Real Estate Investor Burned Down His House
When Jeff Rabinowitz purchased the house at an auction, it wasn't clear to him how difficult it would be to remodel it.
The house had 4 bedrooms but only 1 bathroom. A staircase was also narrower than specified by the code. Jeff was able to rent the house and earned profit for a few years but then one day a crack formed in a pipe to the sewer, which called for an expensive fix.
Jeff decided that he would go with his backup plan of completely demolishing the house and building two spec houses on the same lot. “I try to buy properties that offer multiple backup plans”, Jeff said.
When it comes to demolishing the house, Jeff would have to pay for the process. Instead, he found out, he could donate the house to the local fire department for training purposes. The lot can be cleared up for free and there is a tax deduction for the real estate investor.
Jeff contacted his city fire department. The house fitted their requirements: the lot was big enough that it wouldn’t cause damage to neighboring properties. An appraisal is done to determine the value of the gift. Then, two training sessions were scheduled, one for the large garage and another for the main house.
The training lasted two days. Each time, the house and the garage was set on fire and put out a few times. Rescue operations were staged in different parts of the house. Finally, they were completely burned to the ground. The firemen were vigilant with safety measures throughout the sessions.
Real Estate Investor’s “Hot Deal”
Jeff called it a “hot deal”. “I solved a problem”, Jeff shared, “saved money on demo, received a significant tax deduction, and provided a service to my community.”
With plenty of room across the street, Jeff held a housewarming party and invited others to watch the practice. Many family members and friends of the firemen also attended. It was the first time for many of them to watch their sons, husbands, and fathers at work.
Many of our clients are successful real estate investors, each with their own stories to tell. Jeff Rabinowitz held one of the most unique stories, which shows that sometimes it pays to think outside the box. It is a great example of how a real estate investor can follow a tax-efficient strategy and give back to their community at the same time.
If you enjoyed reading this please leave a comment below.
Comments (13)
Did you actually give the house to the fire department? How did you get the property back to build on it?
Katie Rogers, over 8 years ago
Katie, Jeff donated the structure of the fire department not the land so he did not have to get it back.
Dmitriy Fomichenko, over 8 years ago
What a neat story. Thanks for sharing.
Doug W., over 8 years ago
Dmitriy Fomichenko, over 8 years ago
Was there an existing mortgage? Will you rebuild with insurance money?
Patricia Trauth, over 8 years ago
Patricia, I think you missed part of the story... Jeff need the lot to be cleared so he could built two spec homes. Insurance was not involved in this.
Dmitriy Fomichenko, over 5 years ago
Not at all what I expected when I read the title. Great read and an helpful tip or 2
John Yarenis, over 8 years ago
Glad you enjoyed it John
Dmitriy Fomichenko, over 5 years ago
Dmitriy - Thanks for sharing this great story about such an innovative approach.
Jeff - Thanks for the additional details.
Joe Budelis, over 8 years ago
Great story and tip.
Jose Jimenez, over 8 years ago
@Dmitriy Fomichenko, thank you for retelling this story. I would be thrilled if more people would consider this option. It is a real service to the firemen. There is no substitute for training in actual burning houses and many recruits don't have that opportunity.
I do want to clarify that there is some significant up front cost with this approach. I had to have an asbestos inspection. I believe that cost ~$1,000. Fortunately, there was only a small amount of asbestos found (a bit of wrapping around a duct) otherwise I would have had to do a full asbestos abatement in order for the firemen to work there. I know it sounds crazy (if the house had just caught fire the firemen would have entered) but it is required by the OSHA regs.
The appraisal was more expensive than a standard one. My accountant was aware that the IRS might question the deduction so she wanted an appraisal of the vacant lot by itself and another for the lot with the house. There were not many appraisers who were equipped to do this. The house is in a suburban area and there were not many comps for the land. Both appraisals were attached to my tax return for that year and I never heard a word from the IRS.
I believe my lawyer drafted a letter specifying that I was gifting the house to the fire department in order to prove my intention. There was a little back and forth on the wording but we came to a mutually agreeable document. All the usual demo permits and utility disconnect fees had to be paid.
This took some planning, some extra time, and expense (the extra expenses were tax deductible) but I am very glad I did it and encourage everyone to consider this as an option.
Please feel free to share the story. I would ask that you let me know you wish to do so (Dmitriy contacted me before rewriting this). Here is the link to my original BP blog: I Burned My House to the Ground. I am happy to answer any questions you might have about the process but am more likely to see them if you post them as a comment on my original blog.
Jeff Rabinowitz, over 8 years ago
Awesome job!
Ronald Perich, over 8 years ago
Cool story and a great idea from Jeff. Thanks for sharing.
Joshua Dorkin, over 8 years ago