Wouldn't it depend on what the felony was? I can't imagine a landlord renting to a rapist, murderer or someone prone to violence with multiple assault charges. Could be dangerous for the landlord no?
My Pro's and Con's of real estate investing
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Wouldn't it depend on what the felony was? I can't imagine a landlord renting to a rapist, murderer or someone prone to violence with multiple assault charges. Could be dangerous for the landlord no?
Luck_Club
Full time employment: Posting here.
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Working retirement
Over the years I've come to observe quite a few retirees. Most if not all do something for entertainment, and to fill the time.
My FIL spends his time working on projects around the house, cutting down trees, chopping wood, then delivering said wood to the poor, etc he also volunteers through his church to do home repairs for others. The rest of the time he spends on leisure activities such as golf.
My DF spends his day truly living the definition of not working, living the retirement dream if you will. HE DOES NOTHING ALL DAY EVERY DAY, EXCEPT MONITOR THE PORTFOLIO, and watch TV.
A 3rd retiree, though not by this forums definition, spends his time between the water front in the summer, and the mountains in the winter. In both places he works part to full time life style jobs as a launch driver and ski instructor. I often see him reading books, staring out at the water, or exercising on the clock during the summer.
All 3 are "retired" from their careers, but only my father isn't working. I would argue that real estate is more like my FIL's type of retirement, except it also provides a very nice return on our time, while fulfilling our need to "keep busy and productive". Think about the excitement of your last home improvement project. All the shopping and planning talking to people etc. The best part is you get all that excitement and entertainment while making a profit as opposed to dwindling your stash.
I'm only 49 so I may change my tune at 69, but it still is pretty fun and cool past time in my eyes. As long as my time commitment stays under 40 hours a year it isn't all that bad. After all we have 5840 waking hours a year to fill with activity.
Over the years I've come to observe quite a few retirees. Most if not all do something for entertainment, and to fill the time.
My FIL spends his time working on projects around the house, cutting down trees, chopping wood, then delivering said wood to the poor, etc he also volunteers through his church to do home repairs for others. The rest of the time he spends on leisure activities such as golf.
My DF spends his day truly living the definition of not working, living the retirement dream if you will. HE DOES NOTHING ALL DAY EVERY DAY, EXCEPT MONITOR THE PORTFOLIO, and watch TV.
A 3rd retiree, though not by this forums definition, spends his time between the water front in the summer, and the mountains in the winter. In both places he works part to full time life style jobs as a launch driver and ski instructor. I often see him reading books, staring out at the water, or exercising on the clock during the summer.
All 3 are "retired" from their careers, but only my father isn't working. I would argue that real estate is more like my FIL's type of retirement, except it also provides a very nice return on our time, while fulfilling our need to "keep busy and productive". Think about the excitement of your last home improvement project. All the shopping and planning talking to people etc. The best part is you get all that excitement and entertainment while making a profit as opposed to dwindling your stash.
I'm only 49 so I may change my tune at 69, but it still is pretty fun and cool past time in my eyes. As long as my time commitment stays under 40 hours a year it isn't all that bad. After all we have 5840 waking hours a year to fill with activity.
Luck_Club
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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.
Luck_Club: people who 'FIRE' with real estate probably count on that income to fund retirement. If your FIL wanted to stop or broke his arm there is a lot more slack in letting trees grow vs a leaky roof.
If they are completely FI based on sale -> convert to cash/stock and not required to manage real estate to make a living, it might be a different story. However I have a hard time believing everyone enjoys fishing pencils out of toilet lines - that real estate requires some level of stress/work/management that not everyone can do - this also means it is more difficult to confidently delegate the work should you be unable to do so.
If they are completely FI based on sale -> convert to cash/stock and not required to manage real estate to make a living, it might be a different story. However I have a hard time believing everyone enjoys fishing pencils out of toilet lines - that real estate requires some level of stress/work/management that not everyone can do - this also means it is more difficult to confidently delegate the work should you be unable to do so.
Senator
Thinks s/he gets paid by the post
And some people go back to a different state and watch grand kids... Little children are some of the most unsanitary, bacteria laden things you can be around.
Senator
Thinks s/he gets paid by the post
Those people have to live somewhere. I would pass as I have multifamily properties. After they have been clean for 10+ years, and have solid credit and income, they are likely OK.
Can you please explain how the 1031 exchange work?
Senator
Thinks s/he gets paid by the post
The total was ~$1.8M. It is 5-four plexes, 2-duplexes and a single family home.
I am prepping the SFH for sale, doing an extensive remodel, and hope to sell for ~150K+. I only paid $38K, and put in ~$20K.
kcowan
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Do you know how much is general appreciation and how much is your value added?
Senator
Thinks s/he gets paid by the post
It was probably worth $75K when I bought it for $38K. If I sold it after the renters moved out, I may not have even barely got that. It would have been a fixer-upper. The former owners/renters were hard on the property.
I am adding 20 new windows ($13K), appliances ($2500), flooring ($2,000), new plumbing ($250), re-doing some electrical in the kitchen, and other small things. ~$25K in cost to me. Plus lots of labor. Luckily I can do it all myself, but I am hiring out the windows.
After all is said and done, maybe I actually only make $65K - $75K for my labor/value added, and another ~$30K from the 'deal'. I will have ~$65K into it, and hopefully sell in the Spring for $140K - $160K.
Not really that much for my labor, and if I worked on it full-time, it would probably only be 6-8 weeks. So not bad for 2 months work. But it will take me ~8 months, as I have other obligations and like to travel a bit...
Cost ~$40K
Fixup ~$25K
Sale $140K
'Profit' = $75K. (~$30K I could have had without any work or risk.)
Last edited:
Curmudgeon
Recycles dryer sheets
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I'm trying to figure out where the profit comes from - what the 'key' is. It sounds like 30K was just that you bought an undervalued property - why do you suppose it sold for $40 if it was worth $75?
Of the remaining profit, how much of it was
a) sweat equity - you contributed $X worth of labor to the property that didn't actually cost you any $
b) you can always turn a profit when you fix a place up - if you put $X of work into a property it will net you more than $X in resale value
c) If you pick the right place, fixing up a property will net you more than you put into it
Senator
Thinks s/he gets paid by the post
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.
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.
Senator
Thinks s/he gets paid by the post
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.
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.
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?
Senator
Thinks s/he gets paid by the post
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.
Senator
Thinks s/he gets paid by the post
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.
griffithee
Recycles dryer sheets
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.
Senator
Thinks s/he gets paid by the post
Paying off a mortgage has a better financial impact than buying another property.
OP
OP
97guns
Full time employment: Posting here.
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/forums/f27/get-rich-quick-scheme-real-estate-59645.html
http://www.early-retirement.org/forums/f27/get-rich-quick-scheme-real-estate-59645.html
aja8888
Moderator Emeritus
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.
mathjak107
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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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
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