Please do another video on taxes, benefits, depreciation recapture etc. Love the transparency and you give a full picture instead of just the benefits.
Love this post mortem. ERY few RUclipsrs do these kind of honest deep dives, with ALL the numbers. This info will be invaluable for many of us, keeping us from making unrealistic assumptions that can get us into financial hot water. There are so many expenses, it’s easy to overlook some and have one’s numbers be totally off.
I really appreciate you full transparency- we have had similar experiences and sometimes feel like we're not so good at this game, but as you said, over time we have come out on top!
Thanks for the specifics, it's really helpful to see how you track all the numbers including the IRR. One other option you didn't mention was refinancing to pull additional equity out of the deal to go do something else with. If the appraised value is actually $168k in 2021, you'd have the $50k still owed on mortgage plus an additional $77k (minus closing costs/fees/etc) if you pull out 75% equity. Not sure what that does to your cashflow but
Great to see the 17 year grind and exciting to see it payoff in time. Seems like in buy and hold the wheels of progress turn slow, but reward longevity.
Excellent information Coach. We are long-time landlords and have been flipping homes for about 15 years and do not do a ton of analysis of our returns, but this motivates me to do more so that we have more than just a gut feeling about the financial performance of various properties.
It does take some work and can be tedious, but I find it satisfying (and informative) in the end. And if nothing else I get to help other people watching this video:)
Hey Chad, My wife and I invest in the Greenville area. We have 2 rentals and are living in a “live in flip”. Love your approach to educating newbies like myself and appreciate your willingness to share real life examples. It was helpful seeing some of the ways you organize the details of your properties and what you keep track of over the course of time. Congrats on your success! I would love to hear more about your perspective on depreciation and the tax benefits of REI. I have read some of the BP books on taxes but I still feel very intimidated by that element.
Hey Aaron. Congrats on your rentals and live in flip! That sounds like great progress, and I love Greenville. I appreciate the feedback on a tax video. I plan to do it this year, hopefully.
Super helpful to see a real life example like this. Time seems to make even a maybe not so great deal worthwhile (as long at it's in a decent neighborhood.) Would love to see that video on rental tax benefits too! Was there ever a time you wanted to sell the place given it's lack of cashflow in those early years? What made you hold onto it?
Yes, we thought about selling. Offered it to our tenant but they never qualified to buy it. Then by the time they moved rents had gone up and we decided to keep it. So not all smart on our part. A little random.
Thanks for the video, it was very interesting! My partner and I are under contract for my first property, a 4-plex in our local market. I did remember to calculate maintenance and cap ex into it! 😆 hopefully I ran the numbers conservatively enough! I’d love to see a video breaking down how you calculated the internal rate of return!
Thank you for your thoughts here! Very helpful and interesting. One item I wish would have been included is the hours of time you spend/spent each year. I'm up in Asheville,. Actually looked at a few properties (online) in Greenville the other day,. Thanks again.
It sounds like this isn't your typical property. I'd love to see the same analysis of another one of your properties which you feel is much more representative of your portfolio. I'm not looking for the best property nor the worse but something from the middle of the pack. Thanks. I have a number of fourplexes, a duplex and a single-famly home and a STR vacation property and, being an engineer-nerd, love to put numbers in spreadsheets, but not clear exactly how best to model them.
Hey Coach! I just discovered your channel, it's exactly what I've been searching so long for, and I'm absolutely soaking in as much as possible! I've watched this video, and your other one on the small mobile home park, and I'm wondering if you have any videos on a property you have that has made a better cashflow? You mentioned returns of 30 even 40% on some great purchases. Would love to see a break down on something like that! Just to kind of get a best case scenario I can study.
thanks for the feedback and the tip, Eli. I haven't done any videos on deals like that but I've got more coming. So, thanks for the idea! It's good to know you and others like these case studies so I can spend more time making them.
Good job walking through your spreadsheet during your closing remarks. However, your forward looking IRR analysis neglects that your depreciation recapture taxes will be significantly more than your first 20 years that you estimated at 25%. Why? Because you will have fully depreciated the cost basis after 27.5 years. Hence, the recapture tax continues to increase annually until it peaks at purchase year plus 27.5 years assuming straight line depreciation is used.
Fantastic Analysis Coach! I especially liked that you took the time to review it from several angles including Return on Equity. I think that's a big one that a lot of investors (including successful ones) like to glaze over. I'm curious if you decided to go with a straight IRR calculation or did you leverage MIRR? If not, why not?
Thanks JT. The return on equity does tell you a lot because that equity grows a LOT over time and cash on cash becomes less relevant. I used straight IRR. MIRR could be more accurate if we don't reinvest as aggressively. What are your thoughts on which one to use?
@@CoachChadCarson I think IRR and MIRR both have their place but I tend towards MIRR in these scenarios since so many SFR investors tend to use their "extra" money in other types of investments or simply sit on a big pile of cash for a long time before investing it again. Rare is the investor who has the opportunity and discipline to quickly and judiciously allocate every extra dollar that an investment throws off as soon as they receive it at a comparable or better rate. It's one of the reasons I think MIRR sets more reasonable expectations over long time horizons by muting the reinvestment rates to a more reasonable level. Quick and efficient reinvestment of gains is one "leg up" that index investing has on real estate, as you well know.
I noticed that your mortgage appeared to go to interest only, and saw the comment about refinancing and pulling equity out. Curious if you recommend interest-only mortgages (as some investors seem to), or always paying down principal and building up equity.
this deal had an adjustable rate mortgage. Rate was low, but now quite interest only. I personally like interest only loans BUT they can be very dangerous without a lot of self discipline and good cash flow management. I like them because you can concentrate all your cash flow on reinvesting to grow or to pay off one mortgage at a time instead of a little bit on a several mortgages. The risk is that you use all that extra cash flow to buy more properties and then you make a big mistake or have negative cash flow. Then you're not moving forward or building any equity. So, paying down SOME debt is a good idea along the way in my book. Especially if you have HELOCS or 2nd mortgages.
The 25% tax on capital gains and 25% recapture depreciation, are deducted upon sale of property? I don’t recall these things in California , if u sell after 2 yrs , my sibling sold after 5 yrs and kept all profits . ??? Can Any elaborate on this topic
You are probably referring to selling a property when it's your principle residence. That's a different rule. In this video I had a rental property which is subject to tax. And the cap tax was between 0 to 20%, at least as of 2022.
Hi, please make a video on rental property tax benefits and if you can also throw some light on how to get started with real estate investment with turnkey companies. Is it better to invest in a new house or an old one ?
It gets a little complicated! I made a video about the topic here: ruclips.net/video/SgNXl8eqa2U/видео.html The capital gains portion right now is either 0%, 15%, or 20% depending on your overall tax bracket.
When you get to the end of owning property, how can you calculate the true value of the money you take out after inflation if the currency? I am almost seventy and it is a huge concern .
You can compare your rate of return with average inflation rates. The difference is the REAL return. If real return is 0 then you are in the same place as you were - just keeping up with inflation. But keep in mind the national rate of inflation isn't the same as YOUR rate of inflation. Your personal costs could be a lot less or a lot more depending on what you're buying. For example, buying housing, college, and medical care inflate more than streaming music.
I'm more concerned with passing assets on to my kids who can either continue to collect rent or sell the properties, not as much monthly income. Does this goal change the method that's best?
In a situation with negative cash flow, can you just pay down the mortgage if you have some extra funds and refinance, so that it provides positive cash flow?
Yes you can, especially if the financing is a big cause of the negative cash flow, like if the rate is higher or if amortization is shorter (15 or 20 years). But you do have to refinance because lender doesn't automatically reduce the payment if you pay down mortgage on existing loan.
Seems to me 19% return over 17 years or a little over 1.2% per year is terrible. You would have been better of taking that borrowed $6000 and buying stock.
Either can make sense. Most people use financing because it has a lot of benefits, but it also has risks. I have an article and podcast about investing with no debt: www.coachcarson.com/real-estate-investing-without-debt/
Thanks Louis. No, I currently don't do 1-1 coaching. Unfortunately don't have the time. But i teach a class (RealEstateStartSchool.com) that has lifetime membership to regular office hours with me. Thanks for your interest
Yes. But we also had depreciation expense sheltering up to about $300/mo of net income from any income tax. So, in most cases and until recently, it was not an expense.
This is one small property, If you rinse and repeat with bigger and better properties, you'll be multiplying you're money. People don't get rich off one small property
imagine holding a crypto for 17years with that same down payment you spent on house...the new generation can see how you guys are getting suckered banks being the rich at the top and loaning out their money...we don't need the banks anymore I was gonna get into investing with my crypto but there very little return
Please do another video on taxes, benefits, depreciation recapture etc. Love the transparency and you give a full picture instead of just the benefits.
The "Action Step" is 99% of the game...
Love this post mortem. ERY few RUclipsrs do these kind of honest deep dives, with ALL the numbers. This info will be invaluable for many of us, keeping us from making unrealistic assumptions that can get us into financial hot water. There are so many expenses, it’s easy to overlook some and have one’s numbers be totally off.
I really appreciate you full transparency- we have had similar experiences and sometimes feel like we're not so good at this game, but as you said, over time we have come out on top!
Happy to share! Glad it was helpful. Good locations make things better over time.
This is my first time ever seeing your channel and 1min in I'm Subscribed.
Its just feel real 👍👍
Welcome aboard!
This is great Information. It's not always puppy dogs and sunshine.
That's for sure!
Yes, please do a video on tax benefits. Thank you!
You got it!
Depreciation recapture video please!
On my list!
Another outstanding video from Coach. The new format of behind-the-camera view is super cool for understanding his analysis and thinking process.
Thanks Ryan! I'll plan to do that format more.
@@CoachChadCarson What area are you buying rentals under 100k?, I need to find something like that in CA it's unheard of.
I really appreciate the detailed information. I'm looking at my information on my duplex in Texas and comparing the results. Thanks!
let me know what you find with yours!
Thanks for the specifics, it's really helpful to see how you track all the numbers including the IRR. One other option you didn't mention was refinancing to pull additional equity out of the deal to go do something else with. If the appraised value is actually $168k in 2021, you'd have the $50k still owed on mortgage plus an additional $77k (minus closing costs/fees/etc) if you pull out 75% equity. Not sure what that does to your cashflow but
Good point on refi Maryanne. That would definitely be more tax efficient and still allow us to reinvest if we go that route.
Great to see the 17 year grind and exciting to see it payoff in time. Seems like in buy and hold the wheels of progress turn slow, but reward longevity.
Exactly right. Those first years move slowly but then it picks up
Excellent information Coach. We are long-time landlords and have been flipping homes for about 15 years and do not do a ton of analysis of our returns, but this motivates me to do more so that we have more than just a gut feeling about the financial performance of various properties.
It does take some work and can be tedious, but I find it satisfying (and informative) in the end. And if nothing else I get to help other people watching this video:)
I love seeing the spreadsheets and breakdown. Helps so much to understand the process and how you analyze the investments.
Thanks Andy! I was hoping the behind the scenes analysis would be helpful. It's what I would've loved to have seen more of early on!
Hey Chad,
My wife and I invest in the Greenville area. We have 2 rentals and are living in a “live in flip”. Love your approach to educating newbies like myself and appreciate your willingness to share real life examples. It was helpful seeing some of the ways you organize the details of your properties and what you keep track of over the course of time. Congrats on your success!
I would love to hear more about your perspective on depreciation and the tax benefits of REI. I have read some of the BP books on taxes but I still feel very intimidated by that element.
Hey Aaron. Congrats on your rentals and live in flip! That sounds like great progress, and I love Greenville.
I appreciate the feedback on a tax video. I plan to do it this year, hopefully.
Awesome content Coach. I’m a Clemson investor myself. Just started at 26
Nice Mik! Congrats on starting so early and being in Clemson. What kind of rentals are you buying?
@@CoachChadCarson I have 2 single family homes and 2 townhouses. They have been good to me so far!
You do an outstanding job in explaining real estate. Looking forward to more videos.
Thank you Jawad! I appreciate you watching.
Super helpful to see a real life example like this. Time seems to make even a maybe not so great deal worthwhile (as long at it's in a decent neighborhood.) Would love to see that video on rental tax benefits too! Was there ever a time you wanted to sell the place given it's lack of cashflow in those early years? What made you hold onto it?
Yes, we thought about selling. Offered it to our tenant but they never qualified to buy it. Then by the time they moved rents had gone up and we decided to keep it. So not all smart on our part. A little random.
Great show, thank you.
Thanks Coach, this is a phenomenal video, I like your teaching style.
thanks for watching and for the feedback, Derrick! Great to have you stop by.
Thanks for the video, it was very interesting! My partner and I are under contract for my first property, a 4-plex in our local market. I did remember to calculate maintenance and cap ex into it! 😆 hopefully I ran the numbers conservatively enough!
I’d love to see a video breaking down how you calculated the internal rate of return!
You're way ahead of where I was on analysis! Congrats on your first deal. I will plan to do an IRR video. Thanks!
Very helpful Thank you for sharing
Thank you for your thoughts here! Very helpful and interesting. One item I wish would have been included is the hours of time you spend/spent each year. I'm up in Asheville,. Actually looked at a few properties (online) in Greenville the other day,. Thanks again.
Thank you for your honesty😊
Of course! Thanks for watching.
Glad things got better. Tough time to own back in 2008-2010.
Very true! Got through the dip.
Coach great in depth video. Just paid off my first buy to let.Loved your snowball method in previous video
Congrats on your property! Thanks for watching.
Nice analysis thank you!!! Glad it worked out well for you. Always great to look back and know you made a good decision!
Thanks Brian! There have been other properties that were bad decisions. I need to do videos on those too!
It sounds like this isn't your typical property. I'd love to see the same analysis of another one of your properties which you feel is much more representative of your portfolio. I'm not looking for the best property nor the worse but something from the middle of the pack. Thanks.
I have a number of fourplexes, a duplex and a single-famly home and a STR vacation property and, being an engineer-nerd, love to put numbers in spreadsheets, but not clear exactly how best to model them.
Fantastic! Very informative! Yes to IRR video.
Thank you! And I've actually made the IRR video since then: ruclips.net/video/HJnnpXoR6y0/видео.html
Great deep dive thanks Coach! Yes please do an IRR video!
Will do! Thanks.
Hey Coach! I just discovered your channel, it's exactly what I've been searching so long for, and I'm absolutely soaking in as much as possible!
I've watched this video, and your other one on the small mobile home park, and I'm wondering if you have any videos on a property you have that has made a better cashflow? You mentioned returns of 30 even 40% on some great purchases. Would love to see a break down on something like that! Just to kind of get a best case scenario I can study.
thanks for the feedback and the tip, Eli. I haven't done any videos on deals like that but I've got more coming. So, thanks for the idea! It's good to know you and others like these case studies so I can spend more time making them.
Good job walking through your spreadsheet during your closing remarks. However, your forward looking IRR analysis neglects that your depreciation recapture taxes will be significantly more than your first 20 years that you estimated at 25%. Why? Because you will have fully depreciated the cost basis after 27.5 years. Hence, the recapture tax continues to increase annually until it peaks at purchase year plus 27.5 years assuming straight line depreciation is used.
Fantastic Analysis Coach! I especially liked that you took the time to review it from several angles including Return on Equity. I think that's a big one that a lot of investors (including successful ones) like to glaze over. I'm curious if you decided to go with a straight IRR calculation or did you leverage MIRR? If not, why not?
Thanks JT. The return on equity does tell you a lot because that equity grows a LOT over time and cash on cash becomes less relevant. I used straight IRR. MIRR could be more accurate if we don't reinvest as aggressively. What are your thoughts on which one to use?
@@CoachChadCarson I think IRR and MIRR both have their place but I tend towards MIRR in these scenarios since so many SFR investors tend to use their "extra" money in other types of investments or simply sit on a big pile of cash for a long time before investing it again. Rare is the investor who has the opportunity and discipline to quickly and judiciously allocate every extra dollar that an investment throws off as soon as they receive it at a comparable or better rate. It's one of the reasons I think MIRR sets more reasonable expectations over long time horizons by muting the reinvestment rates to a more reasonable level. Quick and efficient reinvestment of gains is one "leg up" that index investing has on real estate, as you well know.
I noticed that your mortgage appeared to go to interest only, and saw the comment about refinancing and pulling equity out. Curious if you recommend interest-only mortgages (as some investors seem to), or always paying down principal and building up equity.
this deal had an adjustable rate mortgage. Rate was low, but now quite interest only.
I personally like interest only loans BUT they can be very dangerous without a lot of self discipline and good cash flow management. I like them because you can concentrate all your cash flow on reinvesting to grow or to pay off one mortgage at a time instead of a little bit on a several mortgages.
The risk is that you use all that extra cash flow to buy more properties and then you make a big mistake or have negative cash flow. Then you're not moving forward or building any equity. So, paying down SOME debt is a good idea along the way in my book. Especially if you have HELOCS or 2nd mortgages.
The 25% tax on capital gains and 25% recapture depreciation, are deducted upon sale of property? I don’t recall these things in California , if u sell after 2 yrs , my sibling sold after 5 yrs and kept all profits . ??? Can Any elaborate on this topic
You are probably referring to selling a property when it's your principle residence. That's a different rule. In this video I had a rental property which is subject to tax. And the cap tax was between 0 to 20%, at least as of 2022.
Very nicely done. I was wondering if you should use State income tax in calculating IRR?
I think you're right. I included just federal when I did my analysis on the video. Thanks for pointing that out.
Hi, please make a video on rental property tax benefits and if you can also throw some light on how to get started with real estate investment with turnkey companies. Is it better to invest in a new house or an old one ?
Here is my video of tax benefits of real estate investing: ruclips.net/video/HCuIA1r1z_o/видео.html
And thank you for the suggestions!
As always a great and down to earth analysis. How much do you pay in capital gains if you sell a rental in a nut shell?
It gets a little complicated! I made a video about the topic here: ruclips.net/video/SgNXl8eqa2U/видео.html
The capital gains portion right now is either 0%, 15%, or 20% depending on your overall tax bracket.
When you get to the end of owning property, how can you calculate the true value of the money you take out after inflation if the currency? I am almost seventy and it is a huge concern .
You can compare your rate of return with average inflation rates. The difference is the REAL return. If real return is 0 then you are in the same place as you were - just keeping up with inflation.
But keep in mind the national rate of inflation isn't the same as YOUR rate of inflation. Your personal costs could be a lot less or a lot more depending on what you're buying. For example, buying housing, college, and medical care inflate more than streaming music.
Film study for real estate. 🕺🏽
You know it! Painful sometimes
I'm more concerned with passing assets on to my kids who can either continue to collect rent or sell the properties, not as much monthly income. Does this goal change the method that's best?
Better locations that are easier to manage (or hire 3rd party managers). Also consider lower-maintenance properties that are more bullet proof.
In a situation with negative cash flow, can you just pay down the mortgage if you have some extra funds and refinance, so that it provides positive cash flow?
Yes you can, especially if the financing is a big cause of the negative cash flow, like if the rate is higher or if amortization is shorter (15 or 20 years). But you do have to refinance because lender doesn't automatically reduce the payment if you pay down mortgage on existing loan.
how many bedrooms does this property have?
3 bedrooms
Seems to me 19% return over 17 years or a little over 1.2% per year is terrible. You would have been better of taking that borrowed $6000 and buying stock.
It's actually 19% per year, not 1.2%. I was satisfied with that, especially for my first rental.
Should buy a rental cash or finance?
Either can make sense. Most people use financing because it has a lot of benefits, but it also has risks. I have an article and podcast about investing with no debt: www.coachcarson.com/real-estate-investing-without-debt/
Wouldn't your real return be infinite since you didn't have any cash out of pocket?
Your videos are sick as fuck keep it up man. Do you do 1 on 1 coaching?
Thanks Louis. No, I currently don't do 1-1 coaching. Unfortunately don't have the time. But i teach a class (RealEstateStartSchool.com) that has lifetime membership to regular office hours with me. Thanks for your interest
🎁
Don't wait to buy real estate. Buy real estate and wait!
That's it!
Was the cash flow taxed?
Yes. But we also had depreciation expense sheltering up to about $300/mo of net income from any income tax. So, in most cases and until recently, it was not an expense.
@@CoachChadCarson man thank you so much!! I'll be buying my first property in the next year!!
More on tax benefits. Thanks.
Will do!
17 years and the loan isn't paid off and you made 80k?? am I missing something...how is real estate lucrative?
This is one small property, If you rinse and repeat with bigger and better properties, you'll be multiplying you're money. People don't get rich off one small property
sell it and 1041 the proceeds into a new property.
For now I like this house and location. Nothing better to replace it with.
GUYS DO NOT CLICK ON THAT LINK ITS A SCAM
I think RUclips deleted it. Thanks for the heads up
Consider being a little more concise. I have ADD and I eventually left halfway through ;)
Noted! thanks for the feedback. This was one of those thorough, go-deep case studies.
Anything I could have left out?
@@CoachChadCarson I'll have to go back and watch all of it :)
imagine holding a crypto for 17years with that same down payment you spent on house...the new generation can see how you guys are getting suckered banks being the rich at the top and loaning out their money...we don't need the banks anymore I was gonna get into investing with my crypto but there very little return
Depreciation recapture video please!
will do!