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
Thursday, February 25, 2016
Quitting Your Job Using Rental Properties - Day 15
2/24/16 Wednesday - Day 15
So Gibo finally called Angela back yesterday while she was getting her nails done. She couldn't really talk, plus she doesn't know much about finances, so she couldn't really answer Gibo's questions. So she texted me his number to call him.
Gibo asked me some questions about where we were planning to buy and if we had already talked to a bank. He said he would send me his email address so that he could go over our preapproval letter. He also mentioned that you should never use any of your own money when buying a rental property. I'm not so sure that I understood what he was saying, but it sounded like this - he just through some numbers out there:
The last thing he mentioned was that the first thing we need to do to get started is form an LLC. So Angela and I have been working on figuring out how to do that, and thinking of some names. I like "La Tierra Dorada"; "El Dorado"; and "El Camino Real". Angela is coming up with some dumb names. The easiest way is to use Legal Zoom to form your LLC, but I think we can do it ourselves to save money. Angela has contacted some of her former colleagues from when she used to do legal work to see if anybody can help us out. So, we'll see where it goes.
Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises
So Gibo finally called Angela back yesterday while she was getting her nails done. She couldn't really talk, plus she doesn't know much about finances, so she couldn't really answer Gibo's questions. So she texted me his number to call him.
Gibo asked me some questions about where we were planning to buy and if we had already talked to a bank. He said he would send me his email address so that he could go over our preapproval letter. He also mentioned that you should never use any of your own money when buying a rental property. I'm not so sure that I understood what he was saying, but it sounded like this - he just through some numbers out there:
- Buy a house that's worth $80k for $60k
- Put a down payment of $12k ($20k)
- Your mortgage balance is $48k.
- Immediately refinance the home for the $80k that it is worth.
- Pay off the $48k, leaving you with $32k cash
- Pay yourself back the $12k down payment.
- That leaves you with $20k for repairs/profit.
- Rent out the house.
The last thing he mentioned was that the first thing we need to do to get started is form an LLC. So Angela and I have been working on figuring out how to do that, and thinking of some names. I like "La Tierra Dorada"; "El Dorado"; and "El Camino Real". Angela is coming up with some dumb names. The easiest way is to use Legal Zoom to form your LLC, but I think we can do it ourselves to save money. Angela has contacted some of her former colleagues from when she used to do legal work to see if anybody can help us out. So, we'll see where it goes.
Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises
Friday, February 19, 2016
Quitting Your Job Using Rental Properties - Day 10
February 19th Friday - Day 10
Yesterday, my wife and I had a phone meeting with our financial adviser, Scott. I just wanted to see if he had any advice four our new endeavor, and what his advice might be. Or if he would be for or against investing in real estate. If he is adamantly against it, then it may be cause to reconsider.
So we started off with some small talk regarding choosing an accountant to do my taxes, and how I am not concerned about the recent decline in the stock market, since we are in it for the long haul. Then I ran the idea of investing in real estate by him. He said investing in real estate is a great idea, and the only reason why it is not feasible for him is because he lives in Austin where property values are ridiculously high. He went on to do a quick assessment of our financials either mentally or what he had in front of him. He warned of the risks of not being able to pay the mortgage if the place is not rented. Then he said that although it is our money and we can do what we want with it, he didn't think we were in the position to proceed with buying a rental property. I said OK, and proceeded to explain to him the research I have done and why I think it is a perfect time to invest in real estate in Corpus Christi. Once Scott realized that this is not just something that I am just jumping into, he commended me on the research that I have done and said it looks like we are headed in the right direction. He even offered to put us in touch with a mortgage broker who can search and find banks willing to lend us money at the best rates possible for us. I definitely plan on using him.
Our plan is to proceed with purchasing our first rental property. I told my wife Angela to go ahead and contact her cousin, who is married to a realtor. At this point, we do not have any problems with working with a family member. That may change later on. Angela contacted her cousin, we'll call her Elsa, who said that they did not have a problem working with family members either. So we are expected to hear from Elsa's husband, we'll call him Gibo, to see if we can meet with him and hire him to be our realtor.
Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises
Yesterday, my wife and I had a phone meeting with our financial adviser, Scott. I just wanted to see if he had any advice four our new endeavor, and what his advice might be. Or if he would be for or against investing in real estate. If he is adamantly against it, then it may be cause to reconsider.
So we started off with some small talk regarding choosing an accountant to do my taxes, and how I am not concerned about the recent decline in the stock market, since we are in it for the long haul. Then I ran the idea of investing in real estate by him. He said investing in real estate is a great idea, and the only reason why it is not feasible for him is because he lives in Austin where property values are ridiculously high. He went on to do a quick assessment of our financials either mentally or what he had in front of him. He warned of the risks of not being able to pay the mortgage if the place is not rented. Then he said that although it is our money and we can do what we want with it, he didn't think we were in the position to proceed with buying a rental property. I said OK, and proceeded to explain to him the research I have done and why I think it is a perfect time to invest in real estate in Corpus Christi. Once Scott realized that this is not just something that I am just jumping into, he commended me on the research that I have done and said it looks like we are headed in the right direction. He even offered to put us in touch with a mortgage broker who can search and find banks willing to lend us money at the best rates possible for us. I definitely plan on using him.
Our plan is to proceed with purchasing our first rental property. I told my wife Angela to go ahead and contact her cousin, who is married to a realtor. At this point, we do not have any problems with working with a family member. That may change later on. Angela contacted her cousin, we'll call her Elsa, who said that they did not have a problem working with family members either. So we are expected to hear from Elsa's husband, we'll call him Gibo, to see if we can meet with him and hire him to be our realtor.
Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises
Tuesday, February 16, 2016
Quitting Your Job Using Rental Properties - Day 6
2/15/16 - Monday
I finished reading the 2 Million in Real Estate in a Year book over the weekend. I really enjoyed it. I learned some things, but a lot of the info was familiar. Which makes me think I am ready.
Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises
I finished reading the 2 Million in Real Estate in a Year book over the weekend. I really enjoyed it. I learned some things, but a lot of the info was familiar. Which makes me think I am ready.
Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises
Friday, February 12, 2016
Quitting Your Job Using Rental Properties - Day 5
February 12, 2016 - Day 5
Today, I heard back from Jessica. I'm approved!! Jessica's bank approved me for a $120k loan at 5% interest rate. I will have to put down 20% minimum. That means I can afford a house for up to $146k.
I had to fill out a "General Authorization Form" which allows the mortgage company to gather personal information from my bank (which happens to be the same entity). I also had to e-sign a "Uniform Residential Loan Application" and a "Notice to the Home Loan Applicant Credit Score Information Disclosure"
I had to sign, scan, and email the "General Authorization Form" back to Jessica. When I did, I asked her what my next steps would be. I did not hear back from her.
I sent an email to Hank letting him know that I was preapproved by another bank, but I still want him to continue to try and get me approved. I'm not sure if this was a good move or not. I thought about it, and just went on my instincts. I'm not sure what advantages or disadvantages an email of this type has. I also told him that there were a couple of reasons why I would prefer working with his bank. I didn't tell him the reasons, but they are 1)They are local, and I can sit down and have a conversation with him if I want to, and 2)It is the same bank that I used to finance my primary residence, and I enjoyed the experience I had with them.
The great new is, I'm approved!!!.
Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises
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