All Forum Posts by: Heidi Kenefick

@Michael Plaks thanks for your reply, that’s a good article.

I will still pass material participation for my STR's based on the number of hours I put in for my other STR properties. The law doesn't say it has to be 100 hours per property…. Just 100 in total. Plus more than anyone else. It sounds like a co-host would still be allowable so long as I work more than them!

I’m purchasing my first Airbnb that isn’t local to me. I plan to cost segregate and bonus depreciate it, as I did with the ones that are local to me. Given that this property is 300 miles away- I’ve considered using a property manager or co host. If I do that, can I still utilize the short term rental loop hole?

I ask because last year when I categorized my expenses I listed fees for hospitable as a management fee and my CPA told me I cannot have management fees if I am doing the STR loop hole.

Thoughts?

@Sean Graham my goal was STR. The one I recently purchased will also work as a LTR, and numbers wise may actually make more sense. Currently I'm operating it as a STR, but I need a new cleaner and the quotes I'm getting are in some cases double my nightly rate, and the amount it grosses is only slightly more than what it will do as a LTR. But as a LTR, there is less headache and less overhead.

My other one does really well as a STR, doing double or sometimes 2.5x what it will do as a LTR. The overhead is high though, so considering selling as it really just breaks even at the end of the day. The tax benefit however, will tip it favorable.

@Sean Graham

Yes it does and that’s super helpful.

I have a CPA I work with who I’m sure will sort all of it out, just didn’t want to do something if it would cause a huge tax headache later.

Do you know if you convert a STR to a LTR after a cost seg, will it cause a large repayment of taxes (I'm doing the cost segs to lower my W2 tax rate).

If you do a cost segregation study, and take the depreciation early, when you sell the property do you have to pay it back as depreciation recapture if you are doing a 1031 exchange?

Scenario: I have two Airbnb’s I want to cost seg for 2024. But I am thinking of selling in 2025, and would then want to 1031 into an apartment complex. Good idea or bad idea?

@Brian Quo

I’m not trying to be a troll and honestly trying to help you save, you are doing the math wrong.

Appreciation is not counted in ROI because it is not guaranteed.

ROI is all the money you put in / annual cash flow. If you have negative cash flow you have negative ROI.

25% down is 175k. Closing costs, if 10% of the loan value will be about 52k. (Taxes, prepaids, attorney fee, origination fee etc)

So let’s assume your acquisition cost is $227500.

Cash flow is income - expenses.

Expenses are PITI, vacancy (5% of rents), capex (5% of rents), repairs (5% of rents) and property management (10%) of rents, plus lawn maintenance, HOA fees etc.

@Brian Quo

50k increase per year on say a 1million dollar house is 5%. But you are losing 12K a year. And if you account for vacancy you may be losing more like 20k/year. That’s a hefty loss, which, as passive income you cannot even take against your W2 income.

Can you make it a short term rental? Would it cash flow better? Or a mid term rental?

You said you are “afraid” of out of state. That’s sounds like inexperience and lack of knowledge about other markets talking. Why not go see some other markets, meet some realtors, call property management companies, or network? Why not buy new construction in the south east or mid west, and pay 100% cash (since you can still buy houses for 200-300K that are brand new in these areas)? Or buy 5 new construction houses for what you would pay for one in California?

@Jon Cave

It depends where you buy. I have mortgages on mine and they cash flow great. I underwrote them to cash flow as a LTR, but then bit the bullet and made them STR's and so far it's working. I don't invest in tourist markets. I'm in a tertiary market, with a big hospital and big university. Weekends brings in people visiting family or going to a foot ball game and week nights is mostly contractors or other blue collar groups needing a place for the week that is nice but cheaper than a hotel. The trick is to price is right.

@Jake Hruska

I put all of mine into LLC's. First, you need to form the LLC for this purpose and I would recommend having an asset protection attorney do this for you.

Next, you will need a real estate attorney in your state file a quit claim deed to change the title to the llc. In NC, my attorney charges me it’s $100 to do this.

There is a small risk your mortgage could call the note due, however this rarely happens and if it did you could 1. Quit claim it back to your sister or 2. Refinance.

I highly recommend asking some attorneys in your state about this. They will explain the process and the cost and talking to them as a consult for a possible job is free.

@Tom Stevenson

Heloc’s have interest rates at like 10-15%. I recently opened one on an investment property at 13% interest. It’s an expensive way to get cash. If you have the money, just use it, rather than borrow. It’s safer, and honestly you aren’t spending it, you’re moving it from one asset class to another.