All Forum Posts by: Amanda Breck

The IRS is definitely skeptical when someone with a W-2 tries to claim real estate professional status. They are usually mutually exclusive, but not necessarily so. You will have to keep very detailed records of your real estate activity and be prepared to make a defense to the IRS. Make sure you are very familiar with the rules and guidelines! You qualified as a real estate professional for the year if you meet both of the following requirements:

1. More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.

2. You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated.

There are generally 7 tests for material participation per IRS Publication 925. Clients I work with most often fall under the first four. Keeping a copy of IRS Publication 925 handy could be helpful!

Another potential way to approach debt relating to real estate is through the lens of asset protection. When a property is encumbered by a mortgage or something like a HELOC, potential creditors can see that in an asset search and it makes those assets less attractive to potential creditors. If liability arises with your real estate activity, having the property encumbered in some way may help dissuade a lawsuit if a creditor sees they aren't going to get anything out of the property because someone else is entitled to the value first. I would not rely on this as a primary method for asset protection, you still should consider LLC structuring and have good insurance, but it can be a solid part of a wholistic asset protection approach.

Property Management terms are often more favorable to the property manager in terms of liability provisions and legal protections. They also usually have broad control of tenant screening and keeping or not renewing tenants. The sales commission is also not unusual. Keeping 100% of the late fees, discretion over discounts and payment arrangements are more than I usually see, however. You can always try to negotiate, but make sure you get any changes in writing, and keep a copy of the final signed management agreement. I worked with a client recently who no longer had a copy of the signed management agreement and was being charged a fee he was certain was not in the agreement, but could not prove. 

It may take more leg work than you anticipated, but you should be able to find a property manager with more reasonable terms or who will negotiate with you. Good on you for carefully reading the agreements!