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January 11, 2013


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Thank you, Apex. You have clearly set forth the process of investing in rental real estate. You have avoided overselling an idea that has worked well for you. To teach this effectively demonstrates clear thinking and a willingness to commit the time needed. Good job!

I've never commented at FMF before, but feel I need to say thank you as well. What a wonderful series written in a measured, informative manner. We are truly in your debt Apex.

Agree, fantastic series. Thanks for that.

Thanks Apex! I feel much more informed in the process's that go into rental real estate. I found every article brought more than one aspect to mind that I had not thought about.

My daughter's ex-husband is a very successful attorney. He has 3 other attorneys working for him as well as an office staff, couriers, and a process server. My other daughter used to be his office manager but now lives in Maui and processes all of his bills for him

He makes over $4,000,000/year. His sole business in the San Francisco Bay Area is evicting tenants from homes, apartments, and office buildings. The last time I talked with him he was processing over 400 evictions/month. Not too many went to court, those that did almost always lost their cases. Often he would evict the same tenants from one rental after another.

I am not a "people" person, plus I am a worrier, so I never considered rentals as a way to build wealth. Rentals are no doubt great for some people but could be a great source of worry and anxiety for others. One man that was in a hiking group that I was part of had about a dozen rentals. The biggest problem he had was that every now again a tenant would move out and leave behind a home that needed a lot of work done on it before he could rent it again. He used to do the repairs himself and as he got older it was wearing him out to the point where when I last met him he was actively selling his rentals and putting the proceeds into the market.

I have what for me is the ideal income source - it is owning passive income investments. Admittedly I only make around 5%/annum from bonds (which is tax deferred or tax exempt) but if you can amass several million dollars even 5% amounts to a lot of income that arrives like clockwork, requires very little of your time to manage, and doesn't require you to have to deal with lots of renters, some of which are good and some bad. I have my bonds laddered out from 2013 to 2042 so every year one or more mature, providing money that I can either reinvest into other bonds, spend, or reinvest into other types of income investments. For 2012 my passive income amounted to over $343,000 and everything is managed right from my desk using Fidelity Investments Active Trader Pro software on my Dell Laptop.

Great job on this series.

Old Limey, what yields are you reinvesting at these days? Junk bonds, emerging market debt, and agencies are probably ok? I am getting 20-30% cash on cash return through rentals scooping up foreclosures at 50-75% off with little risk in my opinion. Where else could you find a return like that?

I should clarify that is gross %, net is more like 13-20%. Of course this is not including the significant tax benefits.

Currently I am still able to find muni bonds in the secondary market with 5% coupons. The price of them has gone up a little. A bond that I used to be able to buy for around $986 now costs around $1023. I try to find California bonds whenever I can because they are free of both state and federal taxes. In our IRAs I have been reinvesting interest I earn in the fund PIMIX, Pimco's Institutional class Income fund. For the last 12 months it's annual return has been 22.58% which in an IRA is totally tax deferred. Also in our IRAs I have about $800K of CDs with 5% coupons maturing this year and that money will go straight into PIMIX.

Don't get me wrong I think rentals are great, especially if you are young and don't mind the work that you may get involved in. I do nearly all the maintenance on our home but I wouldn't want to have to run around working on rental properties - I'm too old for that.

Thanks, Apex for this series. I missed some of them and will go back and read. We bought our first residential rental this year. It has been lots of work, but our tenants seem good, and I think it has been a good decision so far.

This is by far the most helpful, , clear, and thoughtful information on how to launch into real estate & landlording that I've found. Truly, thank you so much Apex, & FMF for hosting this opportunity for readers!

To those who commented and felt the material was helpful, thank you for the kind words. It was a fun and educational experience even for me to write this series as it made me put concrete words and action steps to some of the ideas and experiences that I have learned over the years.

Thank you for the info. It is an easy to read and understand post.

Hi all, I took the plunge in mid 2012 and became a landlord. Now, I am working on taxes, but find mixed information about 1099-Misc forms. Do landlords have to issue them or not? Help.


IRC section 6041(a) states: "All persons engaged in a trade or business and making payment of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income of $600 or more in the course of such trade or business to another service provider who is not incorporated, must report the amount, and the name and address of the recipient of such payment."

There has been some confusion caused by the affordable care act specifically calling out landlords as required to submit 1099s and then that section getting repealed. However 6041(a) still stands and any landlord who is operating rental properties for profit and managing them meets the requirement of 6041(a).

You will also noticed that beginning in 2011 at the top of Schedule E the IRS has added questions A & B. Those questions are:

Question A : “Did you make any payments in 2011 that would require you to file Form(s) 1099?”
Question B : “If ‘yes,’ did you or will you file all required Forms 1099?”

It is clear the IRS still intends for those operating rental real estate for profit to provide 1099's to any individual to whom you have paid more than $600 to provide services who is not incorporated.

When you hire a contractor you should ask them to fill out a W-9. This will give you the information you need to send a 1099 to them and the IRS for the work you pay them to do. If they balk at this then you know that they do not want to get a 1099. The reason is likely because they prefer to take their money under the table and not report it.

For me this is an easy decision. I ask them to fill out the W-9 before I hire them. If they refuse they don't get hired. I pay my taxes and I do not see any reason why I should provide business to others who intend to cheat their way out of paying theirs.

Great job! I'm in roughly the same phase you are (acquiring and building a solid cashflow base), and it is really great to see some level-headed discussion about the pros and cons of the business.

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