All Forum Posts by: Carmen Pellegrino

I would say no should be net income after all expenses divided by cash total in. Think about it like you have a lump sum of cash and you can invest it anywhere. What is your return going to be in those various investments? $45000 at 8% in the stock market would make you $3600.00 in one year, this investment after all expenses will net you around $700 for the same $45000 tied up. $700 is not enough money to go through all the headaches of closing the deal. 

I like this analysis so I can compare the deal and make sure I am making more money then if it was just sitting int he stock market with no tenants to manage or repairs to make.

Looks like you have expenses figured out just need to plug them in right so you understand what you will be making. 
 

What am I missing? How is your income 27000? I do CoC as Net income vs Cash Required. As I see it your return is 1.5% If you took the $45k and put it in stock market you could get 8%. This looks like a horrible deal. I shoot for 30% CoC which is cash flow times 12 divided by cash. I want to earn way more then taking that stock and going into stock market for all the work I have to do.

My wife and I are about to close in a SFH in an "OK" area but I do have security question. As we do some remodel work I am concerned about leaving the house unoccupied for days at a time and don't want people breaking in a stealing. How have some of you handled this? Security company? cameras?

Used the yellow pages in the area I live, my brothers guy was so busy he never responded. I did look at reviews ahead of time and time in business so felt OK about him. His price also fell in line at $700 based on what brother had mentioned. I think he sadi he didn't know he had to do a 1065(maybe I am saying the right form) the business does have an EIN but again I am very new to the tax and business side of this. We did track all hours worked to make sure wife qualified as Re professional she is retired now so no other job to compete with. They did do Ohio and Indiana state taxes. No I did not get anything in writing my bad for sure there but come on my car guy knows nothing gets done above initial quote w/o a phone call.

So maybe I mis-spoke on the reasoning for the LLC but the point was use the business losses from real estate to offset work income. The question still remains the same. Thanks to those of you answering the specific questions. Validated my thoughts. Unfortunately they are not backing down from the position. I could ask for a break down of time but they are already telling me there are times not listed so it should have been more! Not sure what recourse I have I am sure they will not provide the tax without payment and we are past the deadline. Do I have any leverage?

My wife and I started our real estate journey last year and have 2 properties working on 2-3 more. We started an LLC in order to leverage the tax benefits of the business and possibly offset some tax liability. This is the 1st year I have anyone do my taxes and contacted a local CPA firm. They quoted $700 to do the business and personal taxes. That sounded reasonable and my savings would more than make up for that being in the 20+ tax bracket. Turns out that is correct we saved thousands with my wife qualifying as a real estate professional. However the tax bill came back at $2100. There was never a mention that the bill was going up just a phone call at the end that the time had been underestimated. When I questioned the obvious I was told that a lot of time had not even been counted and it would have been more. Going forward now that its all set up the bill would be more in line with $700-$1000. I gave them a spreadsheet with ALL expenses detailed so no receipts to compline all the income and other bills were included. The only extra paperwork was the closing statements.

Questions;

1. Is $2100 reasonable for small 2 unit business and personal taxes?

2. If not reference for Cleveland area CPA that knows real estate tax law

I would be checking with an attorney. The marijuana question can be tricky now. My attorney told me to be careful how I word that language as it may not be illegal and he could claim medically necessary. Also how do you prove he is dealing? The smoking could be a good reason but might need to post eviction notice not just change the locks. Maybe pay to vacate??

Thanks for the comment!

I have been thinking about doing this as well. I have had some financial hardship do to COVID not sure how deep the IRS will go into this but some reductions have occurred so I would think I am justified in the eyes of Uncle Sam. 

I am more concerned with the ability to turn the money faster on properties. Lets say I am earning 8-10% average in 401k not bad but I look for properties that are gong to return 25-30% after expenses as rentals. That would seem to be a no brainer as long as I can do this with the money I withdrawal. Having $100k to potentially write cash offers and get some great deals is very enticing. I agree I will more then likely not return the money(sounds great but I know me). The taxes are spread over 3 years and my wife and I are already starting to see the tax benefit of having an LLC for our properties. With that said I do end up in the higher tax brackets due to my income from my primary job (20%+) so I will be paying those taxes at least the money not offset by loses from the business.

I also know I will be paying taxes on that same $100k when I withdrawal it from the 401k if I do not take it out so even though leaving it in lowers my tax burden now its still there waiting to be taxed.

Having capital seems to be the hardest part of jump starting our real estate business so again this seems like a great boost just don't want to shoot myself in the foot.

Any additional thoughts are welcome.

I probably missed this in previous posts but wondering what are typical line items/costs for closing. Looking for the "Items you can shop" section guidance. I understand the origination fees, taxes and insurance. Its the title company fees and insurance and what are "good" prices. 

Are all of those needed? It feels like mattress shopping, hard to compare.