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Old 02-22-2017, 04:46 PM
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Default Just bought another 12% yield!

I put a contract on this beauty today for $182K. Fully furnished, New HVAC, hot tub, septic, appliances. The annual rents are in the $30K range, translating into a net of around $22K after expenses each year.

I think I can very easily get the top line to $35K and the bottom line to $27K.


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Old 02-22-2017, 04:48 PM
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duplicate post sorry
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Old 02-22-2017, 04:57 PM
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Congrats! I hope it works out well for you.
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Old 02-22-2017, 05:18 PM
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That is beautiful! I would love to take my wife to a place like that.
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Old 02-22-2017, 05:29 PM
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Quote:
Originally Posted by corn18 View Post
That is beautiful! I would love to take my wife to a place like that.
Perhaps TH can give you a SavingsAdvice discount
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Old 02-22-2017, 06:26 PM
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I actually bought this for my father with some of his estate - he has Alzheimer's and we are using the income to help preserve his nest egg and pay for expenses. It's a bit like an annuity except we are keeping the underlying asset and hopefully it will appreciate over time.
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Old 02-22-2017, 07:10 PM
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Outstanding buy.
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Old 02-22-2017, 10:41 PM
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My dreamhome!!!

Except that would be at least 500K here

Congratulations!!!
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Old 02-23-2017, 04:28 AM
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Beautiful place.

Congrats
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Old 05-18-2017, 09:15 PM
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very rustic ... good deal!
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Old 05-20-2017, 10:11 AM
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Awesome. how do you know the rents before you buy it?
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Old 05-20-2017, 12:58 PM
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Awesome. how do you know the rents before you buy it?
I would think before buying an existing rental property that's one of the key things you'd be looking at - the property's rental history and the going rate.
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Old 05-21-2017, 07:16 PM
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Awesome. how do you know the rents before you buy it?
For rentals you look at the "CAP" rate the last 3 years and average it.

The capitalization rate is the rate of return on a real estate investment property based on the income that the property is generates. The capitalization rate is used to estimate the investor's potential return on his or her investment. ... Capitalization Rate = Net Operating Income / Current Market Value.
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Old 07-08-2017, 07:07 AM
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That's very nice.

So What s your CAP Rate return after expenses?
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Old 07-08-2017, 07:38 PM
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That's very nice.

So What s your CAP Rate return after expenses?
It's a little early to tell yet, but it looks like 12 to 13% annual yield.
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Old 09-01-2017, 10:05 AM
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Quote:
Originally Posted by TexasHusker View Post
It's a little early to tell yet, but it looks like 12 to 13% annual yield.
Can you explain how you save on taxes and if/how you depreciate on your rental homes? (or point me to a place that explains it more simply).

I have been listening to Clayton Morris's podcast about RE investing. And they have a lot of tax information on there, but I was hoping there would be a more simplified method to research it visually and explain the process a bit better.

Congrats on the new property acquisition!
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Old 09-01-2017, 12:46 PM
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Can you explain how you save on taxes and if/how you depreciate on your rental homes? (or point me to a place that explains it more simply).

I have been listening to Clayton Morris's podcast about RE investing. And they have a lot of tax information on there, but I was hoping there would be a more simplified method to research it visually and explain the process a bit better.

Congrats on the new property acquisition!
Great question!

I am no tax expert but here is what I have learned:

1. All items related to the running of the rental property - utilities, lawn mowing, repairs, maintenance, insurance, taxes, etc. - are tax deductible. So if you have $20,000 in rents, but $6000 in expenses, you report a net of $14,000 on your tax return.

2. Depreciation isn't a way to avoid taxes, but to defer them. Kind of like an IRA or 401K. People mistakenly refer to their contributions as "pre tax", when in fact they are tax deferred. Meaning Uncle Sam is going to get what he has coming, pay me now, or pay me later.

When you depreciate a property, you are electing to pay Uncle Sam later.

Here is how it works for a residential property:

You can depreciate the DWELLING value (not the land) over a 27.5 year period. To calculate your allowable depreciation, you take the DWELLING value and divide it by 27.5. That is your yearly depreciation, and you deduct it from your current taxes.

Let's say you own a rent house that you paid $200,000 for. The dwelling itself is worth $150,000. Divided by 27.5, that equals $5455 per year in depreciation that you can deduct.

BUT...beware the recapture! When you sell that home in 10 years for $300,000, your BASIS in the home has been LOWERED from $200,000 to $145,450 because you took the depreciation. So...your gain isn't $100,000....it's $154,550. So you're going to pay long term capital gains tax on that amount.

The nice part here is that you are paying LONG TERM CAPITAL GAINS TAX instead of INCOME TAX. That rate is around 50% less +/- of the income tax rates, so that is a big deal.

Real estate is the ONLY investment where OTHER PEOPLE are paying for YOUR investment. Every other investment, YOU are funding the investment. Folks brag a lot about an employer doing a 50% match on their 401K, and that's REALLY nice! But when you own a rental property, your tenants are paying 100% of the investment for you, plus putting some cash in your pocket, and they'll keep doing it from now on! That's the kind of match I'm looking for!

It's a cool deal. Even if you make a rotten buy (which I have done a time or two), you still come out way ahead in the end, because real estate just goes up over time, and YOU'RE NOT PAYING FOR IT.
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Last edited by TexasHusker; 09-01-2017 at 01:05 PM.
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Old 09-01-2017, 05:21 PM
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Quote:
Originally Posted by TexasHusker View Post
Great question!

I am no tax expert but here is what I have learned:

1. All items related to the running of the rental property - utilities, lawn mowing, repairs, maintenance, insurance, taxes, etc. - are tax deductible. So if you have $20,000 in rents, but $6000 in expenses, you report a net of $14,000 on your tax return.

2. Depreciation isn't a way to avoid taxes, but to defer them. Kind of like an IRA or 401K. People mistakenly refer to their contributions as "pre tax", when in fact they are tax deferred. Meaning Uncle Sam is going to get what he has coming, pay me now, or pay me later.

When you depreciate a property, you are electing to pay Uncle Sam later.

Here is how it works for a residential property:

You can depreciate the DWELLING value (not the land) over a 27.5 year period. To calculate your allowable depreciation, you take the DWELLING value and divide it by 27.5. That is your yearly depreciation, and you deduct it from your current taxes.

Let's say you own a rent house that you paid $200,000 for. The dwelling itself is worth $150,000. Divided by 27.5, that equals $5455 per year in depreciation that you can deduct.

BUT...beware the recapture! When you sell that home in 10 years for $300,000, your BASIS in the home has been LOWERED from $200,000 to $145,450 because you took the depreciation. So...your gain isn't $100,000....it's $154,550. So you're going to pay long term capital gains tax on that amount.

The nice part here is that you are paying LONG TERM CAPITAL GAINS TAX instead of INCOME TAX. That rate is around 50% less +/- of the income tax rates, so that is a big deal.

Real estate is the ONLY investment where OTHER PEOPLE are paying for YOUR investment. Every other investment, YOU are funding the investment. Folks brag a lot about an employer doing a 50% match on their 401K, and that's REALLY nice! But when you own a rental property, your tenants are paying 100% of the investment for you, plus putting some cash in your pocket, and they'll keep doing it from now on! That's the kind of match I'm looking for!

It's a cool deal. Even if you make a rotten buy (which I have done a time or two), you still come out way ahead in the end, because real estate just goes up over time, and YOU'RE NOT PAYING FOR IT.
Very nice explanation Texas.
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Old 09-08-2017, 09:58 AM
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Quote:
Originally Posted by TexasHusker View Post
Great question!

I am no tax expert but here is what I have learned:

1. All items related to the running of the rental property - utilities, lawn mowing, repairs, maintenance, insurance, taxes, etc. - are tax deductible. So if you have $20,000 in rents, but $6000 in expenses, you report a net of $14,000 on your tax return.

2. Depreciation isn't a way to avoid taxes, but to defer them. Kind of like an IRA or 401K. People mistakenly refer to their contributions as "pre tax", when in fact they are tax deferred. Meaning Uncle Sam is going to get what he has coming, pay me now, or pay me later.

When you depreciate a property, you are electing to pay Uncle Sam later.

Here is how it works for a residential property:

You can depreciate the DWELLING value (not the land) over a 27.5 year period. To calculate your allowable depreciation, you take the DWELLING value and divide it by 27.5. That is your yearly depreciation, and you deduct it from your current taxes.

Let's say you own a rent house that you paid $200,000 for. The dwelling itself is worth $150,000. Divided by 27.5, that equals $5455 per year in depreciation that you can deduct.

BUT...beware the recapture!

The nice part here is that you are paying LONG TERM CAPITAL GAINS TAX instead of INCOME TAX. That rate is around 50% less +/- of the income tax rates, so that is a big deal.

.
My current strategy with my rental (and future rentals) will be to buy and hold until death. At that point I'll plan to 1031 the value to my beneficiaries, (I'm told this will allow them to acquire the inheritance at current value and trigger no additional taxation that I accrued with my depreciation).

I have 3 questions that seems fairly simple to answer,

1)Once a rental house is paid for, then I will only pay capital gains on my rent income less operating expenses, correct?

2) If I am claiming depreciation, is there anyway to replenish that value? Like say I replace a roof for $10k, that is necessary to maintain the home. I get to claim the tax deferment on the "roof repair" % of the $10k, but will that also increase the dwelling total value (that can be depreciated), so the depreciation will be either higher value or longer duration?

3) If my depreciation tax deferment amount is higher than the income (less operating expenses) for the house, does that spill over to defer my other capital gains income? Or even federal income tax? (say I depreciate 6000 a year and income after taxes is only 2400, can I use that extra 3,600 of tax deferment towards securities capital gains or other federal income taxes?)

I really appreciate you information TexasHusker, this is a great way to get my understanding straight.
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Old 09-09-2017, 06:57 AM
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Originally Posted by amarowsky View Post
My current strategy with my rental (and future rentals) will be to buy and hold until death. At that point I'll plan to 1031 the value to my beneficiaries, (I'm told this will allow them to acquire the inheritance at current value and trigger no additional taxation that I accrued with my depreciation).

I have 3 questions that seems fairly simple to answer,

1)Once a rental house is paid for, then I will only pay capital gains on my rent income less operating expenses, correct?

2) If I am claiming depreciation, is there anyway to replenish that value? Like say I replace a roof for $10k, that is necessary to maintain the home. I get to claim the tax deferment on the "roof repair" % of the $10k, but will that also increase the dwelling total value (that can be depreciated), so the depreciation will be either higher value or longer duration?

3) If my depreciation tax deferment amount is higher than the income (less operating expenses) for the house, does that spill over to defer my other capital gains income? Or even federal income tax? (say I depreciate 6000 a year and income after taxes is only 2400, can I use that extra 3,600 of tax deferment towards securities capital gains or other federal income taxes?)

I really appreciate you information TexasHusker, this is a great way to get my understanding straight.

1. Rental income is taxed as ordinary income. Sorry if I confused this. Capital gains tax applies only as it relates to the basis and gain (or loss) of the underlying investment.

2. Certainly, there are durable items such as appliances, HVAC, new roof, etc., that you can depreciate. However, their schedule is a much shorter term than 27.5 years. This is an accountant question.

3. This is very definitely an accountant question, although right off hand, losses can be carried over.

Good luck - it appears you have a sound strategy!
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