All Forum Posts by: Buddy Holmes

@Josh Garner, The first place to look is in the depreciation on your current rentals.  Either you have fantastic Cash Flow or you missed something in the depreciation.

Assuming you did the 27.5 year life calculation correctly the next step would be to see if you can do a Cost Segregation Analysis.  Here you look at the items in your rentals that can have 5 and 15 year life depreciation schedules.  If this is your first year with the schedule E's great.  write up a document of each 5yr item (floor treatments, light fixtures, etc ) and estimate the cost of each, sum the total and deduct from the initial purchase price used for the 27.5 yr and add the 5yr in with the special depreciation allowance the IRS gives you.  Repeat the above for the 15 year items which are the landscaping stuff outside.

Hope this helps. Cheers, Buddy

@Ory Kelley, I would question the wisdom of your lender. Check the fine print of your mortgage and talk to your closing attorney. My understanding is that you must live in the unit for some specified period at least and a year on most FHA loans. I also understand that after the year or specified period, you do not have to refin to be able to get another FHA low DP mortgage. However do seek further details. You don't want to get the FHA on your case.

Cheers, Buddy

@Rahim A., I believe the interest on a HELOC on your home is tax deducted no matter what you use it on.

Cheers, Buddy

@Robert Hastings, not sure if I understand your question fully, but December 2016 to today is less than one year hence it will not be capital gain.

Did i miss your point?

Cheers,

Buddy

Hello@Michelle Laws, welcome to BP.  It sounds like a good plan you have, but first...

Take time to use your numbers in the BP  "buy and hold calculator", or run the numbers otherwise.  If you cannot show a positive cash flow on what your home would bring in rental income, using your current mortgage and expenses, rental reserve and repair reserves, as well as a 10% of rent for property management, then you might need to re-think.

The rental should be good but do reassure yourself by running the numbers before going blindly into renting it out.

Cheers, Buddy

@Eric Y., I recall that conversation in a podcast as well.  I don't think he was speaking of an actual $5k as a part of the transaction, but rather that you would have spent another $5k on the deal and have been happy.  Therefore take a $5k that was saved on the deal and spend it on a family vacation.  IMHO anyway.

Cheers, Buddy

@Clayton Swansen, In thinking of the article you highlighted more and considering the potential implications for all those on BP,...

Perhaps @Brandon Turner and @Joshua Dorkin might consider some action on behalf of all the members of BP?

I am sure you don't want BP to become political, but this issue is good to approach from all political sides.

A letter or a petition that the members might join in with to let congress know the benefits to the community that these tax laws have. Obviously they are good for us investors, but contriary to public opinion they do not only benefit the REIs but also the rehab of communities and neighborhoods all over the country.

Is this something ya'll would consider organizing and supporting?

Cheer, Buddy

Hello @Clayton Swansen, thanks for the reference to the Times article.

Those are scary changes they are talking about.  Hopefully President Trump will not support such changes.

Mortgage interest for the buy and hold is fundamental to our world of REI. I think that it is fundamental to the the rehab of our countries neighborhoods as well. You may look at the REI as people trying to make money, but we serve a big part of fixing up homes and apartments for the vast number of people who rent, and the revitalization of neighborhoods that other wise would remain run down.

Let's hope thay lower rates and leave the basics alone for our REI endeavors!

Cheers, Buddy

I think it is the Market value at the time of conversion to a rental property.  That is the year that depreciation would start.  You should be able to get tax records for that year and present year and do a ratio if tax value is lower that market value.  Or maybe use the tax value depending on how long it has been.  If you need to do rehab on it, remember to collect all cost for carpet, floor coverings, blinds, appliances etc that have depreciation lifes of 5, 7 and 15 years and use them in what is called a Cost Segregation Analysis. The tax law allows a special depreciation plus the accelerated depreciation over the shorter life time.

Hello @Edgar Gonzalez, welcome to BP. I had a couple of SFR's in Orange Co., CA with similar cash flows. Not by intent but rather than from ignorance of buying for appreciation rather than Cash Flow. Also bought them as the market in CA was going up. I kept them through the bubble bust and they have come back up to a bit above purchase price. On was a 10 year Interest only ARM and then transitioned to 30 year principal and interest, which worked out fine in the period in that rates went down and not up. It was a condo townhome with the HOA. I would not want a HOA involved again in that the fees can go up at anytime and often.

The other was more like your deal with about 3-400 negative cash flow but with tenant making the principal pay down.

It has shown some ROI from appreciation and principal pay down but still no where as good as later properties that I bought with a + cash flow. I would say keep looking for a better deal and offer what gives you a +cash flow from the start.

Cheers, Buddy