Day 51 - March 31, 2016
Yesterday, Angela got a text from Gibo about a house for sale that he wanted us to look at. The seller is desperate. It had been on the market for a while. The original listing price was $110k, then dropped to $85k, and two days ago dropped to $75k. Gibo's selling points were that it had central A/C, includes appliances, and ready to rent now. He said he thinks we could get $900-$1000 a month in rent for it. I researched some similar rental properties in the area, and $900-1000 is about right for this area.
I ran some numbers on the house, and found it to have a cap rate of 14.7% and a cash on cash return of 21%. Sounds very good. The problem that we saw was that the property has an appraisal value of $44k, and the asking price is $75k. Maybe this is normal, I don't know, but I looked up the appraisal value of my current residence when I bought it on 2009, and it matched very closely with what I paid for it.
The house was vacant, and had a combo lock, so Angela, the kids and I stopped by after I got out of work. First of all, let me say that this house is in a very run down neighborhood. It is not a place that I would want to live in. We did see the potential in the house though. It did need some work. The floors would have to be completely redone. The countertops in the kitchen are not in great shape and kind of ugly. Angela wants to add a dishwasher. I want to redo the sidewalk in the front of the house that leads to the front door. On top of this, the type of tenant which this property will attract is not really something that we want to deal with. All in all, for being the first house that we looked at, I'm excited that it can basically only go up from here.
We did find another house online today that we are interested in. It is in a much nicer neighborhood. The seller is selling as it for $90k. The initial value online is around $116k. I'm pretty sure we could rent it for $1200 or more. Angela sent Gibo a text last night telling him that we looked at the house he recommended, and that we were interested in looking at this other house. We'll see how he responds.
I'm still very excited and optimistic about quitting my job with rental properties.
Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises
Thursday, March 31, 2016
Wednesday, March 30, 2016
Quitting Your Job Using Rental Properties - Day 50
Day 50 - March 30, 2016
So, we received our LLC paperwork on March 10th, 2016. I also applied for and received our EIN tax number from the IRS. It is a very simple process. Just go to IRS.gov and the process is very simple. You will get your EIN immediately. Do not pay legalzoom or anybody else to obtain your EIN number. It is a very simple process.
On March 21st, Angela and I went to our local Prosperity Bank to open up a business checking account. We chose the account which is free as long as you keep $3500 minimum in your account. We had about $750 in cash from a garage sale that we had and from my side business facebook.com/yrlenterprises. We pulled the rest from out savings account.
We then asked to speak with a banker. The lady we talked to, we'll call her Trish, was somewhat helpful. I kind of got the feeling that she was more trying to feel us out for what we knew than actually interested in helping us. Well, we're new to this, so we don't really know anything. I basically wanted to know what type of loans they would offer for a business, and how to qualify. She asked me if we were interested in a commercial loan, or a business loan. I still don't know what the difference is, but I said a business loan. Trish said to qualify, we would need to send in the last two years' tax returns as well as a financial statement. She emailed me an excel form to fill out for the financial statement. The financial statement basically asks about your finances (imagine that). Like how much money you have in each account that you own. How much your house is worth and how much equity you have in it. The value of your vehicles. How much debt you have. etc. Surprisingly, Trish did not ask about a credit report, or what my credit score is. She said the terms of the loan would be:
-80% LTV - this means that they will loan us 80% of the value of the house.
-5.9% Fixed - Interest rate
-15 yr term - 15 years to pay off.
I think these terms are very doable.
So on March 23rd, Angela called our realtor, Gibo, and told him we were done with our homework. We had formed an LLC, opened a bank account, talked to a banker, and we are now ready to buy a rental property. Gibo told Angela that he would begin searching for us, and let us know when he found something.
Also, I set a goal of quitting my job on July 4th, 2021. That gives me 5 years to grow my empire to where my passive income will support my family and lifestyle. If I can get my net passive income to around $100k in five years, I will have succeeded. According to my simple calculations, that will take about 20-25 rental properties. So to achieve this in 5 years, I would need to purchase 4-5 properties a year. I do expect my plan to change along the way, but the end goal will not. I want to be free to spend time with my family, and pursue the many hobbies which I have. It's not that I don't like my "real" job, I just don't want to waste my life slaving away at work every day. This past weekend was Easter. We had lots of family over to celebrate, eat, and have fun for the kids. The thought kept crossing my mind, "man, I have to go to work tomorrow." By the end of the day, I was tired, the house was a mess, and there were broken cascarones all over the yard. If I didn't have to go to work, these kinds of things would not bother me, or stress me out. But since work consumes all of my time, I have to look at things differently. I will probably never clean up the cascarones from the yard. Just mow over them and eventually they will go away. I want to be able to say, I'll clean that up tomorrow. I'm not sure if this example explains how I feel. I just want a life that is not consumed by work.
Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises
So, we received our LLC paperwork on March 10th, 2016. I also applied for and received our EIN tax number from the IRS. It is a very simple process. Just go to IRS.gov and the process is very simple. You will get your EIN immediately. Do not pay legalzoom or anybody else to obtain your EIN number. It is a very simple process.
On March 21st, Angela and I went to our local Prosperity Bank to open up a business checking account. We chose the account which is free as long as you keep $3500 minimum in your account. We had about $750 in cash from a garage sale that we had and from my side business facebook.com/yrlenterprises. We pulled the rest from out savings account.
We then asked to speak with a banker. The lady we talked to, we'll call her Trish, was somewhat helpful. I kind of got the feeling that she was more trying to feel us out for what we knew than actually interested in helping us. Well, we're new to this, so we don't really know anything. I basically wanted to know what type of loans they would offer for a business, and how to qualify. She asked me if we were interested in a commercial loan, or a business loan. I still don't know what the difference is, but I said a business loan. Trish said to qualify, we would need to send in the last two years' tax returns as well as a financial statement. She emailed me an excel form to fill out for the financial statement. The financial statement basically asks about your finances (imagine that). Like how much money you have in each account that you own. How much your house is worth and how much equity you have in it. The value of your vehicles. How much debt you have. etc. Surprisingly, Trish did not ask about a credit report, or what my credit score is. She said the terms of the loan would be:
-80% LTV - this means that they will loan us 80% of the value of the house.
-5.9% Fixed - Interest rate
-15 yr term - 15 years to pay off.
I think these terms are very doable.
So on March 23rd, Angela called our realtor, Gibo, and told him we were done with our homework. We had formed an LLC, opened a bank account, talked to a banker, and we are now ready to buy a rental property. Gibo told Angela that he would begin searching for us, and let us know when he found something.
Also, I set a goal of quitting my job on July 4th, 2021. That gives me 5 years to grow my empire to where my passive income will support my family and lifestyle. If I can get my net passive income to around $100k in five years, I will have succeeded. According to my simple calculations, that will take about 20-25 rental properties. So to achieve this in 5 years, I would need to purchase 4-5 properties a year. I do expect my plan to change along the way, but the end goal will not. I want to be free to spend time with my family, and pursue the many hobbies which I have. It's not that I don't like my "real" job, I just don't want to waste my life slaving away at work every day. This past weekend was Easter. We had lots of family over to celebrate, eat, and have fun for the kids. The thought kept crossing my mind, "man, I have to go to work tomorrow." By the end of the day, I was tired, the house was a mess, and there were broken cascarones all over the yard. If I didn't have to go to work, these kinds of things would not bother me, or stress me out. But since work consumes all of my time, I have to look at things differently. I will probably never clean up the cascarones from the yard. Just mow over them and eventually they will go away. I want to be able to say, I'll clean that up tomorrow. I'm not sure if this example explains how I feel. I just want a life that is not consumed by work.
Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises
Tuesday, March 1, 2016
Quitting Your Job Using Rental Properties - Day 21
March 1, 2016 - Tuesday Day 21
Yesterday, we finally went ahead and started the LLC process. I used LegalZoom.com to start the process of forming an LLC. The name of our business was picked by Angela. It is JAMC33 Enterprises. The process to use Legal Zoom is very easy. There are 3 different plans that you can buy. I chose the cheapest one which was $149. The filing fee in Texas is $301 and the shipping for the paperwork and stuff was $9.95. I searched for a coupon code and found a $10 discount online. The other plans were more expensive, and offered things that I don't think I need at this time. Things like a company seal and binder, and 20 extra "membership certificates" which I don't need. They also offered to set up my EIN, but from my research, that process seems very simple. The more expensive plans did offer expedition, but I don't really need that either. The time frame for the plan I ordered is 30 days.
One thing you will need to do is find a "Registered Agent." This is an entity that will be served papers if you are sued. It does give you the option to use Legal Zoom as your registered agent, which I did, for a price of $159/year. That cost will be charged to your credit card once your LLC is officially formed.
As you go through the process of setting up your LLC on Legal Zoom, the questions asked are related to the following:
Yesterday, we finally went ahead and started the LLC process. I used LegalZoom.com to start the process of forming an LLC. The name of our business was picked by Angela. It is JAMC33 Enterprises. The process to use Legal Zoom is very easy. There are 3 different plans that you can buy. I chose the cheapest one which was $149. The filing fee in Texas is $301 and the shipping for the paperwork and stuff was $9.95. I searched for a coupon code and found a $10 discount online. The other plans were more expensive, and offered things that I don't think I need at this time. Things like a company seal and binder, and 20 extra "membership certificates" which I don't need. They also offered to set up my EIN, but from my research, that process seems very simple. The more expensive plans did offer expedition, but I don't really need that either. The time frame for the plan I ordered is 30 days.
One thing you will need to do is find a "Registered Agent." This is an entity that will be served papers if you are sued. It does give you the option to use Legal Zoom as your registered agent, which I did, for a price of $159/year. That cost will be charged to your credit card once your LLC is officially formed.
As you go through the process of setting up your LLC on Legal Zoom, the questions asked are related to the following:
- Which State your business will operate in
- The type of business you are opening
- Are licenses required
- Will you have employees within 12 months
- When will your fiscal year end
- Your Business address
- Your Business name
- Who are the owner and manager
- Do you want Legal Zoom to obtain your EIN (Tax ID #)
- Would you like a free tax consultation
- Will you operate a vehicle over 55,000 lbs
- Will your business involve a casino or gambling
- Will you sell Alcohol, tobacco, or firearms
- Are your goods subject to an excise tax
- What is your contact info for the IRS
- Legal advice
- Tax advice
- Business licensing package
- Forms
- Business checking account through Bank of America
- Business credit card
- Website domain name
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