Investing, Rentals, Retail Space etc.

[1972 Grad]

No. This is my first foray into it. Been reading and studying for a while.

I’m using a Property Mgmt Firm though. They handle almost everything.

They charge 10% of the “collected rent”. So if the unit(s) are vacant, they collect nothing until they are filled and generating income again.

I used a property management firm for awhile on a couple of houses, and gave up on them after a couple of years. They lined me up with worse tenants than I ever got on my own. One of their tenant choices went on vacation for 8 days and locked up 2 dogs and a cat in the house alone. They weren't supposed to have pets. Needless to say, I spent $3,400 getting the carpet taken up, hardwood floors sanded and refinished, and fleas exterminated. That was the last straw. I sold the house as soon as it was fixed.

One of my mother's tenants cut a 3x3 foot hole in the wall as a pass through from the kitchen to the dining room. Another made a door opening (different house) from the house to the laundry room behind an open carport. Before , one had to walk out of the house , and through the one car carport to get to the laundry room at the back of the carport. No, they didn't ask, nor did they put in a door, just a walk through.

 

[McDad]

How did you organize your rental portfolio? Did you set up an LLC? Some other structure?

I have it as sole proprietorship. There was no tax or risk management advantage to an LLC, S corp, or C corp. If my kids want to take it over, I will structure beforehand.

 

[85SugarVol]

I have it as sole proprietorship. There was no tax or risk management advantage to an LLC, S corp, or C corp. If my kids want to take it over, I will structure beforehand.

You keep separate accounts for the sole proprietorship and run everything through it?

 

[1972 Grad]

I used a property management firm for awhile on a couple of houses, and gave up on them after a couple of years. They lined me up with worse tenants than I ever got on my own. One of their tenant choices went on vacation for 8 days and locked up 2 dogs and a cat in the house alone. They weren't supposed to have pets. Needless to say, I spent $3,400 getting the carpet taken up, hardwood floors sanded and refinished, and fleas exterminated. That was the last straw. I sold the house as soon as it was fixed.

One of my mother's tenants cut a 3x3 foot hole in the wall as a pass through from the kitchen to the dining room. Another made a door opening (different house) from the house to the laundry room behind an open carport. Before , one had to walk out of the house , and through the one car carport to get to the laundry room at the back of the carport. No, they didn't ask, nor did they put in a door, just a walk through.

I meant to add that these were not trashy houses. They were average priced houses in decent neighborhoods, and one tenant was a college professor. The other hole cutter had a good job with the state of Tennessee. It's amazing that professional people will trash a house that doesn't belong to them.

 

[85SugarVol]

I meant to add that these were not trashy houses. They were average priced houses in decent neighborhoods, and one tenant was a college professor. The other hole cutter had a good job with the state of Tennessee. It's amazing that professional people will trash a house that doesn't belong to them.

That sounds awful.

 

[1972 Grad]

That sounds awful.

Another one of my long term renters (different house again) moved out without notice and had the power turned off. This was in an abnormally cold December. The temp dropped to single digits and froze all the pipes. I had to have the entire house replumbed. He apparently left a few days before I found out. Never had a problem with him and he paid his rent on time for 3 or 4 years. He was a doctor's son.

 

[McDad]

You keep separate accounts for the sole proprietorship and run everything through it?

I do. I have a simple checking account as an operating account and a savings where i keep deposits. Put as many monthly expenses as i can on autodraft. I also have a credit card dedicated to my rental business. Makes everything pretty easy at tax time.

 

[Thunder Good-Oil]

Look into a self directed ROTH IRA. You can buy real estate in it and all the profits are tax free. Do your due diligence however and talk to a tax advisor about it. There are some downsides to it, but if you are young enough it can set up a nice retirement.

One thing to keep in mind is that real estate ownership in itself is a tax shelter. So when those assets are set up in a Roth IRA it's a tax advantaged investment INSIDE of a tax advantaged account. BUT... when the property is purchased for cash, then the interest expense is taken out of the equation. Also, if the properties are long term holds it really doesn't matter when the improvements are fully depreciated. So it seems like it makes more sense to hold physical real estate inside of a Roth when the property owner expects to keep the real estate for several decades rather than turning them over every 7 or 10 years when the depreciation expense runs out and the interest expense starts decreasing as a mortgage schedule heads into the 2nd half of it's amortization.

 

[Burger]

I do. I have a simple checking account as an operating account and a savings where i keep deposits. Put as many monthly expenses as i can on autodraft. I also have a credit card dedicated to my rental business. Makes everything pretty easy at tax time.

Honestly, if you are a Sole-Proprietor, you truly do not need to over complicate your money. I always run everything through a second prepaid debit card.

 

[LouderVol]

Thoughts on when and what kind of drops we'll see?

Browsing zillow and seeing stagnant listings that are well over a year old with massive drops already.

I am kinda coming to this from the developers side, or at least from observing them.

They are much more cautious now than they were a year ago or more. Still willing to invest, but much more likely to let something sit rather than put themselves in a hole. We will see another drop, but it will be a correction. don't quote me on this but I heard around a 10 to 15% drop in prices coming. But after 08 it seems like developers are smarter now. So i don't think it will be a sudden drop, but over a couple years prices will go down before going back up. I think the mid ranged price stuff is already going thru this, so maybe (hopefully) we just see certain areas take hits and the rest stays hot. so if you/developer are diversified you can ride it out.

I would say low end/cheap housing is the next bubble. at least here in Atlanta there is a HUGE need for it. including for yours truly. anything under 350k is gone in a day. 400-900k will sit for a LONG time. 1 million will sell in less than a month. I have seen some examples where a 950k house dropped down to 850k and had no bites. developer took it off the market for 2 weeks, relisted at 1,050,000 and started getting hits. It sold somewhere less than the 1,050,000. but still a nice profit. as much as I hated what just happened I had to appreciate the thought the developer went thru to pull it off.

 

[DynaLo]

I'm actually looking more at just land right now. At least 20 acres, nicely wooded, year round water and decent elevation. Going to give in to my inner boomer hippie.

Hoping to see some adjustment lower in that category in the next 12-24 months.

 

[Big Gucci Sosa]

For the REIT owners..how much are you making a year on it?

 

[Big Gucci Sosa]

nm