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My Rental Property Strategy and Property Management

rental property strategy

There are many so called RE investors that pretend to cash flow, and they are not calculating any of the soft expenses.  Management, Vacancy and Maintenance are the big three.  Maintenance being a thing you can put off, and see profit, but it is in actuality deferred maintenance.   I allocate 10% of rents towards maintenance in my budgets, 5% for vacancy, and 7% for management.   And I expect ~15% ROI if I make the purchase. Most of my time in regards to the rentals is spent on turning apartments.  Bringing them back to as close to 100% as possible.  Sometimes it takes only a couple of hours, sometimes a bit more.  I turn many in a day, and often have zero vacancy between tenants.  But it is a bit hectic with a full time job.  If it is much more than a few hours, I have a damage deposit.  I can paint with the best of them, and can fix most anything any handyman can. When a renter is in, I would guess it averages well less than one hour per month, per tenant.  A property manager who charges $80 on a $1,000 a month rental would not put in ...

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Why We Aren’t Paying Off the Mortgage Too Early

Mortgage payoff

After paying off our credit cards, we needed a new debt goal to focus on. When you pay off a bunch of debt, it makes you feel like you can do anything, so we set out to pay off our mortgage early. The idea of living in a completely paid for home is super appealing, however, after looking at 2013 and beyond, we’ve decided that maybe putting all our energy into the mortgage payoff is not the best use of our money. Yep, we’ve flip flopped like a politician, and here’s why. It makes more sense to invest in my solo 401k After selling my practice, I set up a solo 401k through Vanguard. The costs are very low, and the interest over time should be much greater than the guaranteed 3.25% (current mortgage rate) we’ll get from paying off our mortgage. It will also save a ton in taxes. If I can invest most of my 1099 income, it will decrease our tax bill by thousands of dollars. We can use Jim’s and my W2 income for living expenses. We Have Rentals With purchasing a commercial building at the end of last year, we now have more potential expenses. ...

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Out of the Flippin’ House Flipping Business

Fllipping a House

If you’ve been following this blog for a while, you’ll remember that Jim and I became investor partners in a house flip way back in April 2012. When flipping a house, a main point is to get repairs and renovations done quickly to minimize carrying costs. Originally, we planned on a six month turn around, but you know what they say about the best laid plans , especially if you have to rely on partners to make things happen. Somehow in early November of 2013, we still found ourselves part owners of this property with so much potential, yet there it sat, unfinished and empty, while time continued to move forward and other opportunities passed us by. Yesterday, we put an end to our career as house flippers, even though it meant not making any money. Out of the House Flipping Game by 2014 We have so much going on in our lives right now with purchasing a commercial building, selling my practice, and trying to build our real estate holdings for early retirement. We were more than over the delays and excuses that seemed to keep coming with the flip. No work had been done on the house since ...

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I Bought A Building This Week

Commercial Building

It’s been a fun week. I did some laundry, got a haircut, and, oh yeah, bought a commercial building. Before you think I’ve lost my mind, it really wasn’t that big of a deal. I’ve owned half of the commercial building that holds my optometry practice for almost ten years, and this was just the other half of the purchase. Commercial real estate is a bit different that residential. It has pluses and minuses, but it makes sense if you are your own tenant. Keeping the Tax Man Away One thing I didn’t really understand or ever think about before owning a brick and mortar business was that you can own your own building and still pay yourself rent. It is a good way to take income out of the business without having it taxed as part of your salary. In reality, smart business owners would like their net income to be zero or even show a loss. That doesn’t mean you aren’t making money. It just means that you are running as many expenses as you can through the business so that it helps with income taxes. For example, I use my cell phone to take emergency after hours ...

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Flipping a House: Beware of Partners

      As you might recall, we are currently in the process of flipping a house. We partnered up with a property management/ remodeling company for this project. Basically, they brought us the deal. We are putting up the money, and they are responsible for taking care of repairs and remodeling the property. You can read more about the financial details in the previous two posts. We Flipped a House!- Part 1, Buying the House We Flipped a House!-Part 2, Renovating a Distressed Property My last update had us almost finished and ready to put the property up for sale. However, not very long after that post was published, the wheels fell off, and we have not seen much progress toward finishing the house. If you do want to purchase real estate as an investment, I would be very careful before deciding to take on a partner. What Happened? Honestly, I’m not sure. When we noticed that no progress was being made, I repeatedly tried to find out why. I got a whole slew of excuses; everything from “my Mom has been ill” to ”we had an emergency with another rental property”.  We are pretty reasonable people, but this was ...

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