found that most of my problems were derived from carelessness screening tenants. In a rush to rent the property, I become too trusting, rent in haste to someone with a checkered past of some sort, and then I pay for it later big time.

[Singuy]

We only dealt with middle to upper middle class rentals(2k/month in rent for a single family home). The returns are pretty subpar even without any major problems with the house and tenants.

2k/month is 24k/year.

Property tax was 4k, home insurance was 1k, lawn care was 800/year and management took 3.6k, home warranty was 500 and hoa was 2k. This was a 360k house fully paid. If it was not fully paid but had a 20% down only, then we are talking about another 11k in interest.

24k-4k-1k-800-3.6k-2k-0.5k-11k= 1.1k. That's right....1100 dollars profit if we took out a loan on this house. So if we had a mortgage, the rent wouldn't even cover all the expenses. This doesn't even include repair cost which is suppose to be 2% of the total cost of the house/year.

Or I can take the 20% downpayment of 72k and put it in crowdfunding earning 5.7k/year with just a few clicks of the mouse.

[Nutria]

Property tax was 4k, home insurance was 1k, lawn care was 800/year and management took 3.6k, home warranty was 500 and hoa was 2k. This was a 360k house fully paid. If it was not fully paid but had a 20% down only, then we are talking about another 11k in interest.

24k-4k-1k-800-3.6k-2k-0.5k-11k= 1.1k. That's right....1100 dollars profit if we took out a loan on this house. So if we had a mortgage, the rent wouldn't even cover all the expenses. This doesn't even include repair cost which is suppose to be 2% of the total cost of the house/year.

Ignores that the $22,900 is business expenses that deduct straight from your income. That can be significant low in the 33% tax bracket.

Also doesn't take depreciation into account, which lowers your taxes even further.

Or I can take the 20% downpayment of 72k and put it in crowdfunding earning 5.7k/year with just a few clicks of the mouse.

Less 33% ($1,900) taxable income to give you $3,800.

[Singuy]

Ignores that the $22,900 is business expenses that deduct straight from your income. That can be significant low in the 33% tax bracket.

Also doesn't take depreciation into account, which lowers your taxes even further.



Less 33% ($1,900) taxable income to give you $3,800.

Hmm, I don't think it works out like that since you earned 24k from rent, so the 22900 of expenses actually makes a net gain. Also I'm not sure if I can double dip on the property taxes..most likely if I claimed it as a business expense, I can't claim it as a personal deduction. Depreciation can probably yield me a net negative which can actually help out on my taxes...but one month of stop payment(say the tenants leave and I have to find new ones which is harder when dealing with more expensive rent) will kill all my tax incentives and any positive gain for the year.

[97guns]

I paid $1200 on federal and $350 on state tax last year on my $67k rental income but adding in property tax my total taxation for 2016 was $6,700, right at 10%

[TexasHusker]

We only dealt with middle to upper middle class rentals(2k/month in rent for a single family home). The returns are pretty subpar even without any major problems with the house and tenants.

2k/month is 24k/year.

Property tax was 4k, home insurance was 1k, lawn care was 800/year and management took 3.6k, home warranty was 500 and hoa was 2k. This was a 360k house fully paid. If it was not fully paid but had a 20% down only, then we are talking about another 11k in interest.

24k-4k-1k-800-3.6k-2k-0.5k-11k= 1.1k. That's right....1100 dollars profit if we took out a loan on this house. So if we had a mortgage, the rent wouldn't even cover all the expenses. This doesn't even include repair cost which is suppose to be 2% of the total cost of the house/year.

Or I can take the 20% downpayment of 72k and put it in crowdfunding earning 5.7k/year with just a few clicks of the mouse.

Any real estate investment not yielding at least 9 or 10 percent annual is a poor one. As an investment, that $360K house you have is a dog. I would ditch it and do something else unless you are hoping for some major appreciation in its value.

To say that all real estate is a good investment is like saying all of the stock market is a good investment.

[TexasHusker]

I paid $1200 on federal and $350 on state tax last year on my $67k rental income but adding in property tax my total taxation for 2016 was $6,700, right at 10%

I know a guy who has approximately $250K a year in rental income from various residential and commercial properties, but his AGI is near zero because of all of depreciation he is able to take.

How would you like a take-home pay of $22K a month with no tax?

[Captain Save]

if you're handy and able to learn how do minor jobs .. if you have the time do them.. if you're willing to ansswer calls at odd hours... real estate investing may be for you .. also if you can survive being in the red in the early years..
..but i hate when people say "just invest in real estate" .. as if it's for everyone

[TexasHusker]

if you're handy and able to learn how do minor jobs .. if you have the time do them.. if you're willing to ansswer calls at odd hours... real estate investing may be for you .. also if you can survive being in the red in the early years..
..but i hate when people say "just invest in real estate" .. as if it's for everyone

I've done fairly well and never lifted a hammer. And I've never run in the red.

I hate it when people categorize real estate investing as "answering calls at odd hours, being handy, and doing minor jobs."

That is only true if you make it so.

[Fishindude77]

Also seems to be an assumption that real estate in investment always equates to renting single family homes or apartments. This type of rental probably does have the most potential for problems but their are many landlords who have it figured out and do well at it. There is also a whole other world of investment real estate other than the single family stuff.

[97guns]

This one is from the rich dad book



He says he constantly hears people saying they want to be rich, but when it’s suggested that money can be made from real estate, their initial reaction is “but I don’t want to fix toilets.” The author believes it’s ironic that they’re more concerned about trivia like fixing toilets rather than what lies ahead in real estate.


I'm certainly not saying it's for everyone but I can say it's done well for me and I'm addicted to income derived from not working

[TexasHusker]

This one is from the rich dad book



He says he constantly hears people saying they want to be rich, but when it’s suggested that money can be made from real estate, their initial reaction is “but I don’t want to fix toilets.” The author believes it’s ironic that they’re more concerned about trivia like fixing toilets rather than what lies ahead in real estate.


I'm certainly not saying it's for everyone but I can say it's done well for me and I'm addicted to income derived from not working

I'm kind of in the same boat. Yeah I've got some headaches - just had a vacation rental burn to the ground in the Gatlinburg fires - but I'm also grossing $115K a year in return. My investment income allowed me to walk away from my 50 hour a week headache for good.

Any investment that makes prolific returns is certainly going to involve more energy than Fidelity Target 2050 Fund.