All Forum Posts by: Andrew Gingerich

To Ashish's point.. best line and to your question/point: "Standard deduction has nothing to do with rental expense. You still get your full SD even if you have 100 rentals."

Also, AGI = Adjusted gross income = the portion of your income that is subject to taxes. 

Jess, I am not a CPA. But I once asked similar questions.

Your 24K deduction and your W-2 income is separate from your rentals- kind of. Here's the deal: You will fill out a schedule E on your federal return where you list all your income on your rental(s). From there you will deduct all your rental expenses: HOAs fees, paid utilities, interest from the loan, taxes, insurance, mileage driving too and from your rental or store to get supplies, the maintenance expenses, supplies for your rental (stamps to send tenants mail, new keys, cleaning supplies etc). Even 50% of the food you buy, while you are working on your rental, is deductible. If your expenses are more than your rental income in a given year then you will "show a loss", and at that point, will lower your W-2 tax obligation. But your rental income will be separate from your W-2 tax return through your schedule E. If you show a profit on your schedule E (rental profit) then your W-2 income and your rental income will be subject to your effective tax rate**. 

One other note. Some bigger maintenance expenses and start up costs are often not deductible but instead are "Capital Expenses" and need to be depreciated over a period of time (you get a little deduction over 27.5 year as an example). Typically, these are expenses and items that you buy in a given year that are expected to last 10 or more years. For example, you spend 5 K on a new roof that has a 30 year life. This is an example of an expense that needs to be capitalized. Here you don't get to expense the entire 5K in one year, rather you take 5k and divide it by 27.5 year or a depreciation schedule and that's your annual deduction for that item in each year that follows. Consult a CPA or a few good books for more info. Or read more BP.

Best of luck

Andrew

** If you don't like how much taxes you are paying I'd suggest maxing out a IRA or some other nice tax shelter. For most of us that are newer to the game it is possible to pay very little tax if your work at understanding your obligation and have the ability to live modestly. I like traditional IRA's for lowering federal tax obligations in years where Uncle Sam wants my money. Completely legal, 60-70% never use them.

Mikus, there are pros and cons to both. Yes a cash out refi on your home will cost you closing costs and refinance charges (appraisal, origination, title fees etc), but the value is rates are still dirt cheap, and you can lock in a 30 year note on your home and your new rental for bargin prices by historical standards. The LOC is a great path for temporary use of funds, in my opinion. But over the long term or LOC is subject to market conditions and will likely go up, potentially substantially. If you are going to flip houses or BRRR, I think the LOC is a logical and good path. If you're going to buy and hold, however, I'd go with the cash out refi and lock in discounted rates on 30 year notes (your home and your new rental).

If you're going to flip or BRRR use your LOC to secure the property, fix it up, and then take out a new long 30 year on the new property. If done right you should be able to get all your capital back and pay off your LOC before it goes up dramatically if at all.

If you're simply buying and holding, buy a property 10% below market value to justify your costs associated with the cash out refi. 

Just my two sense. 

For the record, I am a fan of the cash out refi because there is certainty in 30 year notes that are currently on sale. 

Best of luck. 

Andrew

James, welcome and right on. Erie is a great pocket in your state  given the proximity to the lake. Great to have you in this community. There is a wealth of knowledge on BP, podcasts, and books. Keep learning and work on savings. Sounds like you have a great plan. In the meantime, if you have questions, ask away.

Good luck, stay disciplined, and the rewards will be bountiful. The duplex house hack is an ideal way to start. If you can swing it, I might try and be even more efficient and go for a 4-plex on an FHA. Just make sure you're in a spot where it will rent.

Andrew

I spoke to the insurance company about this issue  

@Mark Trebor ....

Sounds like we could rebuild on the property further away from the adjacent property. Just can't build in the very same spot. I think we might be able to take the policy value as a cash payment too and go buy something else. This is assuming the house burns down or something. But that's not my issue. The way the appraiser saw it was as long as the home is located where it is on the property it can't be given any value.

Hi BP know it alls!

We recently purchased a property that has two houses on it. We purchased the property for the market value of only one house (good deal for us). We did this because the appraiser insisted that he give "no value" to the second house on the property since it doesn’t meet setback requirements for the adjacent parcel. As in, the second house is too close to the lot boundary and, therefore, in the eyes of the appraiser, had no value to the note holder.

As I understand it, the non-conforming house was grandfathered into city zoning (built in the 40s) but doesn't meet new zoning laws. If it burns down it could not be rebuilt in its current location. But certainly it has value now! The rents on this "no value" and "non-conforming" house alone cover the PITI on the property. The rents from the main or conforming house cover cap ex, vacancy, and provide strong cash flow. So far I am quite happy with the deal.

My question is, is there a way to assign value to the non-conforming house even though it doesn’t meet zoning rules? If I could get an appraisal that includes the value of the non-conforming house I could either A) sell the entire property with a great profit or B) refinance it and get all my down payment and some $$$ out of it.

Is there an income method of residential appraisal that could be used in this situation? Gross Rent or Gross Income Multiplier to assign value? 

Basically, the property has gross rents of $29,700 annually. Surely I could use this to determine value? But can this be used when one of the residences doesn’t have the correct setback?

Simply put, the property is worth much more than we paid for it and I’m not sure how to convince a bank to issue a note for full value.

Heck, even my insurance on the properties back the full value, so the bank should be comfortable issuing full value.

Calling all appraisers… and experts on the subject.

Respectfully, A.G.

Sweet. Tom Franson with caliber home loans is a good lender that is well organized and keeps buyers up to date. I've done a couple loans with him. That is if you're looking for a conventional loan. He actually lives in the Spokane area but his office is in the tricities. He can do loans in both Spokane and the tricities.

Happy to help. If either of them give you grief let me know. I've given them both a few referrals and would keep doing so provided the keep serving folks at 💯.

Best. Andrew

Lance, James Kinner in tricities is a great relator in the tricities area. He also has a lot of experience with working with investors. Further he's a high quality individual. Tell him I sent ya.

Good luck

For a lot of newer investors, like me, this is one of the most difficult ideas to adopt. While the bulk of the advice here is correct, it is also completely contradictory to the skills and decisions you made to become an investor. To become a smart REI most of us saved money or paid off balances and used equity and savings to buy a REI. Now, were taught to leave the debt and don't pay it off early. Again, contradictory to our path that got us to investing. The truth is, as long as the property is performing at a rate that the tenant is covering all of the expenses it's good debt to have, especially if you can weather a downturn in market rents.

I'm in the same pickle and I'm saving all cash flow, rather than paying of the debt on performing properties. This is against my nature and DNA but it will provide the most flexibility. All my notes are 30 years 5%ish.

@Dayne Winters I'll PM you.