But I thought this was turnkey - what's with all the delay?

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But I thought this was turnkey - what's with all the delay?

Collin HaysBusiness Member

Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes

I think this is a good primer for anyone in the market for a short term rental. Feel free to jump in and discuss.

But I thought this was turnkey - what's with all the delay? (biggerpockets.com)

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Michael BaumPro Member

Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes

Don’t you have to pay tax to load it in a Roth? Roth IRA seems like a scam to me.

It isn't a scam at all. It is a government approved long term retirement vehicle.

If you open an Roth IRA, you fund it with POST TAX money. You pay the normal taxes via your paycheck or whatever. Then the money grows tax free. You don't take a hit when you start to pull from it.

If you have a traditional IRA, you could convert it to a Roth IRA. You just have to pay the income taxes you would have paid in the first place. Then anything grows tax free. Even if you fill it with performing real estate. Every penny is tax free.

Even when you go to sell it. The entire proceeds go to your Roth IRA and it is tax free.

Here is a BP Blog post about it - https://www.biggerpockets.com/...

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John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
3y
Quote from @Collin Hays:

I think this is a good primer for anyone in the market for a short term rental. Feel free to jump in and discuss.
But I thought this was turnkey - what's with all the delay? (biggerpockets.com)
Being local in Sevierville I considered doing property management, but as I looked into it more, and read stories, I became to realize the nuisances PMs have of dealing with the homeowners and also the guests. Boots on the ground PM at a good value is not generally appreciated by many nowadays. Everyone has the mantra they can easily self manage, but there are many intricacies that go into taking a property from purchase through go live date and into the future that go under appreciated. I know because I’ve gone live with 6 rentals for my own. You handle it well Colin, the constant bashing from people here on BP who say your industry isn’t needed, the frustrated new clients who don’t realize the behind the scenes work being done, and then the guests on top which we all will deal with. I enjoy this business but I prefer just adding a few more every year to my portfolio so i can always be my own boss. Thanks for your insight on this and other smoky mountain specific info .
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Ken Boone
Investor · Greenville, SC · Member since 2015 · 1k+ posts · 1k+ votes
3y
Right on the money!
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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
Well @John Carbone, I don't think we bash PMs. For a lot of people a good PM makes a lot of sense. For me specifically it was way too expensive (40%).
Telling people they can manage their own properties isn't bashing. It just makes sense for some and not for others.
Bashing Evolve and Vacasa don't count...
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John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
3y
Quote from @Michael Baum:

Well @John Carbone, I don't think we bash PMs. For a lot of people a good PM makes a lot of sense. For me specifically it was way too expensive (40%).
Telling people they can manage their own properties isn't bashing. It just makes sense for some and not for others.
Bashing Evolve and Vacasa don't count...

Yeah 30-40 percent is way too high now. There are good ones around 20 percent though that will make sense for a lot of people. Obviously evolve and vacasa are in a league of their own. General consensus though is every PM gets thrown in with the bad ones, and many people say it’s just not needed anymore in the new world.
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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
Yeah, but we are about an hour outside of town so 2 hours round trip costs.
Frankly I would consider a local PM for our next place if it could be done reasonably and the services offered are worth it.
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Brooklyn McCarty
Investor · Member since 2022 · 1k+ posts · 754 votes
3y
Good points, I don’t think anything is ever really turn key.
Turn key means something different to you than it does to me than it does to the next guy.
Especially in STR. More often than it, these properties see a lot of wear and tear from frequent turn overs and some things that aren't "big deals" to existing home owners or PM's go unnoticed or untouched until a new buyer comes in.
Never assume anything is turn key.
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Nancy Bachety
Rental Property Investor · North Fork, NY · Member since 2016 · 1k+ posts · 631 votes
3y
Sounds like you go above and beyond for your owners. Reminds me of the public bashing of teachers. Everyone claims they’re overpaid yet no one wants to teach their kids.
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
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There's a sucker born every minute.
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Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
Improved communication avoids misunderstandings. If you are upfront with the property owner and do a walkthrough of the property before signing a management contract with them you can avoid unrealistic expectations. Tell the property owner how long and why there will be a delay in marketing a property avoids questions about operating timetable.
Another option is for a management company to assume marketing and property owner risk by leasing the property from the property owner. By furnishing and maintaining the property the management company has “ skin in the game.”
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Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@John Carbone STVR management companies are necessary when owning that property in an IRA or Solo401k. Active management of a business, STVrentals averaging less than 7 days, by IRS definition is not allowed in a retirement account. It's a prohibited transaction.
That means you should hire a management firm to co manage or lease your property to , maintaining your status as a passive investor. If you don t want the income uncertainty , lease your property to lock in a desired ConC return.
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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
So I have been studying the rules on IRA/Solo401k and self management. I still haven't found a definitive answer on this.
Most CPA's say that active management doesn't mean taking bookings etc. What you would call paper work.
The IRS guides are not clear on it at all. What they are clear on is personal use, using family to manage it etc.
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John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
3y
Quote from @Michael Baum:

So I have been studying the rules on IRA/Solo401k and self management. I still haven't found a definitive answer on this.
Most CPA's say that active management doesn't mean taking bookings etc. What you would call paper work.
The IRS guides are not clear on it at all. What they are clear on is personal use, using family to manage it etc.

I never understood owning a rental in an ira. Why not just withdrawal from the ira, take the depreciation with the cost segregation against the income you took out and get a mortgage with some leverage on the property, and then you can still manage it yourself. You take a 10 percent early penalty hit but that’s a one time hit.

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Account Closed
Rental Property Investor · New Braunfels, TX · Member since 2022 · 408 posts · 408 votes
3y
One reason is you don't have to pay capital gains in an IRA. You have to pay ordinary income taxes eventually when you withdraw but it makes a lot of sense until then in some markets.
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John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
3y
Quote from @Account Closed:

One reason is you don't have to pay capital gains in an IRA. You have to pay ordinary income taxes eventually when you withdraw but it makes a lot of sense until then in some markets.
Aren’t capital gains tax rates more favorable than ordinary income when you decide to sell, plus flexibility to 1031. The whole ira owning a rental where you have virtually 0 control doesn’t sit well with me.
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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
@John Carbone and @Account Closed, most folks convert their IRA over to a Roth before they start investing from it. No taxes on profits made on the investment.
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Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@Michael Baum contact RE tax attys for direction. Running/managing a STVR is more than taking in a reservation. Managing a business is not passive it’s active management. Hiring and monitoring cleaners, marketing, providing concierge services , contracting for maintenance ,are all part of active management.
It's not worth the risk in having the IRS turn your IRA or Solo 401k into a taxable event by trying to say a STVR business is passive.
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Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@John Carbone there is total flexibility in selling a property within a retirement account. There is no need to 1031 exchange. Selling in a retirement account is a non taxable event as long as it’s not a business involving flipping props often.
You have control when leasing . You control the income received from the business. You control maintenance, control insurance, all through terms of lease agreement.
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Account Closed
Rental Property Investor · New Braunfels, TX · Member since 2022 · 408 posts · 408 votes
3y
Quote from @Michael Baum:

@John Carbone and @Account Closed, most folks convert their IRA over to a Roth before they start investing from it.
Everybody’s situation is unique. Roth IRA’s weren’t a thing when I retired.
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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
Quote from @Account Closed:

Quote from @Michael Baum:

@John Carbone and @Account Closed, most folks convert their IRA over to a Roth before they start investing from it.
Everybody’s situation is unique. Roth IRA’s weren’t a thing when I retired.

Of course. Roth IRAs came into being in 1997 with the Taxpayer Relief Act. I know that there are folks who have regular IRAs from before that time. You can always convert a standard IRA to a Roth and pay the taxes. That way all your real estate investments grow tax free.

I wasn't accusing anyone of anything, just making a statement @Account Closed. Most people can convert over and then start growing tax free.

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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
Quote from @Todd Goedeke:

@Michael Baum contact RE tax attys for direction. Running/managing a STVR is more than taking in a reservation. Managing a business is not passive it’s active management. Hiring and monitoring cleaners, marketing, providing concierge services , contracting for maintenance ,are all part of active management.
It's not worth the risk in having the IRS turn your IRA or Solo 401k into a taxable event by trying to say a STVR business is passive.
I have a great RE investor CPA and tax attorney so I have that covered. I don't do marketing other than the basics, I don't provide any kind of services, I don't have any contracts with any professional. I just call a guy.

Also, I don't use my IRA or 401k's to invest with so that doesn't apply to me. I just was saying how many on here use their retirement accounts to invest with via a Roth.
1 Reply
Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@Michael Baum@Account Closed and not to forget you can transfer an IRA to a Solo401k and convert to Roth inside the Solo401k. The Solo401k allows for no UBTI from debt financing.

@Account Closedthe advantage of compounding cash flow from RE tax free with a Roth is far more advantageous than depreciation deductions or a 1031 exchange.
1 Reply
Nancy Bachety
Rental Property Investor · North Fork, NY · Member since 2016 · 1k+ posts · 631 votes
3y
Owning real estate inside any type of IRA is profitable for the Solo IRA custodial holders. Forget self managing a STR inside an IRA.
Rarely does it make sense for most re investors.
0 Reply
Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
3y
Quote from @John Carbone:

Quote from @Account Closed:

One reason is you don't have to pay capital gains in an IRA. You have to pay ordinary income taxes eventually when you withdraw but it makes a lot of sense until then in some markets.
Aren’t capital gains tax rates more favorable than ordinary income when you decide to sell, plus flexibility to 1031. The whole ira owning a rental where you have virtually 0 control doesn’t sit well with me.
Roth retirement account. No taxes ever paid on any income
Private Mortgage Financing Partners, LLC
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John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
3y
Quote from @Don Konipol:

Quote from @John Carbone:

Quote from @Account Closed:

One reason is you don't have to pay capital gains in an IRA. You have to pay ordinary income taxes eventually when you withdraw but it makes a lot of sense until then in some markets.
Aren’t capital gains tax rates more favorable than ordinary income when you decide to sell, plus flexibility to 1031. The whole ira owning a rental where you have virtually 0 control doesn’t sit well with me.
Roth retirement account. No taxes ever paid on any income
Don’t you have to pay tax to load it in a Roth? Roth IRA seems like a scam to me.
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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y

Don’t you have to pay tax to load it in a Roth? Roth IRA seems like a scam to me.
It isn't a scam at all. It is a government approved long term retirement vehicle.
If you open an Roth IRA, you fund it with POST TAX money. You pay the normal taxes via your paycheck or whatever. Then the money grows tax free. You don't take a hit when you start to pull from it.
If you have a traditional IRA, you could convert it to a Roth IRA. You just have to pay the income taxes you would have paid in the first place. Then anything grows tax free. Even if you fill it with performing real estate. Every penny is tax free.
Even when you go to sell it. The entire proceeds go to your Roth IRA and it is tax free.
Here is a BP Blog post about it - https://www.biggerpockets.com/...
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