All Forum Posts by: Bill B.

You’re not only paying taxes because you can’t do a 1031 on this flip. You’re not even paying capital gains tax. You’re paying the highest taxes possible. Somewhere between regular income and regular income plus self employment and possibly Medicare tax depending on your income. 

You could easily pay 30-40% with state taxes added. Try to hold your properties for a year as rentals next time after rehab. Could Save you 1/2 your taxes. 

You will be literally paying to PLAY property manager. Your PM would be charging $2,700, (if that’s market rent.) taking $200 in charges leaving you with $2,500, no dogs, and no hassles. 

You should have told them you have to raise the rent to $2,700. They would have said “That seems high. How about $2,600?”  

If $2,700 is market rent. While it might be too late to change your initial offer. (It probably isn’t, but whatever.) I’d confirm with a local PM that they could get $2,700 or more rent if you let them manage it. If so, I'd tell tenant that. Show them the comps. Then say the best you can do is $2,550/mo w/o dogs or $2,700/mo with 1 dog and a higher security deposit. But you might want to go MTM in case it doesn’t workout. You don’t want to get stuck with a year long lease. 

Feel free to put the cash in a bank cd or high yield savings account. You can earn 4.5-5% interest and still have the cash sitting around in case of an emergency. 

If you pay down the loan you’ll only save 3-4% and if you suddenly need $10-$20k for roof/ac/etc etc you won’t have it. Only time it would make sense to pay if off would be a single payment that would then increase your cashflow. Even then you’re financially better off with the CD/Savings account. 

At least you never ever listen to the people who had a “different perspective” on this topic again. There are no differ t perspectives on if you need to use a 3rd part firm. They were 100% wrong. And I’m sure they would not have refunded the $10’s or $100’s of thousands in taxes you would have owed. You can’t even have close relative, an employee, your accountant or your attorney do it.  It would have been the same as not doing one. 

Step 1) find out why it “failed”  (Didn’t buy in the same name as you sold, didn’t buy more than you sold, didn’t submit 45 day form in time, and didn’t close in 180 days are the big obvious ones.)

Step 2) figure out did it fail completely or only partially? (Did you buy too little? (You might save some taxes.)

Step 3) figure out why that happened did happen. And how much if any of it was your fault. Hopefully if it’s obvious someone else is 100% at fault hopefully they have insurance or step up and help you out  

Anyway. Reply with answer to step 1 here or reach out to @Dave Foster. 

Lastly. Next time reach out for recommendations. I’m sure his name would have come up here if you had ask for recommended 1031 firms/QIs. 

1) Hire a better PM. If you managed it yourself hire a PM. I’ve probably gone through 100 tenants and MAYBE twice they’ve done more damage than their security deposit. 

2) it’s too late this time. But next time remember to sell within 3 years of moving out and converting to a rental. You are literally going to pay an extra $20k or more in taxes because you didn’t sell a year ago. I’m going to assume that means you lost money renting it for the last year. 

3) you can still do a 1031 exchange and save that $20k to put towards your next investment if you can swing it within 45-180 days of selling. (Must be arranged before your closing.)

Good luck. 

So they don’t think tax rates will increase and these deductions would have been worth more in the future? (Since this will cause them to  have lower deductions in the future when they’ll have higher incomes because of lower interest expenses and depreciation  possibly at higher rates. Not only nationally, but ESPECIALLY in MN.)

How in the world would this lower insurance premiums? I mean condo insurance is super cheap anyway. (I swear on my $720k MN condo is under $400/yr) But your cost basis shouldn’t affect insurance premiums in the least. 
 
More power to them either way. But hopefully they talked to their CPA first. And you gave them what they asked for. Good job. 

Can you ask PM to offer…

1) waive all past due rent (owed to seller anyway) to move out or

2) all past due rent if they pay April's rent now

3) start eviction and you’ll end up where you would prefer to buy. Empty with you doing the screening for new tenant. 

Luckily your mistake only cost you a late paying tenant so far. All past due funds were owed to seller. So you you lost almost nothing. 

If you don't have time to look at/for properties you do not have time to run a successful STR. It has to be literally the most time intensive real estate investment there is. Not to mention the deadlines are often an hour from now instead of a day or a week.

If you have any amount of net worth avoid this like the plague. You could be held responsible for expenses and liabilities that could bankrupt your non-real estate life. If you're really successful you could make enough to payoff the furnishings and break even with zero return in a year. Then you hope the landlord doesn't want to sell, inhabit, or increase rent. Hope the city doesn't change their attitude towards STR leaving you on the hook for rent while unable to generate income. All so that you can yard sale the furnishings in a year or two.

It’s an all around horrible strategy. But it’s mostly for the unemployed with more time than money. Not the other way around. You’re better off trying to rent out part of your primary home. If it’s not suited for it. Buy a new primary and do it there. 

Nobody’s doing an inspection “days before closing” their inspection period ends 7-10 days after opening escrow. It’s waaaay too late to ask for repairs or threaten to walk.  While I agree I hate “buyers” that put in full price offers with no intention of not finding problems to bring you to their price. That should happen weeks before the scheduled closing and only 7-10 days after offer. 

Always accept backup offers while in escrow. When your counter to “Do these repairs or I’ll walk..” is “Please sign this form cancelling your offer” you’ll find out if they ever intended to buy.