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All Forum Posts by: Andrew Taylor

Andrew Taylor has started 43 posts and replied 259 times.

Post: This Seems Like a Winner: What Say You, BP?

Andrew TaylorPosted
  • Contractor
  • Magnolia, TX
  • Posts 279
  • Votes 154

@Jason V., I think I stumbled on the deal as soon as it appeared online - like I think she was actually in the middle of posting all the information when I contacted her. Luck of the draw, really.

We met with her last night for a couple of hours and really hit it off. If the deal goes through, I'll post all the details, but so far it really has the makings to be one of those once-in-a-lifetime deals that kind of falls into your lap. It could still go south, so I'm not counting my chickens yet, but my wife (normally the skeptic one) and I both felt really good after our meeting last night and we're waiting anxiously to hear back on our offer.

Post: Walk me through income & tax implications

Andrew TaylorPosted
  • Contractor
  • Magnolia, TX
  • Posts 279
  • Votes 154

@Gita Faust, I will absolutely be filtering all of this through my CPA when the time comes. For now, I'm just spitballing. We made our first offer on a property last night and are anxiously awaiting the seller's response. I'm just trying to get a handle on what the situation will be if they accept the offer.

The property is a 48-unit apartment complex; is that considered commercial or residential?

Re: QuickBooks, why use that as opposed to Buildium or VerticalRent, one of the applications specifically tailored for landlords/property managers? I like a lot of the landlord-specific features offered by those two web-based applications, but I'm not sure how well they handle the bookkeeping side of the business. QB, on the other hand, seems like it would handle all the bookkeeping but maybe not necessarily the landlording parts (i.e. leases, maintenance requests, etc.).

Post: Walk me through income & tax implications

Andrew TaylorPosted
  • Contractor
  • Magnolia, TX
  • Posts 279
  • Votes 154

Ah. Gotcha.

And that net income figure you quoted above, that's taxed at ordinary income rates?

Post: Walk me through income & tax implications

Andrew TaylorPosted
  • Contractor
  • Magnolia, TX
  • Posts 279
  • Votes 154

Thanks, @Wayne Brooks. That clears things up a bit for me. (BTW, it is a commercial property, not residential, and the interest rate is what my lender quoted. All the other numbers are made-up, though.)

That's a good catch re: the CapEx / R&M money not being spent in the year it's earned. That would've snuck up on me.

Post: Walk me through income & tax implications

Andrew TaylorPosted
  • Contractor
  • Magnolia, TX
  • Posts 279
  • Votes 154

So let's take an example property, and you let me know if I'm close on the assumptions.

  • $1,000,000 purchase price @ 3.5% for 20 years = $5,799.60/mo
  • $150,000 gross rents
  • 1st year P&I = $34,440 (interest), $35,156 (principal)
  • 1st year deductions
    • $34,440 (mortgage interest)
    • $25,641 (depreciation, $1M/39 years)
    • $75,000 (expenses - I'm using the 50% rule here for the sake of simplicity; property management, property taxes, insurance, maintenance, repairs, etc.)
    • $135,081 total deductions

So my cash flow is going to be 150k (income) less 75k (expenses) less debt service ($69,595), or roughly $5.5k. Do I understand correctly that none of the $5.5k is taxable income, because of the $135k of deductions? Do I get a refund on the remaining $130k of deductions, or is that where the "real estate professional" designation comes into play? (Or actively managed, can't remember what I read.)

I realize this is an over-simplified example, but I just want to make sure I have a handle on how the numbers will work in real life.

Post: Walk me through income & tax implications

Andrew TaylorPosted
  • Contractor
  • Magnolia, TX
  • Posts 279
  • Votes 154

Thanks, @Wayne Brooks. I was actually just reading on a different tab about the things I can deduct (same stuff you mentioned and more). I doubt very seriously I'll have any actual net income. (I used the term "net" above erroneously. I just meant "cash left over that I can have fun with.")

Between depreciation, expenses, interest, etc. I think I'll be fine. And CPA is already on board, she's just in the middle of tax season so I can't get in to see her for a few weeks.

Post: Walk me through income & tax implications

Andrew TaylorPosted
  • Contractor
  • Magnolia, TX
  • Posts 279
  • Votes 154

My wife and I are closing in on our first multifamily property, and I'm really enjoying daydreaming about all the positive cash flow and how I'm going to enjoy it. (Don't anybody burst my bubble.)

I'm curious about a couple of things, though. I understand rental income is considered passive income, versus ordinary income from my employer. Say our property nets $24k/year in cash flow. That's $2k/month after all expenses, debt service, etc.

Income question: How do I make use of the $2k/month? Just spend away? Anything special I need to do (or not do) since that's the "passive income" from the rental?

Tax question, related to income question: How is the $24k/year "segregated" (for lack of a better word) from my ordinary income? I don't want to end up paying ordinary income tax rates on the $24k because I did (or didn't do) something with it during the year.

Random other question: Does the fact that the property is commercial (48 units) have any effect on income and/or taxes?

I'm planning on having a CPA handle this stuff for me when the time comes, but I'm trying to understand it now so I can make their job easier later.

Post: What gets paid from Repair & Maintenance escrow?

Andrew TaylorPosted
  • Contractor
  • Magnolia, TX
  • Posts 279
  • Votes 154

Trying to get my analysis spreadsheet cleaned up a bit, and I'm curious about what gets paid from the R&M escrow percentage held back from gross rent receipts? Are things like monthly/quarterly pest control, or weekly / bi-weekly landscaping paid from R&M, or are they separate line items in your budgets?

Post: Builder Recommendation in North Houston

Andrew TaylorPosted
  • Contractor
  • Magnolia, TX
  • Posts 279
  • Votes 154

Y'all please PM me. I can help.

Post: Found a (Great?) Deal - Now What?

Andrew TaylorPosted
  • Contractor
  • Magnolia, TX
  • Posts 279
  • Votes 154

Actually downloaded that booklet last week and used it to create my deal presentation package. Banker seemed to approve of it.