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Keep in mind that Bankrate.com once had an article that stated one of the quickest ways to bankruptcy was to have one rental property. You really need several to make any money, or have a high end luxury unit in a place w/ lots of demand. Between maintenance, increased insurance costs, property taxes, possible damage due to tenants or normal wear and tear on the house, advertising costs, along w/ state and federal taxes if you do show a profit, it's often not worth the candle. Especially if you have trouble collecting rent, or some time in between tenants w/ no rental income coming in. This is why multiple rentals helps average things out. It also presents multiple problems though.
Obviously someone in the Bay Area or Hawaii has a better chance to make a little money because of the high demand for rental property and the amount of money you can get for that rental. But don't forget the lesson of the last housing bubble. What goes up must come down at some point. The rental prices in the two places I mentioned are unsustainable, and I sure wouldn't want to be caught holding a big mortgage when the prices drop, along w/ demand. And trust me, that will happen. It's not if, but when. Even if you are making serious money on the rental, the other factors I mentioned above are still in place, especially taxes and insurance costs. Be careful when selling too. Again, taxes, realtor fees and title fees always take out a big chunk of change, especially if you get hit w/ capital gains taxes. Now might be a good time to sell in the markets I mentioned. NO one should be in real estate w/ the intention of making a profit that is based on a 10 year from now guess. Doing back of the envelope calculations is one thing, actually renting or selling the property in the real world is another. Don't ask me how I know :}
Horse excremtnt......................HI isnt a cash flow area! and i doubt FRISCO is either.
I am thinking aloud really at this point.
I am saving up for another downpayment.
Now i will get there is 2 years. When i do, i will a decision to make.
Whether to sell my present place and upgrade OR just keep it , IF i have enough cash flow from it.
Quote:
Originally Posted by Big-Bucks
I just started renting my home (unfurnished 1 year lease) this year. You can deduct property taxes, but you do that anyway when you live in your house. I'm not sure if when renting it you get more of a deduction or not.
Yeah you can deduct maintenance expenses while the tenant is living there but it's not a dollar per dollar deduction. You might knock 20% off the cost of expenses maybe.
Depreciation? Yes.
And hopefully you saved all of your receipts over the years for things like a new roof, new copper pipes, sewage pipe upgrade, etc.
Overall the IRS is not friendly about deductions. For example painting the house or repairing a window to get it ready doesn't count towards anything. In the eyes of the government it's supposed to be painted and everything is supposed to be working anyway.
Then you have to factor in the cost of living somewhere else.
In my case, after taxes, write-offs and after paying to live at a cheaper place I am only making 43% of what my tenant is paying. And I'm renting a place for only 30% of what my house is renting for. Rather disappointing. Investing in stocks and bonds is a MUCH better investment when considering taxes. But if you have capital gains, selling your house might be a tax disasters. I've lived in my home for almost 20 years. At this point selling my house is not an option. I would get slaughtered by Uncle Sam. Financial advisers will tell you that being "house rich and cash poor" is a bad thing.
I recommend getting a copy of TurboTax and entering hypothetical numbers. It's confusing but people in the TurboTax forums are helpful. You can even call and speak to a tax expert.
Or are you thinking about doing the furnished vacation rental home thing on VRBO and Air BnB? If so I have a lot of input about that.
My wife and I are small time landlords (due to necessity when the market collapsed) in SoCal...we have a studio in a hot area but we still spend ~$700/month net cash out to hold on to it. As others stated between maintenance, vacancy, fees etc it does add up. In a market like Los Angeles, you are not banking on cash flow..you are banking on long term on housing appreciation. So I think of this net outflow as my kids college savings fund...will it be better than a 529? Hard to say from a pure return perspective, but I *really* like the idea of having a small property in LA 25 years down the road in my name...
I would hire a property manager if you can...it really saves a lot of the little pains. Generally speaking I think being a landlord is a fairly decent way to diversify your assets so long as the property is in good shape, in a good neighborhood and can attract quality tenants.
To be honest i would not be Able to pull off a non positive cash flow.
My mortgage , PT, HOA and insurance amount to 4k.
If i consider principal as a non cost, then its 2.9k
I believe i could rent the place for 4-5k, i could be 1k cash flow positive.
Most of it is coming from the principal payment that the renter would be doing for me.
Thats the math i suppose that got ne thinking.
To be honest i would not be Able to pull off a non positive cash flow.
My mortgage , PT, HOA and insurance amount to 4k.
If i consider principal as a non cost, then its 2.9k
I believe i could rent the place for 4-5k, i could be 1k cash flow positive.
Most of it is coming from the principal payment that the renter would be doing for me.
Thats the math i suppose that got ne thinking.
aramax, I spend a lot of time with a lot of investors and I have to tell you, the failure rate of people in your situation is real high.
You did not select your property as a rental. If you were shopping for a rental property, would you select your house as the best for a rental? My primary house would be a rotten rental because there is no market for rentals in this neighborhood. Don't get lured into the rental mania just because you happen to own a home. For you to succeed in the rental market, you have to have the right product.
The other reason I see mom and pop landlords fail is they don't have deep enough pockets to see them through a potential rough patch, either a big expense or prolonged vacancy. Then the landlord is forced to do something drastic like sell at a bad market time or take a (bad?) tenant at a discount, etc. You need strength in your balance sheet so you remain in control.
aramax, I spend a lot of time with a lot of investors and I have to tell you, the failure rate of people in your situation is real high.
You did not select your property as a rental. If you were shopping for a rental property, would you select your house as the best for a rental? My primary house would be a rotten rental because there is no market for rentals in this neighborhood. Don't get lured into the rental mania just because you happen to own a home. For you to succeed in the rental market, you have to have the right product.
The other reason I see mom and pop landlords fail is they don't have deep enough pockets to see them through a potential rough patch, either a big expense or prolonged vacancy. Then the landlord is forced to do something drastic like sell at a bad market time or take a (bad?) tenant at a discount, etc. You need strength in your balance sheet so you remain in control.
I assume you are joking because of what I have heard of Dave Ramsey (admittedly, only on this forum) he is a moron who advised people to payoff debt in order of lowest balance first regardless of interest rate because it gives you a sense of accomplishment. I thought only Suze Orman dispensed such ludicrous advice and I can only imagine what other gems Dave has.
These types of advisers are not there to help you; they are there to make money off of you. I don't know what they are selling (probably books or videos) but trust me, people with these types of arguments are going for the masses, these nonsense arguments are designed to make sense to the financially challenged of which there is no shortage.
What the H>E>L>L iS a non cost item? depreciation? A wise old asian real estate investor once told me. If man invents language to chat RE he no belong in the business. He say Keep It Simple Stuppit-KISS!
Last edited by GinaWeenie; 03-26-2016 at 02:43 PM..
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