The Tax Benefits of Rental Property

Like many people, Anthony is disgusted with the skimpy 0.1% interest his bank is paying on savings. He knew that Kim and I, like many real estate investors, borrow our purchase and fix-up money from individuals rather than from banks. He called to say that he would fund our next deal if we’d pay him 5% compounding interest.

The phone conversation led to a face-to-face talk over coffee at Waffle House. Anthony and his wife have good jobs and they’re paid W-2 income. In other words, their tax bracket was killing them.

Being the curious sort, I asked why they wanted to be lenders instead of owning rental property themselves…after all, their tax situation screamed: Own rental property! Anthony explained that they’d heard too many tenant horror stories – there was no way they’d ever consider becoming landlords.

I shared that Kim and I had found our next investment deal. It was a three-bedroom, two-bath ranch in a great neighborhood. The purchase price was…

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Would-be Tenants From Hades

Landlords, what’s the best way to deal with tenants who are a pain in the tail and make you want to vomit? Easy answer: Never let them in your rental property in the first place. And how do you accomplish this feat? Read on, my friend – it’s actually pretty simple! But first, a story…

Several weeks back, we had a property go vacant in Cartersville, Georgia. It’s a nice three-bedroom, two-bath home with a two-car garage. Though a good number of applications came in, one stood out above the rest.

The application was neat and complete. The prospects were from Cartersville, so they have a lot of ties to the community. The husband was an experienced contractor who knew how to fix things. The wife was disabled and received a guaranteed monthly government check. They didn’t have any kids or pets and didn’t smoke. They were looking for a place they could live in for the rest of their lives. Looking at the application, there was nothing not to like about…

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Seven Truths of Real Estate Investing

Recently, Kim and I spoke to a group of new real estate investors. The topic was: The Seven Truths of Real Estate Investing. This information is beneficial to anyone who’s thinking about dipping his or her toe into the real estate investing water.

First truth: To be a successful real estate investor, you gotta get face-to-face with sellers on a regular basis and ask Pete Fortunato’s famous question: Why are you selling such a nice house like this? This is the alpha and omega of real estate investing!

Would-be investors mistakenly think they can succeed using nothing more than a computer. Real estate investing is a people business, not a computer business! Nothing takes the place of sitting at the seller’s kitchen table and asking lots of questions so you can discover the seller’s uncomfortable circumstances. After all, how can you structure an offer that is likely to be accepted by the seller if you don’t first fully understand the seller’s problem?

Second truth: Success comes slowly…very slowly! Kim and I were active investors for five years before we started feeling comfortable about what we were doing. It was another five years before we began feeling confident with our deals. And let me tell you, there’s a huge difference between…

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WHAT IS OCTOBER’S MEETING ABOUT?

October’s meeting is gonna be incredible – especially for landlords! Our speaker will be David Tilney. David is an incredible teacher…a real been-there-and-done-that landlording guy. He teaches like no one else. His ideas are unique. David will help you look at landlording and tenants a whole new way!

As a landlord, do you ever stop and ask yourself, “Why do I manage my tenants the way I do?” Most of us can’t explain – we just do the things we do…because. But because why? This is the question David will be discussing.

Here are some of the “WHY” questions to consider:

Why is the rent due on the 1st?
Why do landlords usually sign a one-year lease?
Why don’t landlords like pets?
Why do landlords clean rentals and make improvements between tenants?
Why are landlords afraid to raise rents?
Why do landlords evict?
Why do landlords do property inspections?
Why do landlords schedule property showings?
Why do landlords take security deposits?
Why does the government allow landlords to depreciate rental property?
Why do landlords burnout?

You may think you know the answers to these questions…but are you sure? Like I said, David Tilney is an incredibly unique landlording teacher and thinker. I promise, a lot of his ideas will stretch your mind!

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David Tilney: A Landlord’s Landlord

David and Mary Tilney

The vast number of mom-and-pop real estate investors who own rental property amazes us. Consider this: About 63% of Americans own their home. This means that 37% – if they want to keep a roof over their heads – are tenants paying landlords rent each month. We’re talking about 334 million tenants, folks!

Here’s another interesting fact: Most would-be landlords never buy their first rental property because of their unfounded fear of tenants. We’ve all heard the horror stories: Tenants who trashed the house; tenants who didn’t pay and refused to move; tenants who “adopt” 43 dogs and all the fleas accompanying them!

When someone shares one of these landlording nightmares, we ask one simple question – and it’s one you should ask as well: Did that landlord ever take a landlording class? Ninety-nine percent of the time the answer is: No!

Another fact: Landlording is a learned thing, not a born-knowing-how-to-do-it thing. Can you imagine learning to fly without ever taking a lesson? You might get the plane in the air, but when it comes down – and it most definitely will come down – the chances you’ll walk away from the crash are…

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Student Loans: Friend or Foe?

We regularly meet with folks who are in danger of losing their homes because they can’t afford to pay their mortgage due to the amount of consumer debt they owe. One of the most common (and largest) consumer debts we see is student loan debt. Get this: 5.9 million homeowners under the age of forty pay over $250 a month for student loans!

The politician who invented the phrase “student loan” was an incredibly devious marketer…as well as a manipulator of the facts. It’s my guess that several of the big banks were included in this lending scheme.

Why do I call this a lending scheme? Simple: if you get a mortgage, what is the only thing the money can be used for? To buy a specific home, right? How about an auto loan – a specific car, right? But with a student loan, the money borrowed can be – and often is – used for ANYTHING…to buy a motorcycle, to go on lavish vacations, to buy a plasma-screen TV, etc. And that’s exactly what too many “students” do with the borrowed funds!

In the end, many students owe the bank $50,000 or more! And here’s the sad part – a good percentage of these “students” never get their sheepskin. This means they start adulthood with no degree and…

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How to Destroy a Child’s Ambition

photo

I was at Stephen and Carol Softin’s house talking real estate. We’ve been good friends for many years. Stephen told a story about his son Mack. It both broke my heart and made me angry. How does this story affect you?

The Softins spent some quality family time at the beach earlier this year. Several of the days, Stephen took Mack out for long walks on the beach for some solid father-son time. Mack was 11 years old and in 5th grade.

Stephen explained that if Mack knew how to add, subtract, multiply, divide and work with percentages, the world would be his oyster. Understanding basic math is one of the primary building blocks all successful entrepreneurs need.

Know that Stephen and Carol are entrepreneurs, not nine-to-fivers. They are real estate investors, and they have a thriving internet business.

To make the beach-walking lesson more meaningful, Stephen used one of Mack’s teachers as an example. Stephen figured the teacher worked ten months out of the year to earn $35,000. He asked Mack how much that was a month. Mack correctly answered…

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Stick With Quality Contractors

Crack Kills!

In the school of hard knocks, we regularly learn new lessons – and are continually reminded of old ones. An example of this is a blow-up we had two days ago with a contractor.

Let’s begin with this scenario: You need some repairs done to your rental property. The deck needs some work, the walls need painting, and ceiling fans need to be replaced. You have a choice between two contractors. The first guy quotes you $2,500, which includes all material. The second guy will do the job for just $500, but you must provide all materials, which will cost $1,000. Which contractor would YOU choose?

Here’s some additional information to help you make your choice. The first contractor is forty years old, experienced, has a stable family life, drives a paid-for pickup truck that’s neat as a pin, and has all the tools he needs to do most any job. The second guy is also forty and experienced. However, he’s going through a divorce – and has girlfriend problems! His truck barely runs, is in danger of being repossessed, and is a cluttered mess. As for tools: Some he has, many others he doesn’t.

Two more things to consider: Both contractors tell you the job will be done in three days. And it looks like you’ll save $1,000 if you go with the second guy.

So which one did YOU…

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September’s Meeting Info

WHAT IS SEPTEMBER’S MEETING ABOUT?

A contractor’s most important tool is a hammer. For a pilot, it’s an airplane. So what’s a real estate investor’s most important tool?

Here’s another question: You meet with a very motivated seller who agrees to owner finance her property to you. The property is free-and-clear and is worth $125,000. It doesn’t need any work. It will rent for $950 per month. Monthly expenses (taxes, insurance, repairs, vacancies, management) average 35% of the monthly rent. To do the deal, you must net at least $200 per month. What’s the most you can pay the seller each month and still make this deal work? If the seller agrees to a nothing-down, thirty-year-fixed-rate mortgage, what interest rate are you giving the seller? (answers below)

Let’s try another question: You find a great single-family house in a nice neighborhood to buy. It’s a fifty-cents-on-the-dollar deal. Your total all-in cost will be $70,000. A family friend has $70,000 in a CD that’s coming due. Right now, the interest rate banks pay on new CDs is a miserly 0.1%. YUCK! The friend offers to lend you $70,000 if you agree to pay 4.5% compounding interest over 20 years. How much is the monthly payment? (answer below)

Do you know the answers to the above questions? If you want to succeed as a real estate investor – if you want to be able to make the impossible deals possible – then your answer should be YES!

So what’s a real estate investor’s most important tool? A financial calculator! If you don’t know how to use one, then you’re trying to compete against seasoned investors with both your hands tied behind your back while blindfolded. Bottom line: You can’t win!

Roughly 99% of would-be real estate investors (and gurus) don’t know how to turn on a financial calculator – much less use one. September’s meeting is your opportunity to become a 1%er!

At September’s North Georgia REIA meeting, Bill Cook – one of the best and most experienced financial calculator guys in the country – will be teaching financial calculator basics. Want to leave your competition in the dust? Then this is your can’t-miss meeting of the year!

To get the most out of this presentation, before the meeting, go to In A Day Development’s website (http://www.inadaydevelopment.com) and download their Hewett Packard 10bii (pronounced: 10 B 2) financial calculator app to your smart phone or tablet. It’s THE BEST 10bii app out there and costs around six bucks. Bill will only be using the app version of the 10bii, not the handheld version!

North Georgia REIA is passionate about your…

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In The Land Of The Millionaires

It was just reported that since 2010, the rich got richer and the poor got poorer. In other words, the wealth gap widened. The reporter’s solution: The tax rate on the rich needs to be increased drastically!

The report came out at the perfect time. I’m in Palm Beach Gardens (West Palm Beach, Florida) staying in the BallenIsles Country Club community. This is a very swanky place. Everyone here is a multi-millionaire. You have to be in order to afford to own a home here. (Look up this place on Google Maps.)

How swanky is BallenIsles? Three incredible golf courses and the nicest tennis complex you’ve ever seen. A number of successful PGA pros live here. So do the Williams sisters (Venus and Serena). Homes start at $1 million. And here’s the amazing thing: For most residents of BallenIsles, this is just their winter home!

I’m staying with a friend and spending the week meeting with local real estate investor groups.

So, being square dab in the middle of the land of the millionaires, I decided to ask all these rich people what they thought about the wealth gap and the idea of having their tax rate increased. Here are seven important lessons learned:

Lesson One: Most of the men quickly pointed out that they weren’t…

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