All Forum Posts by: Andrew Gingerich

Thank you @Natalie Kolodij I appreciate your help.

Thanks @Natalie Kolodij

I also did a cashout refi of my main residence to obtain this this new rental property. My new mortgage on my main residence has a higher monthly interest expense now (after the refi), than it did prior to the cashout refi. Can I write this extra interest off as well as the interest on the investment property loan? If so how do I track it to satisfy the IRS? For example I am now paying 800 a month in interest instead of 250 a month on my primary residence. Can I therefore write off 550 a month in extra interest expense in addition to the investment property interest? How do I do this math or track it to meet the IRS wants/rules?

In late 2018 we did do-diligence on a property that we ended up closing on in January 2019. Specifically drove to the property many times, we did a home inspection, we did multiple walk throughs, and we paid for an appraisal. These expenses hit my books in December 2018 but we didn't own the property until mid-January 2019. Can I put these expenses on my 2019 tax return/schedule even though they were costs in 2018. I did not claim them on my 2018 return.

Thanks 

Chad, setup keyword alerts on your BP profile for Spokane if you haven't already. I would Facebook search real estate investing spokane. 

I'm in Wenatchee and don't invest in Spokane but I'm happy to share an Eastern WA perspective if you have specific questions. I saw your other post about buying a second rental. Depending on your income and what you have for a downpayment you may qualify for another duplex purchase. Make sure your tenant in your duplex has signed a formal lease. This lease will be important if you go and get conventional bank financing. If you have less than two years experience the bank will give you 75% of the income off your duplex when they calculate your DTI ratio and determine if they should loan more money to you. If this is Greek to you PM me and I'll give you a hand.

Best, Andrew

Wenatchee, WA

@Chase Hoover Awesome. I'd be tempted to say your numbers, in this case, blow the long-term rental out of the water. But, this is the case provided your increases in expenses don't offset your gain in revenue. To be clear, this is what I mean. In our long-term rentals I pay zero utilities. In our AirBnB we pay, water, sewer, power, garbage, Netflix, 6500 in startup capex for furniture, decorating, towels, monthly expense in cleaning fees, monthly expenses in soap, coffee, toilet paper etc. Annual operating expenses for replacement towels, bed sheets, pillow cases, broken furniture, smart lock/home services, cleaning services, cameras/security. We don't have permit fees but some areas do have permit costs for shorterm rentals. I am forgetting other expenses too. Bottom line our AirBnB is at least an extra 500 a month in monthly expenses when you do the math compared to our long-term leases. To me I need to cashflow at least 500 bucks a month more than the long-term lease to justify the extra work. That means I have to have 1000 bucks more in revenue to cover the increased expenses and justify the additional effort. Just my preference some people might want more or less than 500 in increased cashflow.

I think the mistake is made when some folks say their long term lease is doing 1000/mnth and their AirBnb is doing 1500 so they think they are doing much better. In reality they are doing about the same since the vacation rental has so much more costs associated. 

Further, I didn't mention before but having an AirBnB, depending on how it is ran, is considered more of a business rather than a passive expense and so the tax situation/considerations can change. With a long term lease it is truly considered a passive investment to the IRS so the taxes are much easier in IMO. But you should consult a tax professional on these differences.   

I really like the AirBnB because of the potential upside but people should go in and evaluate honestly since it's not an apples to apples comparison. 

Best to all.

I'm not sure about Zillow but most of the online rent taking software uses a third party company like Chekr to run the report. We use Cozy.co and have been quite satisfied with the reports. 

Best, 

Andrew

@Larry John, can't speak to Orlando but in general the AirBnB is going to have more work in terms of customer service, cleaning and turning over compared to a long-term lease. Further, the expenses to furnish, clean, utilities etc., is more with the AirBnB approach. Whereas, in a long-term lease you can pass these expenses off on the tenants. 

Having said that, in some places, provided you can keep your occupancy up AirBnB has the potential to have more revenue. 

My advice is to build a spreadsheet where you list your estimated expenses for both in separate columns and follow that by listing your estimated revenue for each. Look at which one has a better net cash flow. 

To get an estimate of AirBnB revenue look at houses that are listed in the area on AirBnB, check their nightly rates, and the calendars to estimate occupancy. Make sure your comps have similar amenities to what you will own (similar space, rooms, beds, etc). 

If your AirBnB isn't expected to blow your long term lease out of the water.... my advice is to do the long-term lease, simply because it's less work and less upfront costs (no furnishing costs).

We have both. Our long term rentals are in less touristy areas and our AirBnB is in the heart of ski-country/downtown services. Both have their pros and cons so evaluate carefully!

Good luck and best, 

Andrew

@Josh Smith, can't speak to the area in Memphis but the loans you're going after you will need to live in the property for a period of time before you move out and use it as a rental property. I can't recall the period of time but I suspect it is 6 months to 1 year. THe 203K and FHA's require the buyer/originator to occupy the residence following closing. Have you considered a house hack, duplex, or quad with an FHA? If you're wanting to grow, my advice would be to start there. Or if you by a single family consider renting out rooms to friends and family. Bank the revenue and save for the next one!

Best, Andrew

@John Warren keep in mind, while the upgrades might not help your appraisal, it likely will give you an opportunity to shop insurance. Some good brokers should be able to take your recent upgrades to the insurance market and get you a more affordable policy, thereby reducing your operating expenses and increasing your NOI and ultimately the market value of your multi family. Not to mention better cash flow.

@Curtis Lewis I used to do math they way you are trying to do it. But, I think it's best to do the math they way they lender will. 

Let's assume your house appraises for 150K (Like @Joe Villeneuve playing along). They will likely lend on 70-75 LTV or loan to value on a rental house. They will do higher LTVs on a primary residence. Let's assume a rental (the math is the same however for a primary res, just use a higher LTV). Note, LTV is just the difference of what they want as a down payment or kept in the loan as equity (your skin in the game). SO if LTV is .75 they want you to keep 25% of your money in the loan. Okay here the math:

150k x .75 = $105,000

So 105K is the max they'd give you in a new loan. Now you have to pay off your original loan. It looks like you have about 80K outstanding (assuming you haven't paid the loan down). In one year, at a reasonable interest rate, and a 30 year loan, you've paid your note down to about 78,500, via monthly payments

Subtract your 105K-78.5K to get what you could pull out. 

=26.5K returned to you.

So in theory you get all your money back (your original downpayment) and a little over half of your 10K in rehab costs. Assuming the house appraises for 150K.

Keep in mind, you've not calculated the costs to originate the refinance, appraisal, recording fees, etc (all the closing costs). So you'll not likely end up with 26.5K after cashout... probably 22-23K when you've paid for all your closing costs.

Feel free to PM me if you have questions or need help doing the math with more specific numbers.

Best, 

Andrew