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Online KITNfury

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The Real Estate Investing Thread
« on: December 24, 2020, 12:21:53 PM »
OK, so I know I talked a bit about this in the regular investing thread, but figured I'd start this since that is mostly stock type investing and we also have a crypto investing thread. No reason to muddy up those threads more about a different topic, so....

Why Real Estate? My primary reasons
  • Monthly Income
  • Equity Gain
  • Tax Benefits
  • Other People's Money (OPM)

Monthly Income:
In my opinion, it's very risky to invest in real estate that does not produce monthly income after all expenses. So if you buy right, you should be able to cover principle, interest, taxes, and insurance (PITI) along with other expenses like maintenance and capital expenditures (Cap Ex). The monthly income is scalable since it is not directly tied to your time. Most jobs, whether salary or hourly, still require a certain allotted time to make the cash and there is limited time you can give. You can get a better job, but essentially there is almost always a ceiling to how much you can make. There is virtually no ceiling to real estate income, but it does take time to build.

Equity Gain:
This comes in two forms, typically. Principle pay down is the first, assuming you're leveraged and took a loan to buy the property. And by the way, you're not paying this out of pocket. See above why cashflow is important. The second is appreciation. Appreciation isn't guaranteed, but assuming you don't lose the property (see cashflow above and why it's important) and you are buying in a market with population growth, it is very likely you'll see appreciation over time. There are cycles to the market so it could lose value, but over time it will almost certainly go up in value. If you own a home, do you think it will be worth more/same/less in 20 years?

Tax Benefits:
You can depreciate a property on paper when it's tax season. Basically the IRS will let you claim the building is losing value, even though it likely isn't. Assuming it's a residential property (regardless of units) it can be depreciated over 27.5 years. This is the assumed building value. Typically in the neighborhood of 80-90% of the purchase. So for easy math lets say you buy a triplex for $343,750 and you say the building is worth 80% of the purchase price. 343,750 x 0.8 = $275,000. So for the next 27.5 years, you can depreciate it evenly which in this case comes out to a nice $10,000. So on paper, your building is losing value at $10k per year. What does this mean? If you made $10k on this property that year, you owe zero dollars in taxes because you "lost" money that offset the money you made in cashflow. If you make $7k in cash from the property, the remaining $3k in "losses" can be applied to your W2 income, still saving you money at tax season.

OPM:
Other people's money. Usually this is a bank. So while investing $20 in the stock market buys you $20 in stock, investing $20 in RE means buying $100 in real estate. Leverage comes with risk, but has huge upside if you can make your payments until fully paid off, see cashflow above and why it's important. Furthermore, whether it's natural appreciation, or you did things to the property to raise it's value, you can refinance the property and potentially pull all of your down payment and/or rehab money. Why is that nice? Well you can recycle your money and buy another. Lather, rinse, repeat. Oh, and if you're making money each month on a property that you have none of your own money, you've found investing nirvana.....an infinite return on your money.

Investing in RE is a get rich slow scheme, but the good news is that you do get rich. Everybody knows somebody that works their ass off and doesn't make money in it. But why follow them? You also know that some people do well in it. Follow them. It's not as hard to understand as people often think, it's do-able. If you do it even somewhat smart, you will become wealthy. Obviously I'm passionate about it because I've seen first hand results how many lives it changes. I'm here to help anyone interested in that. Let me know how I can help.

 :kstategrad:


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Offline Justwin

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Re: The Real Estate Investing Thread
« Reply #1 on: December 24, 2020, 10:17:32 PM »
I appreciate all of your thoughts on real estate as they make me think about it as a driver of wealth.

One thing I think you should point out is that you can't keep taking losses forever on a rental property.  I think the rule is something like 2 out of the 5 previous years, you have to make money on it or you are not allowed to claim a loss.  You are only allowed to claim it as zero income without offsetting other income if you aren't making making money the required number of years.

Online KITNfury

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Re: The Real Estate Investing Thread
« Reply #2 on: December 25, 2020, 06:54:35 AM »
I appreciate all of your thoughts on real estate as they make me think about it as a driver of wealth.

One thing I think you should point out is that you can't keep taking losses forever on a rental property.  I think the rule is something like 2 out of the 5 previous years, you have to make money on it or you are not allowed to claim a loss.  You are only allowed to claim it as zero income without offsetting other income if you aren't making making money the required number of years.
I've never heard that specifically, but I'm not a tax professional. I'm guessing you're speaking about true losses where my note on taxes is talking about depreciating the property to offset positive income. Only buy priory that positively cashflow.
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Offline Fedor

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Re: The Real Estate Investing Thread
« Reply #3 on: December 29, 2020, 01:53:33 PM »
A good rule of thumb to start with is monthly rent should be 1% of the all in property cost.  i.e. if you bought a place for $85k and renovation cost you $15k, a total of $100k, you would want to rent the place for $1k a month. 

Afford Anything is a good podcast for rental info, along with the aforementioned Bigger Pockets.  AA covers lifestyle stuff also so it is a little easier to stay plugged in long term.
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Offline ChiComCat

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Re: The Real Estate Investing Thread
« Reply #4 on: December 29, 2020, 01:56:06 PM »
A good rule of thumb to start with is monthly rent should be 1% of the all in property cost.  i.e. if you bought a place for $85k and renovation cost you $15k, a total of $100k, you would want to rent the place for $1k a month. 

Afford Anything is a good podcast for rental info, along with the aforementioned Bigger Pockets.  AA covers lifestyle stuff also so it is a little easier to stay plugged in long term.

1% is really hard to come by.

Offline yoga-like_abana

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Re: The Real Estate Investing Thread
« Reply #5 on: December 29, 2020, 02:17:11 PM »
somewhat off topic but mhk is unbelievable with the amount of crap holes that it has as rentals. I know its to be expected in a college town but the amount of property owners doing nothing to a place for 20+ years is unreal.  some of them are starting to get dumped onto the market due to lack of students and an increase in nicer and newer places to live.  same shitholes are still being listed and sold at unreal amounts with unreal amounts of work to be done to them.  keep thinking a mhk real estate bubble will burst at some point but it has yet to happen

Offline Justwin

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Re: The Real Estate Investing Thread
« Reply #6 on: December 29, 2020, 02:20:45 PM »
I appreciate all of your thoughts on real estate as they make me think about it as a driver of wealth.

One thing I think you should point out is that you can't keep taking losses forever on a rental property.  I think the rule is something like 2 out of the 5 previous years, you have to make money on it or you are not allowed to claim a loss.  You are only allowed to claim it as zero income without offsetting other income if you aren't making making money the required number of years.
I've never heard that specifically, but I'm not a tax professional. I'm guessing you're speaking about true losses where my note on taxes is talking about depreciating the property to offset positive income. Only buy priory that positively cashflow.

The main thing is that you have to be able to convince the IRS that you have a profit motive.  You may or may not be able to do this if your rental has a loss every year.  If you can show a profit for 3 out of the previous 5 years, you are presumed to have a profit motive.

Also, there are limitations on taking rental losses since it is considered passive income.  You need to make sure that you meet the definitions to not consider it passive or have a low enough income in order to have rental losses offset W2 income.

Offline Fedor

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Re: The Real Estate Investing Thread
« Reply #7 on: December 29, 2020, 03:45:09 PM »
A good rule of thumb to start with is monthly rent should be 1% of the all in property cost.  i.e. if you bought a place for $85k and renovation cost you $15k, a total of $100k, you would want to rent the place for $1k a month. 

Afford Anything is a good podcast for rental info, along with the aforementioned Bigger Pockets.  AA covers lifestyle stuff also so it is a little easier to stay plugged in long term.

1% is really hard to come by.
It can be.  The pundits tell you to find a way to add value; add a bedroom or fix a distressed property.  It is a lot easier if you don't have to pay a contractor and can do the work yourself.
I was wrong and I apologize. - michigancat 8/22/14

Offline Institutional Control

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Re: The Real Estate Investing Thread
« Reply #8 on: December 29, 2020, 03:50:30 PM »
Any of you big shots get so much property that you need software to help manage it, let me know and I can help you out.


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Offline DQ12

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Re: The Real Estate Investing Thread
« Reply #9 on: December 29, 2020, 03:51:18 PM »
my dream is to be an MHK slumlord


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Offline Institutional Control

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Re: The Real Estate Investing Thread
« Reply #10 on: December 29, 2020, 03:53:42 PM »
my dream is to be an MHK slumlord
You will definitely need a way to accept online payments and service requests.


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Offline wetwillie

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Re: The Real Estate Investing Thread
« Reply #11 on: December 29, 2020, 04:33:15 PM »
my dream is to be an MHK slumlord
You will definitely need a way to accept online payments and service requests.


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Offline Institutional Control

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Re: The Real Estate Investing Thread
« Reply #12 on: December 29, 2020, 06:20:22 PM »
my dream is to be an MHK slumlord
You will definitely need a way to accept online payments and service requests.


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You aren’t going to like KITNfury very much when he tells everyone he is managing lots of properties with a free software
Not surprised but you get what you pay for.


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Offline Kat Kid

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Re: The Real Estate Investing Thread
« Reply #13 on: December 29, 2020, 06:23:24 PM »
somewhat off topic but mhk is unbelievable with the amount of crap holes that it has as rentals. I know its to be expected in a college town but the amount of property owners doing nothing to a place for 20+ years is unreal.  some of them are starting to get dumped onto the market due to lack of students and an increase in nicer and newer places to live.  same shitholes are still being listed and sold at unreal amounts with unreal amounts of work to be done to them.  keep thinking a mhk real estate bubble will burst at some point but it has yet to happen
Yeah this. I saw that place that Brady used to live in off city park that is split up in to a bunch of weird little apartments was listed for over a million.
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Offline Kat Kid

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Re: The Real Estate Investing Thread
« Reply #14 on: December 29, 2020, 06:32:42 PM »
my dream is to be an MHK slumlord
It actually sounds like a huge PITA.
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Offline steve dave

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Re: The Real Estate Investing Thread
« Reply #15 on: December 29, 2020, 08:28:03 PM »
GIANT one.


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Offline catastrophe

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Re: The Real Estate Investing Thread
« Reply #16 on: December 29, 2020, 08:37:30 PM »
Yeah I know next to nothing about real estate investing, but I know I have heard people pumping up duplexes, lower-middle class neighborhoods, retirement type neighborhoods, and trailer parks, but I have never heard someone pushing college student housing.

Offline Kat Kid

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Re: The Real Estate Investing Thread
« Reply #17 on: December 29, 2020, 08:42:59 PM »
I think dlew should pause and think about what a dumbass he was in college and if he would've wanted to be able to rent anything out to himself at that lifestage.
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Offline IPA4Me

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Re: The Real Estate Investing Thread
« Reply #18 on: December 29, 2020, 08:57:18 PM »
My friend in Louisville is making a killing on housing around UL. Leases are signed by parents. Nobody under 25 can sign on their own. Buys slummy crap approaching Churchill Downs. Full remodel. Rents them far above the rest of the neighborhood. Absolutely crushing it.

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Online KITNfury

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Re: The Real Estate Investing Thread
« Reply #19 on: December 29, 2020, 10:01:26 PM »
my dream is to be an MHK slumlord
You will definitely need a way to accept online payments and service requests.


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You aren’t going to like KITNfury very much when he tells everyone he is managing lots of properties with a free software
I manage 11 doors with free software. The other x* doors I own 50% of is managed by a property manager.


*I'm not ashamed to name the number, but to some it's large, to others it tiny....so ultimately it's irrelevant.
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Offline puniraptor

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Re: The Real Estate Investing Thread
« Reply #20 on: December 29, 2020, 10:04:28 PM »
well now i am super super curious about the large or tiny number you arent ashamed of

Offline puniraptor

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Re: The Real Estate Investing Thread
« Reply #21 on: December 29, 2020, 10:07:28 PM »
business idea: manage the other properties too and have your business partner(s) pay you to be the property manager.

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Re: The Real Estate Investing Thread
« Reply #22 on: December 29, 2020, 10:36:09 PM »
A good rule of thumb to start with is monthly rent should be 1% of the all in property cost.  i.e. if you bought a place for $85k and renovation cost you $15k, a total of $100k, you would want to rent the place for $1k a month. 

Afford Anything is a good podcast for rental info, along with the aforementioned Bigger Pockets.  AA covers lifestyle stuff also so it is a little easier to stay plugged in long term.

1% is really hard to come by.
Not in the Midwest, although it is getting harder.
I once blew clove smoke in a guy's face that cut in front of me in the line to KJ's.

Offline puniraptor

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Re: The Real Estate Investing Thread
« Reply #23 on: December 30, 2020, 12:01:08 AM »
What's the rental market like around you Puni, if you know/don't mind answering?

here's a funny thing: when you sign for a rental, you need to front 4-5 months rent in cash UP FRONT
-1 month rent "agent fee" pays your housing agent that finds you the rental, they also serve as your primary point of contact throughout your lease.
-1 month rent "key fee", basically a thank you gift to the landlord for letting you live there.
-1st month's rent.
-1 or 2 month's rent as a security deposit.

Offline IPA4Me

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Re: The Real Estate Investing Thread
« Reply #24 on: December 30, 2020, 07:37:56 AM »
Damn. Shake down city.

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