Nah, I only have a small amount of capital gains on this place so far, and I’m in a fairly low tax bracket. If I ever sold I would just pay the cap gains tax I think. I’m not looking to trade up just yet for this property.

What an awesome snowball you’re creating! That’s such a cool story. I’m not sure what to do with the equity just yet. The older I get, the less risky I am, so having low leverage sounds good. But I also that’s not mathematically the fastest way to grow wealth. I’m a little exhausted with the properties I own, so before I go out and buy more I really want to think about what the easiest management route is. Thanks for reading – more to come!

Thanks for replying Joel! that makes a lot of sense…

Hey T! That’s funny – I also nickname my rentals “ATMs”. I learned it from an investor conference a while back and the name just stuck. It’s the perfect description of a cash-flowing rental.

Definitely track your ROI year on year, and keep looking at your overall return on Equity. As your debt gets lower, your return gets lower. I’ll share more of the backstory of this rental in a later post.

Congrats on your offer! Let me know if it works out!

Joel

Yep, anonymity is a great benefit of an LLC.

As for more profitability in early years of ownership… This is mainly due to purchasing at a discount, increasing rents which brings a higher market value, or forcing appreciation with repairs/upgrades. These activities boost the ROI right pretty quickly. But, once a property has reached it’s max potential, the return will slow down. There’s only so much manual “boost” an investor can give a property before it has to rely on it’s fundamentals to for growth.

As someone already mentioned, very timely. I’m similarly diversified 50/50. And similar to your real estate agent, I have a “feeling” here. And I feel safer with real estate.

I stare at our retirement account balances and wonder about how little control us little people have there. We pick the funds and the manager – that’s it. As long-term investors, we’re told not to react emotionally to the market. Well it’s crazy out there – and seems to be built upon so few tech companies. And now that I want to access that capital for real estate – I wouldn’t dare incur those penalties.

In real estate I’ve got a great little cash-flowing duplex (nicknamed ATM). Made an offer on our second investment duplex today. You can play with the numbers all day, but in the end you end up with an appreciating property – or one that is cash flow positive in a serious downturn. I can drive by, schedule and inspection, pick my tenants, choose my rehab etc. I enjoy the control. But, this business is built on a debt – an internal battle I’m always aware of, and makes me hesitate to scale too quickly.

In the end, who knows. I guess I better start a baseline over here so I can check in 10 years to see how it all played out. I do know I didn’t enjoy watching my stocks drop 25% in a week in March, while my ATM pumped out a healthy $539 after-tax cash flow to my checking account.

Look forward to future posts!

-T

Umbrella insurance might not be a bad thought for the first few years (until I would no longer be qualified for the homestead exemption), but it will depend on whether or not the policy would cover rental tenants. I know we were looking into it a little for when my husband was starting to think about taking more side jobs relating to rigging and other odds and ends for performance arts clients, but I don’t think we ever found one that would cover it. So I think they might be picky in this state. But I’m going to file that tip away as a good possibility. The other benefit with having the property in an LLC is if I wanted to use a management company and be more anonymous no one would be able to tell who owned the property and where they actually lived using our city/county website. You also mentioned in a comment below that many rentals are only really profitable for 1-3 years and fade off after that. I would love it if you included why that was in your next article on the topic. Thanks.