All Forum Posts by: Bob Thomas

So you should be increasing your basis in the property by any capital items (greater than 1 year of life; bathtub, door, faucet, etc.), whether you are 'on the market' or not has no bearing. Make sure you understand the IRS capitalization rules detailed in the link below. Do your best to separate your operating expenses in schedule E, but technically all those expenses you are increasing your basis by should be sepreciated over their useful lives. The annual depreciation expense in included on schedule E. It is really more important to have solid back up files, correctly calculate your basis and not double count opex and capital costs than stress over what line you are putting various expenses into. Let me know if you have any questions on the below link.

http://www.irs.gov/publications/p551/ar02.html

Increase the basis of any property by all items properly added to a capital account. These include the cost of any improvements having a useful life of more than 1 year.

Rehabilitation expenses also increase basis. However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. If you have to recapture any of the credit, increase your basis by the recaptured amount.

If you make additions or improvements to business property, keep separate accounts for them. Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. For more information, see Publication 946.

The following items increase the basis of property.

• The cost of extending utility service lines to the property;
• Impact fees;
• Legal fees, such as the cost of defending and perfecting title;
• Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements;
• Zoning costs; and
• The capitalized value of a redeemable ground rent.

Do not add to your basis costs you can deduct as current expenses. For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. However, you can choose either to deduct or to capitalize certain other costs. If you capitalize these costs, include them in your basis. If you deduct them, do not include them in your basis. See Uniform Capitalization Rules earlier.

The costs you can choose to deduct or to capitalize include the following.

• Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules;
• Research and experimentation costs;
• Intangible drilling and development costs for oil, gas, and geothermal wells;
• Exploration costs for new mineral deposits;
• Mining development costs for a new mineral deposit;
• Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical; and
• Costs of removing architectural and transportation barriers to people with disabilities and the elderly. If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit.

it sounds like they are all vacant. How tough is it to lease up up (whatever general vacancy reserve do you need)? That makes me nervous. 

You should check rent comps and sale comps in the area. Obviously look at expenses objectively. If you can really achieve a 46% cap you can cash flow it or can potentially flip at a lower rate of return you should pull the trigger. 

I was just informed by my better half that I have plans on Saturday and cannot make it. I don't want to waste a day of your ticket Darwin. I appreciate your generosity, but I am going to have to bow out.

I would enjoy going. Always trying to expand my real estate knowledge and expand my Bay Area network. I'll pm you. 

you should look into promote structures. Typical structure for real estate private equity structuring. 

http://www.pircher.com/media/publication/50_SACArt...

I would recommend a newly created Llc holding company own the property. Both you and your equity parter will have an ownership interest in the holding co. The you can just set up payout ratios/hurdles per your ownership agreement. Set it up so you both get paid out a certain about during the operation and and if you meet certain return threshold, you get a higher percentage of the excess returns.

Don't look at it like you want equity in the building. Look at it more like you want equity in the investment company that owns the building. 

you should look at sales comps in the area and see what market cap rates are in your area. Then cap your noi to get the quick and dirty value, then see how that comps out on a psf basis as a sanity check. 

You should definitely understand how many tenants there are, remaining lease term, extension options and expense reimbursement methods/caps. Include at lease a 5% general vacancy loss off the top too. 

So it's a 6,000 sqft single tenant deal? You should get an property condition assessment to see how much capital you need to bring it to at least warm shell, reach out to a local broker and pick their brain on the market, achievable rents, commissions, tis, and sales comps. Then just run numbers, price it to where returns look good to you and make the offer. 

Single tenant deals are inherently risky, give yourself cushion. 

pls disregard spelling mistake, autocorrect and cell phones make lengthy replies difficult. 

http://www.irs.gov/publications/p535/ch11.html

Meals and entertainment are generally deductible up to certain limits (50%) as long as they meet the requirements described in the link above. Keep documentation of the meal/ meeting and how it was business related in case of an audit. Make sure to consult with a CPA if you don't understand the IRS rules. In terms of your bonus question, yes still deductible and similar caps apply. If you really want to nitpick you might say it is an unrimbursed business expense for meals and entertainment rather than a corporate expense. 

In that case, the 2% of AGI threshold would apply, but honestly, I would just claim it as an expense through the llc. 

Disclaimer - I am not acting in my capacity as a CPA when giving this advice. I advise that you consult with a CPA before employing an strategies discussed herein. 

I took allied but I heard that first Tuesday is cheaper. They are really all the same and are very straight forward (open book tests). Just pick a provider and get the classes done/application submitted. Then take a crash course to study for the actual license exam.