All Forum Posts by: Ricky A.

Pura vida!  Amazing looking property with lots of flexibility!

I know non-resident mortgages are pretty much non-existent (actually, mortgages are traditionally less common in CR).  Were you able to finance it, or did you and your investors provide the entire investment?

Enough Budweiser for them to make their own beer can tree?

Since no one has chimed in, I'll give my $0.02...

I'm not a CPA and I could be 100% incorrect, but my understanding is that, even if you're making estimated payments based on safe harbor, you're still required to be completely paid up on April 15th regardless of whether you're filing then or extending until October.  

Taking a quick look at Form 4868 seems to support this (though maybe you can avoid the late payment penalty if at least 90% of your total tax had been paid by the regular due date):  https://www.irs.gov/pub/irs-pd...

Here are the relevant form instructions that I'm referencing:

Interest
You’ll owe interest on any tax not paid by the regular due date of
your return, even if you qualify for the 2-month extension because
you were out of the country. The interest runs until you pay the tax.
Even if you had a good reason for not paying on time, you will still
owe interest.

Late Payment Penalty
The late payment penalty is usually ½ of 1% of any tax (other than
estimated tax) not paid by the regular due date of your return, which
is April 18, 2022. It’s charged for each month or part of a month the
tax is unpaid. The maximum penalty is 25%.
The late payment penalty won’t be charged if you can show
reasonable cause for not paying on time. Attach a statement to your
return fully explaining the reason. Don’t attach the statement to
Form 4868.
You’re considered to have reasonable cause for the period
covered by this automatic extension if both of the following
requirements have been met.
1. At least 90% of the total tax on your 2021 return is paid on or
before the regular due date of your return through withholding,
estimated tax payments, or payments made with Form 4868.
2. The remaining balance is paid with your return.

Interesting.  

Not knowing anything about the market, at first glance, those numbers look strong.  Assuming 50% occupancy, annual gross rents would be 30% of project cost.  That would be super strong in the markets that I'm interested in.

Assuming expenses and financing costs (assuming, say, 10% down), how long do you expect it to take to get your invested capital back?  I'd assume less than a year (but I have no idea the typical loan amortization period).  Of course, I could be totally missing costs/expenses that you may have that may not be common in my markets.

Just curious for context, what is average household income (in USD)?

Best of luck!

I'm not a CPA, so definitely seek more qualified advice, but my understanding is this:

- Purchase price (plus certain closing costs) will create your initial basis in the property.  The basis is needed to calculate depreciation once you convert to rental.  So keep a copy of your settlement statement, so your CPA can accurately calculate this.

- Minor repairs will not be deductible while it's your primary residence, but will be deductible once you've converted to a rental.  You can consider postponing any minor repairs that you can (assuming they don't create more expensive repairs later).  Major repairs/renovations, however, could add to your basis, so get advice from your CPA and keep records.

- Once you convert to a rental, the interest portion of your mortgage payment will be deductible.  Also keep track of annual payments like property taxes, as a prorated amount may be deductible based on when the property goes into service as a rental.  [Note, this is from the business perspective...some of these items may still be deductible on personal taxes if you itemize].  Side note, when you convert to a rental, you'll also want to replace your homeowners insurance policy to a landlord policy.  

- I assume the rental will be reported on your personal taxes via Schedule E.  If so, you don't have to have a separate bank account (since the rental is not in another entity's name).  However, when you convert to a rental, you may want to use a separate account just because it will make bookkeeping easier.

$0.56 was the 2021 mileage rate.  

Jan 1 - Jun 30, 2022 was $0.585.  

Jul 1 - Dec 31, 2022 is $0.625.

2023 will probably be announced mid-to-late Dec.

https://www.irs.gov/newsroom/i...

There's your answer right there...you and other STR owners need to win positions on the HOA board so you can make your voices heard.

I hate generalizing all HOAs, but I think HOA board members often view things as "us" (read: full-time residents) versus "them" (read: "rich" outsiders/investors). I'm sure many of them think that non-resident, renting owners are all just rich, heartless money-grabbers who don't care anything about their community.

Simply being on the board would probably be disarming to many of them because you'd be able to show that you're just a normal, down-to-earth person who also wants the best for the neighborhood.

BTW, the HOA's responsibility is to serve the best interest of the community "as a whole." That's VERY subjective. Right now, they just have an echo-chamber of like-minded full-time residents reinforcing their stereotypes of outside investors. They probably sincerely think they are doing what is in the best interest of the community. The only real hope of breaking through their one-sided arguments is to be in the room where the discussions/debates are happening to show that there is another perspective. You'll have to decide if that effort is worth it.

I'm sure a lot (if not most) investors view accounting simply as a necessary evil to make tax prep less hellish.  

But accounting, when done right, is first and foremost a management tool, and you can't make property-level decisions if you're not tracking property-level financials.  (Plus, your tax returns should be at the property level too.)

@Todd Chandler

Firstly, congratulations!  You're managing your STRs well enough that others have noticed.  That's a big deal, and you should be proud of that! 

I don't have input for Question #2, but I do have input for Question #1, granted, it's from a non-real estate business perspective:

1. Our (non-real estate) company requires insurance coverage info from all of our vendors and contractors.  Why?  Short answer: Because our insurance agent told us that we should (including why).  So the first piece of advice is that your insurance agent should advise you on what you (truly) need and why.  What you need will change over time as you grow and/or as your risk profile changes.  If your current agent isn't able to advise you on this, then you've probably outgrown them.  In my company's history, we've had 2 really good insurance agents.  One is our current agent.  The other was the previous agent who was able to realize that we had outgrown his company's capabilities, let us know, and referred us to our current agent.  I don't think most agents are that self-aware.

2.  You should be THRILLED that this other owner even asked the question about your insurance.  It likely means that either they or their agent (likely their agent) is on top of the risks that could affect their business.  This is a great sign.  I bet the other owner would 100% understand that a) you know all the nuances of running the actual value-add business successfully but that b) you may not have all the ancillary stuff like insurance answered or in place.  At the end of the day, the other owner wants your business expertise not your insurance expertise.  He/she probably already knows that the exact insurance coverage (once what is needed is determined...as a good agent will do) is mostly a commodity.  So chances are, you could ask the other owner for their insurance agent's info, and they'd gladly share it.  And that agent is probably a better one than your current one and could assess the risks appropriately and get what you need put in place.  

Excellent!!!  

I constantly review estate auctions for a collection/hoarding fetish I have for a particular item, and I agree!  There are great pieces you can find at these auctions at amazing prices.  Seriously, whatever you're looking for including unique things you're not going to see anywhere else and great old-school quality that's not typically made any more.  If I had a high enough volume, I'd definitely be sourcing here.