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Old 10-09-2017, 09:24 AM   #241
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From my experience I would not recommend this path for real estate rentals.

I've used these exotic finance vehicles (self directed IRA & ROBS) on two occasions for two different purposes. Neither worked out well.

They can add expensive carrying costs that need to be paid to a 3rd party. You lose some of the best parts of rental real estate, leverage and passive loss deductions.

The rest of the story...

The first adventure with this was buying shares in a privately held MLP. The losses which could have been used against current income, or carried forward to offset future income were essentially lost forever. When the company starts making money, which it is after several years of losses, those profits are subject to tax prior to distribution to the partners.

The second was a start up I funded out of my 401k. The accounting requirements were more restrictive due to IRS special attention than I was accustomed to in my other business ventures. As some have said us Real estate guys/gals don't have the same brain power as portfolio types. If I can't do the books out of my check register or on the back of an envelope I get lost. Had the business taken off to the extent I thought it would there were some minor tax advantages.

One pro is some have very large retirement balances from which to fund purchases.
I have known people who do this. They have a hugely profitable rental, and manage it themselves in a Roth. Maybe bought it at a bargain price. Small maintenance items they can still do, including turn the apartment. Anything that is 'management', is legal and the savings go into your account tax free.

No capital gains, no depreciation recapture.
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Old 10-09-2017, 10:08 AM   #242
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Originally Posted by Bigdawg View Post
So if it pays it cannot be a hobby? And hobbies are better than something that pays?

I was an athlete my whole life. Now that I am older I was looking to "give back". I had a short stint as an assistant HS football coach. Then I got into umpiring baseball games. Love it. Worked my first state championship in May.
"No BD, not a hobby. Why? Because you get paid silly."

Between volleyball and baseball last year I made about 14K. I guess it wasn't as fun as pampering my horse.

If I go fishing, catch and eat the fish is it then not a hobby because I profited from the activity? If my walking hobby yields a $20 bill every now and then is it now not a hobby? -found a $20 on the street the other day while walking the dog.

It continues to surprise me how people on this site seem to take offense with someone's definition of retiring. I have a very part-time business of managing our rental portfolio, so I don't consider myself retired, but semi-retired. However, this only takes, on average, about 10 hours per month. I do not need to do it out of any financial necessity, and do enjoy it. I also have two kids in school, one in 10th grade and the other in 7th grade, so we can't just up and leave any time we like, but only when the kids have time off from school. So, in the meantime it's a way to help occupy my time. If I wanted to consider myself retired, why do the "internet police" really care?
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Old 10-09-2017, 03:32 PM   #243
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Has anyone acquired RE through tax liens? Please share some tips, pros and cons.
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Old 10-09-2017, 03:37 PM   #244
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Has anyone acquired RE through tax liens? Please share some tips, pros and cons.
It is very difficult to acquire through tax liens. It can be done, but is a long shot.

I have acquired them with a mechanics lien. I once paid a homeowner $4,000 to put a $150 mechanics lien on a property...

Bought the property for $128K cash, put $15K into it including the $4K for the lien, and sold it for $200K cash. I owned it for less than 3 months from purchase to close. It was on the market in 3 weeks, and sold in a month in December. Closed 1/30 the following year.
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Old 10-09-2017, 03:40 PM   #245
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If my walking hobby yields a $20 bill every now and then is it now not a hobby? -found a $20 on the street the other day while walking the dog.
I was walking in your neighborhood the other day. I dropped a $20 by mistake when I pulled out my keys, I am glad you found it. Mine had a picture of Andrew Jackson on it.

If the one you found did, that must be mine.
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Old 10-13-2017, 11:06 AM   #246
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This is one of the reasons I became a landlord. Our son started kindergarten this year and now DW wants to only travel during school breaks. So our travel schedule has lightened up considerably. I dont want to go work for anyone but still want to get out of the house. I have to, otherwise, DW and I would kill each other. So, I bought a brand new construction across the pond from our house and rented it out. I have had two calls since the tenants moved in and they were all warranted items. I just had to call the builder to get it fixed. I only make $100 a month on it but the rent is good and when we pay off our primary residence ~ 6 months, I'll throw all that money into the rental mortgage pay that off and then maybe get into multi family house. Senator really has me interested in that challenge.
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Old 10-13-2017, 11:14 AM   #247
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This is one of the reasons I became a landlord. Our son started kindergarten this year and now DW wants to only travel during school breaks. So our travel schedule has lightened up considerably. I dont want to go work for anyone but still want to get out of the house. I have to, otherwise, DW and I would kill each other. So, I bought a brand new construction across the pond from our house and rented it out. I have had two calls since the tenants moved in and they were all warranted items. I just had to call the builder to get it fixed. I only make $100 a month on it but the rent is good and when we pay off our primary residence ~ 6 months, I'll throw all that money into the rental mortgage pay that off and then maybe get into multi family house. Senator really has me interested in that challenge.
Paying off a mortgage has a better financial impact than buying another property.
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Old 10-13-2017, 04:04 PM   #248
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I started this thread 5 years ago when my RE portfolio was in its infancy stage, I was 4 years into the venture and prices were still held down. Now I'm into this investment for 8 years and its gone from 280k to 1.7 mil, pretty quick and pretty rich so maybe the title of the thread was not too outlandish

http://www.early-retirement.org/foru...ate-59645.html
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Old 10-13-2017, 04:57 PM   #249
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It's hard to say what my labor is worth. I save $40+ per hour I would guess.

I bought it in an unconventional manner, that is why it was cheap. Today, Zillow has it at $143,638. Trulia has it at $143,241. Realtor at $93,300 (Yikes...). They do not have new windows added to the valuation. A realtor friend said $180K, but that is too high. Lots of new homes in the area skew the prices higher.

It was purchased for $60K in 2012. The owners could not afford the $38K contract for deed balloon payment in 2015. They also could not sell for less than ~$70K, as there was an IRS lien on the property. They waited too long, so they had no time to act.

I purchased the contract for deed, and cancelled it, that is basically a foreclosure. The IRS lien went away. They rented back from me for ~18 months after that.

Most of my properties have been non-MLS and creative purchases. Sheriff's sales, buying mortgages, buying contracts, redeeming as a junior lien holder, having deeds just signed over to me, etc.

Senator, nice work with the RE portfolio. One question I have is related to the bolding above (by me). Please explain how the IRS lien just "went away"? Thanks.
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Old 10-14-2017, 04:07 AM   #250
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Has anyone acquired RE through tax liens? Please share some tips, pros and cons.
we did and it turned out to be a horror .

usually the liens are paid off . in this case it wasn't so we were awarded the property .we had to pay 2 years past due taxes , current year taxes and lots of fees . that was tens of thousands .

but the former owners refused to move out so we had to evict them. they used every stall in the book and it cost more money , both in taxes and legal fees .

when they left they left lots of personal property behind . under the local laws we had to store and pay for the storage for 6 months -more expenses . then at the end of the 6 months we had to pay to have it all removed and dumped .

but wait it gets better . we can't prove it was the former owner but at some point the house was trashed and gutted .

luckily my partner was a builder so we rebuilt the house and sold it but it ended being a costly ,aggravating terrible way to invest
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Old 10-14-2017, 06:34 AM   #251
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Senator, nice work with the RE portfolio. One question I have is related to the bolding above (by me). Please explain how the IRS lien just "went away"? Thanks.

It's easy. It is an IRS lien, on the owners equity in property, not on the property itself. If it was a property tax lien, it would not go away. If she sold the property outright, it would need to be paid off. Hence, she was tied into not selling.

Once I canceled the contract for deed, the owners equity is extinguished, along with the IRS lien on the owners equity in property. Canceling the contract for deed is like a foreclosure.

The previous owner still has a personal IRS obligation, it's just not on the property. Good luck to the IRS on that one, the previous owner has no money...

I have made MANY seconds mortgages go away too. That's even more lucrative. Buying a property for just the amount of the first mortgage, and stiffing the second mortgage, generally takes about 30%+ off the purchase price.
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Old 10-14-2017, 06:38 AM   #252
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we did and it turned out to be a horror .

usually the liens are paid off . in this case it wasn't so we were awarded the property .we had to pay 2 years past due taxes , current year taxes and lots of fees . that was tens of thousands .

but the former owners refused to move out so we had to evict them. they used every stall in the book and it cost more money , both in taxes and legal fees .

when they left they left lots of personal property behind . under the local laws we had to store and pay for the storage for 6 months -more expenses . then at the end of the 6 months we had to pay to have it all removed and dumped.

but wait it gets better . we can't prove it was the former owner but at some point the house was trashed and gutted .

luckily my partner was a builder so we rebuilt the house and sold it but it ended being a costly ,aggravating terrible way to invest
That is almost like an eviction that a landlord has to go through with a bad tenant. Typically you get the property for pennies on the dollar from what I have read.

That is why it is so important to know how to screen tenants. Pass over any tenant with a entitlement mentality. If I have one bad tenant in a bunch of ten, but I do not know which one it is, I would rather reject all 10 of them than take a chance I may get the bad one.
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Old 10-14-2017, 06:49 AM   #253
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since RE income is my sole source of income I've become pretty passionate about it and always get into arguments of how much of a headache they can be, repairs will be costly and that I'm not really truly retired. Just thought I'd throw out the positives and negatives that I've encountered in my 8 years of rental investing, start with the Con's because everyone without RE investments shoots me down with them.

1) had to replace 3 water heaters, $2000
2) installed high wear flooring in 3 units, $7500
3) finishing up an eviction, lost 2 months rent, payed $1600 to eviction company, had 1 other eviction prior
3) replaced 2 A/C units $8000
4) replaced fence in 1 unit, $2400

The Pro's
1) don't work and spend 10 minutes a week tending to them, more now with the eviction
2) rents have kept up with the pace of inflation
3) $3000 pocketed on insurance claim
4) IRS tax benefits are off the charts
5) tenants have literally paid me in full for the homes they are living in
6) equity has tripled up in 7 years
7) net worth has jumped 6 fold in 8 years
8) leaving for Seattle next week, came back from Hawaii 2 months ago and Las Vegas/Los Angeles 3 months ago. did Hong Kong, Thailand, Taiwan, S Korea, Ohio and Denver last year.


So for me the Pro's outweigh my Con's by a wide margin, I have a great property manager and spend very little time tending to them, I've managed to keep my repairs down because I bought the newest units my money would buy, all late 90's early 2000
Thank you for listing Pros & Cons. I've been *wanting* but not able to dare into RE investment. Your post is encouraging.
I've some Questions:
* For RE investment purposes, are SFH better than Condo & Townhomes ?
* How Liabilities covered in case of accidents (Fall on property, Smoke detector not working, CO detector not working, Accidents ) ?
* Who takes care of (and who pays for) Lawn/Garden/Landscaping?
* What are Landlord's legal responsibilities? Do you check if smoke detectors are working? Fire extinguishers (if any) are working? etc. etc.

Thank you !
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Old 10-14-2017, 06:52 AM   #254
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That is almost like an eviction that a landlord has to go through with a bad tenant. Typically you get the property for pennies on the dollar from what I have read.

That is why it is so important to know how to screen tenants. Pass over any tenant with a entitlement mentality. If I have one bad tenant in a bunch of ten, but I do not know which one it is, I would rather reject all 10 of them than take a chance I may get the bad one.
it was an eviction . many times with tax lien sales the people are still there until the last minute .

taxes in this case were 10k a year so not cheap plus interest on the past due and fees every where for getting involved with these sales .this was in new jersey . to rebuild and sell the house was a few hundred k . we made a profit but so little.

we really bought these for the interest which always ends up getting paid by the owners. this time was different .
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Old 10-14-2017, 07:17 AM   #255
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Thank you for listing Pros & Cons. I've been *wanting* but not able to dare into RE investment. Your post is encouraging.
I've some Questions:
* For RE investment purposes, are SFH better than Condo & Townhomes ?
* How Liabilities covered in case of accidents (Fall on property, Smoke detector not working, CO detector not working, Accidents ) ?
* Who takes care of (and who pays for) Lawn/Garden/Landscaping?
* What are Landlord's legal responsibilities? Do you check if smoke detectors are working? Fire extinguishers (if any) are working? etc. etc.

Thank you !
I can answer from my perspective...

All RE has it's pros and cons. Generally, it's hard to make money on a SFH in a rental situation. Prices are high, and rents barely cover the expenses. if you get $200 a month, that's great. And you have to mange it for free. Multifamily is much more profitable, the more doors the better. And more expensive.

Condos and Townhomes have Associations. And often rental limits. And penalties to you, if your tenants violate the rules.

I have never need sued, but I have business liabilities policies as part of my insurance package, and umbrella policies.

In my duplex with a lawn, I hire a lawn service. In my condos, the Association takes care of it. In my SFH when it was rented, my low-caliber tenant did it, and I would get a letter from the City once in a while...

I let the tenant check the smoke detector and replace batteries. If they need help, I can do it. Fire extinguishers just stay on the wall and are generally OK.
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Old 10-14-2017, 09:04 AM   #256
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Every situation is different, and it can even differ from tenant to tenant. You could write the lease to say whatever you want, if you can find tenants to go along with it.

When we rented out a condo with an HOA that hired its own landscaping, we paid the HOA fees directly (the rent never really covered it).
When we rented out a townhouse, the lease required tenants to cut the grass, which they generally did adequately (the lawn being tiny). One tenant actually hired a kid to do it.
When we rented out our own home while overseas, we paid for a lawn service (tenants would never have done that much work) but got it back in rent. It actually made the property more rentable.

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* Who takes care of (and who pays for) Lawn/Garden/Landscaping?

!
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