All Forum Posts by: David Brooks

OK, yeah - thanks for that response. I've considered the insurance company and travelling professional (largely medical) markets for mid-term rentals. Do you have a particular platform or marketing method you use to find those clients/guests/tenants?

OK BP friends - saying hi and looking for some advice. I'm trying to zoom out and take a look at my whole strategy (or what's left of it).

I wanted to diversify, so during COVID (a lot of stories properly start this way), I dove in on running an STR in a popular vacation destination here in my area (Lake Arrowhead). I bought a 4bd/3ba cabin in 2020 with a 2.5% 30 year loan, and it did really well right out the gate. It's an area I know, it's close enough to manage in person, I found a good cleaner/manager I can trust, and the house appreciated dramatically right after I bought it - about 40% in year one, and another 40% in year two. So far, so good.

The house was cash flowing as an STR, though just barely, but the appreciation was wild so I decided to branch out and bought some land in Yucca Valley (another popular vacation destination) in 2021 with an intent to build. I thought I saw enough opportunity left in that market, though, so I also bought a large, well-appointed house in Yucca Valley with a 3% mortgage a few months later, to capture the "big group" slice. At first, it worked really well, until it didn't. The house was a 3bd/3ba with an office and a large mud room, but under the STR licensing rules in place for the year I ran my first property (which I called to confirm before shopping and again before buying), this new house could be a 5bd property and sleep 18 people comfortably. Awesome.

And then the county changed the STR licensing rules a few months after I closed on the house. It's always a gamble with the government is involved, and I lost on this one. I know people who live in the area probably appreciate the change, and I can't really blame them. Right now, I'm back to running it as a 3bd (the new rules go strictly by county records), and the market is very saturated with houses that size - so I lost the advantage I bought the property for. Occupancy fell off to nearly zero, so I'm looking at my options. I can pivot to turning it into a more luxury destination (which is the other way to stand out in that particular market) with a series of staged investments I've got planned out if I want to keep running it as an STR, though there's no guarantee it will perform better. The market is saturated for a reason, though - it's a popular destination - but I got too excited, bought too big (and too high), and now I'm trying to see what I can do (once again - a very common story I'm sure).

My first property has also cooled off a lot, and it's value has dropped dramatically (but I'm still up about 50% since I bought it) - but the overhead is lower and I see a path to profitability there. I'm trying to decide whether it's worth switching to mid-term/long-term on the Yucca property, or biting the bullet and outfitting it as a proper 5bd house (maybe $20k, with a potential reassessment and uncertain impact if/when I sell) to reclaim that market edge, or investing to make it an upper-mid-range/lower-high-range property with a few amenity upgrades and some marketing, or whether to just try to sell the property and get out from under it before I chase the sunk cost any longer.

General advice, specific advice, kind words, pointers to professionals who can help, suggestions for how to weigh my options - it's all welcome. Happy to provide any other info I didn't know to include already, and very open to any help I can find. This is sort of my extended intro to the forums, so - hi, and thanks!

Thank you for the response! I'm actually not leveraging bonus depreciation at the moment, and am looking simply to offset normal expenses (including standard asset depreciation) against non-passive (W2) income. I know that if a cost seg, l would need to back that out of my California return.

Your answer seems to confirm what I suspected. If you had a client who had no bonus depreciation, would you recommend that they don't try to employ the loophole?

I've received advise that our friendly STR loophole can not be used to characterize STR income/loss as non-passive on a California tax return.

I can see an explicit exception in CA Tax Code § 17561 that says you can not use the qualifications in Section 469(c)(7) (Real estate professional) to render that income as non-passive, but I see no callout for 1.469-1T and, as such - as a non-CPA - I do not (yet) see a reason why we cannot follow the same rules for CA that we do for our federal taxes; e.g., if the business is not a "rental" business per tax code, we count that income as non-passive and offset other income (W2, etc) similarly.

Does anybody else have some guidance (or opinions) on this matter? Thanks!

Great, thanks! I'll definitely check it out

Ok, so I did a search and dug through a bunch of posts from folks in the Inland Empire (I'm in Riverside, but have properties in Arrowhead and Yucca Valley) looking for a real estate investor club. These forums are great, but I'd like to start building some real-world connections and get some advice. Many of the other posts are 10 or 15 years old, though, and at least some of the links and information seem out of date.

So, any suggestions for someone in the IE looking to connect? 

@Jessica Reynaga This is my second spring, and things are actually going marginally better (largely because I had my first long-term [4 week] rental, which was it's own adventure), but my calendar is pretty barren after this weekend. My advice is - don't judge anything based on the spring and summer on the mountain; you are absolutely right that prices and occupancy are pretty low right now, but things pick up quite a bit in fall and winter. Good luck, and if you have any questions, don't hesitate to ask! 

@Laura Kastner

To your question - I looked at some properties in Desert Hot Springs, and ultimately decided against them. In my research, it appeared that DHS would be less desirable to visitors.

So, I'm a risk taker - but I like to hedge my risks. Here's the route I personally chose.

I found myself in almost the exact same place about two years ago, with 200k of HELOC to work with - and I decided to start close to home before expanding OOS. I carved out 50k as an emergency buffer, and then split the remaining 150k across purchasing and preparing two properties in the hottest local markets I could afford (which I identified as San Bernardino Mountains and Joshua Tree).

Both of my properties are in unincorporated areas of SB county, and I've found it quite friendly to STRs. The high desert is generally quite STR-friendly as well, but the Palm Springs, Palm Desert, and the other cities along the 10 are quite restrictive.

@Monique Moskowitz and @Neha Sampath - unfortunately, my realtor has since left the area, but she worked with Triad Realtors in 29 Palms. Best of luck!