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Old 11-16-2016, 10:01 AM   #21
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Why would renting land be subject to SE taxes?
CRP payments are different. They show up on a Schedule F as income. If you have net farm income, you pay SE on that amount. If you are drawing social security, you subtract off the CRP payment from the income for the purpose of calculating SE tax. It is a bit of a mess, but those are the rules.

IRS & CRP

<<< Although the payments are called “annual rental payments” for purposes of the CRP, these payments are not rental payments for federal tax purposes. Generally, a rental payment is an amount paid for the use or occupancy of property. The government does not use or occupy the land covered by a CRP contract. >>>

<<< Unless the taxpayer is receiving Social Security retirement or disability benefits, CRP “annual rental payments” are includible in net income from self-employment subject to self-employment tax. >>>
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Old 11-16-2016, 10:56 AM   #22
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I have had rentals since 2007. I have 11 units. I have a property manager and hire out all of the work (sometimes I'll paint a unit myself if I am bored.) I like to keep it as passive as possible. It has been good to me so far. Income is much better than 3 to 4% withdraw rate I plan for my index stock bond portfolio. Last i checked it was 8% with property manager and maintenance or 10% if I did all of the work (this does not include appreciation.)

I do have to manage my manager, he is awfully slow at making necessary repairs but he is quick at finding tennents.

I purchased the rentals because the SWR for a stock and bond portfolio was too low for my liking, I wanted an income that covered my basic living expenses, that was not subject to sequence of risk, and an income that had some inflation protection. I've got that now and do not plan to purchase more properties unless I swap out a property for an upgrade.

An umbrella liability policy let's me sleep at night.

My biggest surprises were termites and tornado damage.

I would much rather have a pension or large portfolio, but those options were not available to me.
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Old 11-16-2016, 11:29 AM   #23
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Off topic, but is that really the landlord's responsibility? That seems crazy!
In Texas, Bulb, Air Filters, yard work, etc. are tenant responsibilities.
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Old 11-16-2016, 12:19 PM   #24
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We have a use and replace policy. There is a supply of light-bulbs and a plumbers plunger.

Treat the place like your own. If you need to hire a handyman to do them, that is your cost. We have found that that policy attracts tenants who are capable.
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Old 11-16-2016, 05:35 PM   #25
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We stood at attention on the deck as GM went banko with our money. Ditto following Bank of America all the way down. No fire, no meth, the money just vanished.

Not discussing risk, though. Discussing minimizing hassles. I'm retired!
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Old 11-16-2016, 11:11 PM   #26
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It is a bunch of work, yes it can be rewarding as long as you don't have bad luck.
Now that we are retired, I'm getting out of it and into index funds.
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Old 11-17-2016, 08:39 AM   #27
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I've been a landlord. I wouldn't wish it on my worst enemy (well maybe...). It can be a lot of work and even more headaches, but as you can see, some people have made it manageable. I could not. The property wasn't the issue - the people were. I could/should write a book.
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Old 11-17-2016, 09:08 AM   #28
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As you can see, there are common gotchyas: For me staying local, being my own management company and getting good paying tenants in good neighborhoods has been key to success (4 years and counting). Being a landlord is NOT an index funds and you are still working. But to be fair, I spend few days per property in a year because I do my own repairs. If you outsource repairs then all you do is schedule repairs and talk/visit tenants one a quarter. The biggest benefit I see being a landlord is that my returns and market cap will always track inflation (for the most part) if not better. Which means if I can live off the cash flow today then I will be able to live off this income stream forever (in theory). I am working on building another qual sized portfolio in equities as an insurance in case my theory fails.
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Old 11-17-2016, 09:40 AM   #29
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The property wasn't the issue - the people were. I could/should write a book.
This is the main reason I have a property manager. He insulates me from the tennent's shenanigans. Well...Mostly anyway.
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Old 11-17-2016, 09:43 AM   #30
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I would buy 3 $100k +/- properties in Memphis, KC, Indy or other cash flow city. You should easily get about $3,500 gross rent a month.
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Old 11-18-2016, 08:46 AM   #31
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I would buy 3 $100k +/- properties in Memphis, KC, Indy or other cash flow city. You should easily get about $3,500 gross rent a month.
That sounds a little high. Here in St. Louis a 130k house rents for about $1200
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Old 11-18-2016, 09:05 AM   #32
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That sounds a little high. Here in St. Louis a 130k house rents for about $1200
My most recent purchase in 2016 was purchased for $40K and rents for $830. I could easily rent it for $1200, but I had a deal with the owners to rent it back to them for a discount for two years.

A 4-plex I bought in 2012 for $197K, now has a combined rent of $4,620 per month. That will be ~100+ higher next year.

If you are a smart shopper, and get pre-MLS deals, bargains are still there.
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Old 11-18-2016, 02:32 PM   #33
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My most recent purchase in 2016 was purchased for $40K and rents for $830. I could easily rent it for $1200, but I had a deal with the owners to rent it back to them for a discount for two years...
One heck of a deal. My brother just recently got into rental business. He bought a rundown home for $140K, then put $40K into renovating it for renting. He gets $1500/month. The return is nowhere as good as you get.
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Old 11-18-2016, 02:42 PM   #34
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One heck of a deal. My brother just recently got into rental business. He bought a rundown home for $140K, then put $40K into renovating it for renting. He gets $1500/month. The return is nowhere as good as you get.
I bought a contract for deed (land contact). The original owners could not make the balloon payment. After the Contract was assigned to me, I cancelled the contract as the owners expected. Now they pay rent, rather than principle and interest.

The owners paid $60K in 2012, Trulia says it is worth ~$100K. My price in 2016 was $38K. I had to terminate a federal tax lien that prevented the owners from selling. Plus I put a new electrical panel in.

Wen you buy off the MLS, there are no deals. Negotiating with people in foreclosure is where the money is at. Eliminating mortgages and liens makes a person money.
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Old 11-18-2016, 02:45 PM   #35
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In general, I wonder how ROI changes across the property spectrum. I'd guess that very low-cost properties have higher rent-to-purchase price ratios, but they would also tend to have higher numbers of tenant problems, skip-outs, damage, etc. Perhaps finding exceptions to that rule, or reducing the impact of "problems," is one key to making money.
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Old 11-18-2016, 03:57 PM   #36
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In general, I wonder how ROI changes across the property spectrum. I'd guess that very low-cost properties have higher rent-to-purchase price ratios, but they would also tend to have higher numbers of tenant problems, skip-outs, damage, etc. Perhaps finding exceptions to that rule, or reducing the impact of "problems," is one key to making money.
You are somewhat correct. A class D property needs a higher return than a Class A. If you can take a class D property and re-position it to a class B, as I did, you can make a ton.

Of course, if you can get the property at a discount, it's even better.
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Old 11-19-2016, 08:24 AM   #37
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@ Beathfree -

How did you get an umbrella policy with 11 units ... everytime I apply they say 6 is the cap.
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Old 11-19-2016, 08:39 AM   #38
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I have my umbrella with State Farm. At one point I had 30 properties.
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Old 11-19-2016, 09:19 AM   #39
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@ Beathfree -

How did you get an umbrella policy with 11 units ... everytime I apply they say 6 is the cap.
I have an umbrella policy too. Both for my business and myself. No problems with my properties. American Family.
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Old 11-20-2016, 09:13 AM   #40
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Thanks everyone, this is all good info. I'm leaning away from the out of state option for now as it just seems too risky. Also the profit taken by a turnkey provider seems to outweigh the convenience.

I am curious though: in terms of AA do you include your own home as part of the diversification of a portfolio? I do have some equity in mine. I know a personal home isn't typically considered an investment. How do you all interpret that?

Thanks!
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