business administration from Regis University in Colorado in April. He then landed a full-time job making $57,000 as a financial analyst for Diners Club—a 30% increase from his old base salary. Vaughn also scored a part time job at a collection agency, earning an extra $1,300 to $1,400 a month. The company that employs him part-time offers bonuses, a 401(k), and tuition reimbursement. In about a month, he will begin work necessary to earn the CPA designation.
Despite the setback of having to evict a tenant, which left him with sole responsibility for a hefty $2,200 mortgage for six months, Vaughn has begun saving again. His savings account is up from $1,000 to $2,500. He is contributing to the 401(k) on both his full- and part-time jobs and has a combined $12,000 in the two accounts. He lost a little ground when he had to pull $1,500 from his mutual fund to get his property ready to rent, but he used the $2,000 contest winnings to help him through that difficult time.
“In hindsight, I probably should have taken a break from school. But I was set on finishing as planned,” says Vaughn, who hasn’t been able to focus on real estate investing as he had hoped. He shares custody of his 8-year-old daughter and 5-year-old son with his former wife. He also helps care for his former wife’s 12-year-old daughter from a previous relationship.
Vaughn has been through a lot, but he has a fresh perspective and knows what’s important. “It has taken two years for things to get better. The good thing is, it’s only money, which can be recouped. My kids are healthy and happy, and that’s what matters,” he says.
THE ADVICE: Lease with the option to buy. Look for a home or townhouse that he can lease for about the same amount he was paying in rent.
THE FOLLOW-THROUGH: After Vaughn evicted the delinquent tenant, he moved into the house to save the $850 he was paying to rent an apartment each month. Around the time he found a new tenant for his home, a friend of his needed a roommate, so he moved into his friend’s home and now pays $600 monthly. He hasn’t had time to look for another property.
THE ADVICE: Create a single-member limited liability company. Vaughn’s home is listed on his tax return, under Schedule E, as rental income. He should form an L.L.C., transfer the home to the newly formed company, then have the company taxed as a sole proprietorship.
THE FOLLOW-THROUGH: Vaughn did this immediately, forming ALV & Associates. He saw considerable tax benefits, but he’s not sure exactly how much he benefited because he made some improvements to the house and had no rental income for four months. Vaughn says he learned a very important lesson: “Be careful about doing business with friends or family.”
THE ADVICE: Buy more life insurance and establish an irrevocable life insurance trust. The adviser who worked with Vaughn suggested that he get at least $750,000 in term life