All Forum Posts by: Brian Schmelzlen

I wouldn’t be overly concerned about whether your CPA is an investor (helpful, but not necessary). I would ask if he/she works with other investors and the type of investing they do. The more experience the CPA has working with investors, the more real estate related issues he/she has probably seen. But one screening question can be whether you can do a 1031 exchange on a flip. You cannot. If it’s a rehab and rent, you can, but intention matters.

What you are describing is a loan. Repayment of loans are not taxable, but the interest (must charge at least AFR) would be taxable to your mother and deducted by you. If it was a gift, it would not be taxable to you. Receipts of gifts are not taxable. They are taxable to the donor, but as was previously described there is a $14k annual exclusion to each donee, and a lifetime exclusion worth approximately $5.5 million and growing with inflation (may double in 2017 under the tax reform bill). Even though there is no gift tax, your mother would be required to file a gift tax return.

Regardless of whether your end up using a property manager, you should include the cost in your evaluation of the deal. If you want to be very hands off, then yes you should hire a property manager. A professional is probably better at screening tenants for you and making sure that all laws and regulations are being complied with.

Even if your realtor is right (and I agree with your numbers, but I am new to that analysis), I like the advice of "if you are not embarrassed by your offer, you are offering too much".  Don't offer a penny more than you are comfortable with, and if the sellers' don't like the offer then move on.

Also, it is fine for your realtor to give you honest feedback, but if she isn't your advocate when negotiating the deal you might want to find a different realtor.

If I had $3 million in cash and was not allowed to finance, I would find the best deal I could on commercial real estate (either office building or large multi-family) in a market with an average cap rate of 10%. If the place was turn-key, that would mean average NOI of $300k, and no debt payment. If it needed serious rehab, the return could potentially be much better.

However, if we remove the no financing clause of this hypothetical, I would leverage that $3 million and buy a lot more.

In the future, I strongly recommend talking to your CPA first because that will preserve more tax-minimizing options.

It sounds like you are going to pay a lot in taxes, unless you have NOL or significant deductions.

I agree with everyone who said that it is all about your priorities.  You also have to consider what your wife wants (not only what you can talk her into because it makes a lot of financial sense)- if she wants to buy a residence first but you talk her into an investment first, you will never hear the end of it even if she agrees.

If you are both truly on the same page and your goal is wealth accumulation, I would find a good investment property first.

If it is a self-directed IRA, she can invest the money directly from the IRA into the deal. Be very, very careful about any prohibited transactions though as that will cause her too many problems. Talk to a self-directed IRA expert.

I think the topic most people struggle with the most is basic financial literacy.  Understanding that is the foundation to being able to analyze deals.

I certainly understand your mindset, however I would go with the 2nd rental property rather than paying off the mortgage right away.

You might initially have less cash flow, but rental income should increase while your mortgage payment should only be decreasing (assuming you don't have an adjustable rate mortgage).

I also like the idea of having more than 1 rental property because, if each property is cash flowing like they should be, you have more of a financial cushion during periods in which one property is vacant.