How Much Money Will I Make From My Rental Property?

Most people grossly overestimate the cash flow they are actually getting on their rental property.

At the same time, the people trying to sell you investment properties also have a habit of fudging the numbers on cash flow and return on investment.  

I’m here to make sure you can spot these inflated numbers a mile away.

The mistake most people make is believing that your money left over after paying a mortgage each month is your cash flow

Wrong.

You need to subtract your mortgage from rent, then subtract all other expenses to arrive at your actual cash flow.

In many people’s case, this is a negative number.

That means you are not cash flowing, you are paying money to own this investment.

Make sure this doesn’t happen to you.

It is helpful to understand two simple concepts for this all to make sense.

Those two things are the 1% rule and 50 % rule, which are easy to do in your head, and can save you the trouble of breaking out the calculator for rental properties that clearly won’t make money.

1% Rule

The 1% rule is quick and easy. Monthly rent should be at least 1% of the acquisition price. The acquisition price may be a higher number than the purchase price. It is purchase price plus the money to get the house ready to rent.

Example.

$80,000          to purchase house                plus

$20,000          remodeling                            equals

$100,000        acquisition cost.

$100,000 home should rent out for at least $1,000 a month, or it would not be a good investment.

          What is the logic behind the 1% rule?

If a house will give you 1% of the purchase price each month in rent, then it gives you 12% of the purchase price each year.   That apparently means the investment makes 12% a year!!!!

          WOW, THAT’S AWESOME! I’M RICH (ON MONEY!!)

Read moreHow Much Money Will I Make From My Rental Property?

Ready to Invest in Real Estate?

Do you think you are ready to invest in real estate?

Many people want to invest in real estate before they should.

People see the success of others in real estate, and want that for themselves.

But it is as simple as it looks?

You are not ready to invest in real estate until you have:

  • your debt under control
  • regular contributions to retirement accounts
  • the right knowledge about where you will invest
  • the correct type of mentor

Why do we want to invest before we should?

Simple.

We have FOMO.

Fear of missing out.

We are under barrage from podcasts, books, lame blogs (like this one), and for some of us old people that can remember, Carleton Sheets infomercials.

Real estate investing is made to look easy

Read moreReady to Invest in Real Estate?

8 Must-Do Steps to Survive Coronavirus

coronavirus investing

My thoughts on Coronavirus and how it affects our investments, real estate, and life…

It seems like investments and real estate IS my life!

I have to admit.

I’m one of the people who thought this crazy thing was limited to Asia, and maybe a few tourist destinations.

There were a lot of people in agreement with me who kept asking what all the hype was.

Well, that hype somehow became reality, at least for the time being.

I tried to fly to Boston yesterday to participate in a real estate event I was asked to speak at.

The event got cancelled as I arrived in a DC airport. 

I bought a return ticket same day back to Alabama, realizing this virus was having a significant effect in my life.

In all of our lives.

Here’s a list of things I think are smart to consider for life in this period of extreme uncertainty with Coronavirus (COVID-19).

1.  Don’t Sell

Read more8 Must-Do Steps to Survive Coronavirus

9 Secrets to Finding Off-Market Properties Cheap

off market properties

Finding off-market properties and getting a good deal is absolutely key to being successful in real estate investing.

Why?

The market is hot.   And overpriced.

We are near or at the top of a real estate cycle.

This mean most cities are saturated with investors bidding up the prices of all types of real estate investments.

How can you be successful as a real estate investor in an environment like this?

Find ways to contact motivated sellers that aren’t currently listing their properties for sale.

Finding Great Deals on Real Estate

Here are the top ways to find off-market deals:

  1. Directly contact owners – voice call, text, or mail
  2. Driving for dollars
  3. Wholesalers
  4. Short Sales
  5. Auctions / Foreclosures
  6. Tax Liens and Tax Deeds
  7. Networking (Investors, Property Managers, Contractors)
  8. Craigslist
  9. Probate

We’ll go through each one-by-one.

Through these methods, you find a way to not pay full price on the multiple listing service (MLS) like everyone else.

Read more9 Secrets to Finding Off-Market Properties Cheap

Long Distance Real Estate Investing Secrets

long distance real estate

What do I know about long distance real estate investing? 

As a military member:

  • I’ve moved every 1 to 3 years while investing in real estate
  • I currently have 20 paid-off single family homes
  • I’ve self-managed and used management companies
  • I bought 16 properties while living overseas

I read a blog post this morning that said investing long distance requires a slightly different approach than normal real estate investing.

from istock.com

It’s a different ball game altogether.

The secret to mastering long distance real estate investing is getting these 5 things right:

  • The Importance of Boots on the Ground
  • The Best Real Estate Agent for Long Distance Investing
  • Choosing a Property Manager from Long Distance
  • Choosing the Right Property from Long Distance
  • Managing Contractors from Long Distance

The Importance of Boots on the Ground

from flick.com

This is where I feel a lot of new investors make their first mistake.

They are neglecting the importance of having boots on the ground.

There have been good books written about long distance real estate investing and how easy it can be done using video, pictures, docusign, and aligning yourself with a great “team.”

This all sounds great, and might work for an experienced investor.

I can tell you from a practical standpoint, however, that nothing replaces the importance of having boots on the ground that you can trust in the location you are investing. 

Whether it is a contractor trying to rip you off, tenant trashing a house, or just a need to respond quickly to an emergent situation at your property, there is nothing like having someone you trust that can tell you what is actually going on with your property.

Read moreLong Distance Real Estate Investing Secrets

Investing with VA Loans – A Complete Guide

va loan investing no money down

This post was originally published on August 8, 2018.  I updated, lengthened, and added a table of contents to it.

Investing in rental property with VA Loan is a tricky subject.  There are many rules that dictate how a VA should be used.  Investing with a VA loan, even in multi-family, is possible.  I will show you how to do it so you can get rental income.

The VA doesn’t say you can use the VA loan for investing, but if you understand the rules, and buy properties as you move from assignment to assignment in the military, it is possible.

You can’t just buy a home and make it a rental property without living in it first.  There is an occupancy rule I’ll be discussing.

You can, however, buy a house at your current assignment using your VA benefit, live in it for a short period of time, turn it into a rental property when you leave, and buy a house at your next assignment with a VA loan repeating the entire process.

Another possibility for investing with a VA loan is buying a 2, 3, or 4-plex using your VA benefit and living in one of the units  for a short period of time.  When you move on to your next assignment, you’ll be able to turn the entire property into an rental property legally.

Let’s start digging into the details!

The first thing we need to understand is the occupancy rule.

Occupancy Rule

Read moreInvesting with VA Loans – A Complete Guide

TSP Loan – Should I Get One?

It is possible to get a TSP Loan.

But should you?

  • Couldn’t we use it to buy real estate and make a fortune?
  • Couldn’t we invest in the next hot thing, like an IPO, or bitcoin?
  • What about gold!?!

These are some of the questions we are here to answer today.  I’ve heard people suggest these very things.

I’m going to first explain how the program works, then explore how using it will impact your future retirement income (ouch). 

If you want the BLUF (Bottom Line Up Front) and skip the TSP Loan intro, click this section , just tell me if I should get it or not!

THE TSP LOAN PROGRAM

I’ll be abbreviating the TSP loan program here, but here is the source link from tsp.gov.

The TSP Loan program lets you borrow money from your own TSP account while you are either in the armed forces or employed by the federal government. 

HOW IT WORKS

When you borrow the money, it comes out of your actual TSP account.  It can be any amount between $1,000 and $50,000, not to exceed your contributions and earnings from those contributions.  It does not include any agency contributions (blended retirement system or BRS) or earnings from agency contributions. 

As you are repaying this loan, it is repaid with interest through payroll deductions back into your own TSP account.  This means that this large amount of money will not be growing tax advantaged in your TSP account during the time period you have borrowed it.  You lose the opportunity for that growth.  More on this later.

Keep in mind, even though you are paying interest, it’s a low, low rate and you pay it back to yourself, so it’s not really a cost to you.  The interest, however, is not tax-deductible.

LOAN ELIGIBILITY

To be eligible for a TSP loan, the following must apply:

  • Employed by uniformed services or federal government
  • In pay status
  • Only have one outstanding general purpose loan and one outstanding residential loan from any one TSP account at a time
  • Have at least $1,000 in your TSP account not counting agency contributions and earnings
  • Have not repaid a TSP loan of the same type within the past 60 days
  • Not had a taxable distribution of a loan within the past 12 months unless it was the result of your separation from Federal service
  • Not had a court order against your TSP account

Read moreTSP Loan – Should I Get One?

Are Charles Schwab Index Funds the Cheapest?

Charles Schwab index funds fees are certainly among the lowest.

There is a fierce battle waging between the big firms for the lowest index fund management fees.

We can thank Vanguard for low fees overall.  I think they started kicking too much ass and taking too much market share, so Fidelity and Charles Schwab index funds took notice and started slashing their fees.

This has been nothing but good for investors.  I’ll have to keep this and other similar posts constantly updated, as prices are slashed among the big three often.  I’ll summarize the recent changes later.

INTRODUCTION OF INVESTING AT SCHWAB

charles schwab index funds

When you buy Charles Schwab index funds, here’s some of what you get:

  • Mutual Fund OneSource service funds and other No Transaction Fee funds are $0 for online trades
  • All other mutual funds cost up to $76 to buy and $0 to sell
  • Online stock trades are $4.95 per trade
  • Online Schwab ETF OneSource trade are free
  • Other ETFs can be purchased for $4.95 per trade

If you are going to buy Schwab index funds outside of the Schwab mutual fund family, definitely invest somewhere else.  Their fee for other mutual funds really makes it cost prohibitive (that means way too damn expensive!)

WHAT’S AWESOME ABOUT CHARLES SCHWAB INDEX FUNDS?

  • $167 billion under management in mutual funds and ETFs
  • 3rd largest provider of index funds (behind Vanguard and Fidelity)
  • No minimums to invest (This is an issue at Vanguard)

CHARLES SCHWAB INDEX FUNDS

I’m going to talk about the features and fees of the three most popular and competitive mutual fund categories.  Here we go!

S&P 500 INDEX FUND

Aaa yes, the benchmark of all index funds in my opinion.  It has a dear place in my heart as my main investment during most of my military career.

Just that.

Nothing else.

It is Warren Buffett index fund recommendation of choice.

EXPENSE FEE:                          .02%

MINIMUM INVESTMENT:      NONE

Read moreAre Charles Schwab Index Funds the Cheapest?

5 Worst Financial Mistakes to Avoid for Military Members

Maybe you’ve made some of these mistakes military members make.

I made a few of these mistakes myself, but I’m still here today doing relatively well.

Let’s see how you measure up.

1. GOING INTO DEBT

I want to use a few other phrases to signify what kind of mistakes get military members or families in trouble.

It’s living large when you haven’t made that money yet.

Spending money you haven’t earned.  Otherwise known as… Keeping up with the Jones’s

The funny thing is, the Jones’s are going into debt to keep up with you too!

Here are some things that will really put you into debt:

Buying or renting much more house than you need

I see it time and time again in the military.  A married couple with one newborn buying a 4000 sq ft property.  Not sure what they will do with 6 bedrooms and 4 baths!

You want to be well off? Get the smallest property that will fit your needs. (Awww, that’s no fun!)

Having a new house custom built…

But it’s so nice to have a big house built to your specifications.  You deserve it!

Big houses need lots of things to fill them up.  They just don’t look right without expensive furniture and nice cars.  They are also expensive to heat and cool.  Good luck!

New or expensive cars…

Whatever you do, don’t buy a new car.  On top of that, don’t ever fall for that crap where you think you are getting some special benefit through military car sales.  You are still overpaying and getting KILLED on depreciation the day you put the first mile on it.

I like buying used cars with one previous owner and low mileage. Ideally, you pay cash for it.

Vacationing while overseas…

You are stationed in Germany, and there are LOTS of 4 days weekends, so you are hitting a different country on each one.  You are in Japan, and it’s the perfect gateway to Southeast Asia.  Everybody will be filling their Facebook and Instagram feeds with travel while stationed overseas. 

Don’t overdo it.  Take advantage of existing geography and vacation in areas around you that you.  Try to drive there instead of flying, and try to Airbnb instead of hotels.

The cardinal sins of debt…

Read more5 Worst Financial Mistakes to Avoid for Military Members