All Forum Posts by: Mike Landry

I think the real estate professional thing is over valued.  Don't let the potential carrying over of losses stop you from investing.  Worst case and they are unprofitable for a few years, inflation will catch up over time and give you an opportunity to use those losses further down the road, maybe when you are in an even higher tax bracket.  

As far as the cpa thing goes.  A couple of thoughts.  I had to fire the one I tried to use this year.  You can read about it here. Basically she was owner of a title company, owned rentals, was a lawyer and a cpa and she still messed thing up.  I'd say you are best to go with a known reputable person that deals in real estate transactions...like the ones on here.  Also I don't think there is a need for them to be local.  

@Rudolph T.

I'm not a tax pro, but I try to understand the big picture.

Suspended losses can be taken when you sell a property.  So if you have $1000 carrying over and you sell the property this year, you will be able to claim the $1000 loss against your w2 income.  As far as adjusting the basis, not sure how that interacts here if at all. 

The self employed net income is taxed at your tax rate unfortunately.  Also your net rental income will be taxed at your rate as well.  However it is still better to have taxable rental income than take a loss every year.... Assuming you have used all available means to reduce that rental income.  

@James Records  I'll look into that.  Our businesses are more part time but do have small profits but not sure if they would justify the legal and structure fees to set something up like that.  I agree that everyone should consult with an experienced accountant/cpa.  

Huge price reduction to deal with this pain in the a$$. be prepared to be named in a lawsuit when you go to evict them. Good luck.

I'm in a similar boat and this is what I've noticed. 

With four rental properties I still make a net profit (including depreciation). I'll pay about 28% tax on that portion.  However a lot of the profit is sheltered from taxes from depreciation. 

We have 2 self employed businesses ( in addition to my main w2 income above 150). This gets interesting.  With  my wife's business (realtor) we had to pay the 15% SS /med tax in addition to a tax rate of 28%. Ouch. We try to put every legitimate tax deduction on her business for that reason. Home office, phone, internet, office equipment, ect.

My business (a little flipping and a little wholesaling)  avoids the 15% SS tax because I allready pay the max with my employer. But still pay 28% on net income. But the are a lot of deductions available, marketing, phone, internet, office, ect.

I like to look at it like this. W2 income supports lifestyle, self employment money goes to real estate investment, and real estate investments compound on themselves. I'd still contribute to 401k to save on taxes and diversify. Don't worry about not being able to use passive losses immediately. Having an llc for rental properties won't really change anything, in fact might make it more costly and less beneficial. 

good thoughts. I would like to get into multi family's but it just doesn't make sense. I can pretty easily find a property and be all in at 70-80% arv. While it only truly cash flow $200/ month (500 after piti), my irr at 1 year to 5 years is very high from the equity. When I look at multis (non repositioning) I think the irr is a joke. 5-8 caps, 2-3% a year increase to noi? Good luck with that in the current market going forward. What studies have these syndications done to determine future rent increase. Lol none. Remember, past performance is not indicative of future performance. Irr is just a guess, wish, and a hope. 

That being said I would much rather have a larger loan amortizing than a smaller one assuming they cash flow the same and I had the same amount of capital invested. 

A lot of new builds in Texas have standard one color paint for walls and ceilings.  If you want white ceilings you have to pay extra.  A lot of people here don't pay extra for it.....and we are talking $300+ homes too.  Depends on the area but for lower end flips and rentals I think it is fine to go one color.  Mid to high end I'd think twice and spend the extra $$

I've used a local pest control person for some termite damaged base boards. About $500 to treat the full perimeter of a $1200sqft house. 

Is a W2 job really that bad?  I laugh when I read all the posts and articles talking about how horrible w2 income is, .  And then people talk about sheltering via s corps with low salary and distributions to avoid self employment tax? Often overlooked are the benefits of a w2 job and how the combination of w2, self employment income, and investment income can work wonders on wealth accumulation and financial freedom.  Don't quit that JOB.  That being said, I am still interested in where that sweet spot is.  Let me show you what I mean with some examples.  I'll make some assumptions that we all like to procreate and eventually have kids. 

W2 below the SS limit, about $119,000 this year.  You are paying your tax rate plus %6.  But you still have massive deductions and credits for dependents.  Nothing is phased out yet due to income limits.

W2 119,000 - $150,000 - I think this is a good spot to be in.  You still qualify for most deductions and credits but some things are starting to get limited, child tax credit, real estate losses, ect.  But the best part is that you no longer pay the %6.2 SS tax.  Now, think about if you also have a small business making say $30,000 a year.  You don't have to pay that self employment tax because you have already paid the maximum contribution with your employer.  What's that, a tax savings of 12-15%. 

w2 - 150,000 +  At this point a lot of credits and deductions start phasing out and you start running into the Alternative Minimum Tax around the low $200,000 depending on your deductions. 

I'm not going to argue against investment income at all.  If you can live off of it, great.  But don't forget you'll be paying that depreciation recapture tax of %25.  You better hold it until you die or 1031 it. 

Point is I look at income like a portfolio.  Everyone should have some diversification. 

Should I start the eviction.  Here is the quick story.  I have had this tenant, single male, for 2 years and he lived there 3 years prior to my ownership.  He has mostly paid on time.  I made one exception and he has paid 1 late fee.  1 year ago he was hospitalized for a few weeks with serious medical problems.  His story now is he went back into the hospital (which I believe) and that while he was in there his bank accounts where fraudulently withdrawn and they are all frozen for 2 to 3 weeks.  Why would a bank FREEZE your account?  I tend not to believe for fraud....more like creditors, irs, ect.  He asked for a free months rent which I said no.  I told him I would give him until next month and he will have to pay 2 months rent but I will wave the late fees. 

Should I start the eviction?  I don't want to piss him off in the face of his medical problems.....but I don't do this for charity. 

Thoughts?

i have a house i was originally going to keep but am now going to sell it. I have an offer with a usda loan that i have verbally accepted. The house qualifies and i know it can take a little longer. The problem i am curious about is if they need "justification for increased sales price". I got a really good deal and am still selling slightly below market but not sure if my work is "justifiable". And im not coimg down on price if they have an issue, ill just keep it. Anyone see issues here? Purchase 80,000, rehab 10,000, contract sales price 135,000. Thanks.