Hey BiggerPockets! New investor here that's looking to get started! I've been researching for about a year and have been trying to find the best way to get started, I recently spoke with an investor that has a couple vacant houses that he leaves just sitting because he doesn't want to increase his income into the next tax bracket. He said it's cheaper to just leave them sit rather than paying more income taxes. So, I said "hey maybe let me lease option them?" But still he said "that is the same as renting and will increase his income". The more I think about it the more I dislike seeing vacant houses! (Maybe a pet-peeve). So I'm hoping all of you Pro's could maybe help me with some ideas to help him and possibly myself at the same time? Would a lease option saying I just cover the property taxes and property improvements for him work? (I have no problem throwing in some sweat equity, I've done all phases of construction) Or what about a land contract type of deal? I do know he does invest strictly under his name instead of using a buisness. Looking forward to hearing your thoughts! Thanks!
Interesting scenario. Aside from getting him a better tax person (no such thing as a 100% tax rate yet!) I like your idea. Maybe be a lessee that pays the taxes where he allows you to sublease it out. Your lease payments could go directly to the mortgage or his power bill or w/s/g or something. You could be considered a housesitter and rent out rooms? If you dont already have a house and family that is.
I have an old guy I offered to Option his duplexes for 3 years, consideration payable to the county for his property taxes in 6 installments. Like you mentioned.
When I get one-off income like a finder's or origination fee, I sometimes ask them to pay a bill I already have. One $1k thing went $483 to a plumber, the balance to city utility bills. I'm sure your guy has some recurring bills that need to be paid.
Any seller financing you propose will give him interest. Earning that is worse than regular income for me, taxed in the 50% range. I'd stay away from there.
I'd try a lease option. Lease for utility payments/mortgage/taxes directly with the consideration paid to his kids' college fund or something. Cool find, Phil!
Offer to pay for his entity creation and a review of his taxes by an accountant instead of Turbo Tax that he must be using, because I'm unaware of any scenario where it makes sense to avoid making money due to fear of taxes - in exchange for granting you the lease option and covering those expenses could be your option fee.
Rral Estate is a tax shelter... I went from owing $14,000 in one year to $6,000 back ($20K swing) in the next year just because I got into real estate and it gets better every year! I want as much income as I can get...
He really needs to get more educated on taxes in REal Estate and start doing business as an LLC or another type of a corp. It's unfortunate to keep himself from making more money by being afraid of taxes. This guy is definitely a nurture lead. both of you can also look into 1031 exchange and using a self directed Roth IRA for investing. Both methods are tax differed and give you AMAZING returns.
Sometimes investors leave their properties vacant strategically. I've done it myself.
Owning property isn't always about trying to generate rental income. It's very common to buy a second or third property and let it sit because you can use it as tax shelter or use it as a family vacation spot. With the new tax regs, it might not be as popular as it used to be. In low tax states it will be less of an issue with running into property tax deduction limits.
Sometimes people buy properties like people buy nice cars and stick them in the garage.
If he doesn't want to sell or rent them, move on.
@Steve Vaughan Thanks for the quick reply! I like your ideas! :) Definitely the creativeness as in going toward utility bills or the kids college fund! I would have never really thought to have someone pay a bill for me, always into my account then out for the bill, cool strategy! Does that help you tax wise as well?
He's an older guy also, and from what I've heard I'm not sure his CPA is 100% investor friendly. In common, I'd like to hear your story on the duplexes!
@Jonathan Taylor Smith not a bad idea, but from what I understand he does not want an entity because he doesn't want to report to the IRS every 3 months, hes using an accountant, details I'm not sure. I think hes just into the ol way of thinking
I'm trying to understand this "tax shelter" thing, in my knowledge it would be using depreciation to offset gains, right? his are paid off and he said there's not much depreciation to claim
so real estate actually got you out of a previous tax burden? sweet!
@Julia Shevchenko I agree and will most likely help him with this if he wishes to as we continue our relationship, i have brought up the 1031 idea. we'll see where this goes! :)
@Christopher Phillips I'd like to hear your thoughts on the shelter thing as well! I'm not sure if hes really doing it strategically other than the income thing, I could be wrong! But i know they're not vacation spots! haha. They're in pretty rough shape and full of stuff as is. Of course if hes not interested I'm on my way!
Yeah. It sounds like he’s old school and using them as tax shelters. It’s not all about depreciation.
People hitting a certain income level would be told to get a tax shelter. They would buy a plot of land, an old farm, a second house, or some other dodgy place with the intention of just letting it sit. Doctors used to buy old apple farms for this reason.
Most of the tax shelter benefits went away.
But at his age, he might not be looking for more income. Could be just there for emergency rainy days if he needs to liquidate. At his age, he’s probably not looking to 1031 exchange them into more property and wouldn’t want to deal with capital gains unless he needs to and doesn’t want to be soneone’s note holder on seller financing.
Then again, maybe he just likes hording hard assets, like the rarely used car in the garage.
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