All Forum Posts by: Igor Messano

Originally posted by @Chris Heeren:

 Dave - I never said I was unhappy? In fact, I can't wait for the day when I have to pay $1 Million in taxes. I have just heard enough podcasts mention "if you have buy and hold rentals you should never be paying tax" to start asking the question. I just recently heard a very intelligent CPA mention that if you are paying ANYTHING on buy and hold rentals, you do not have a good enough CPA. This makes me wonder, how many other investors out there do show positive gains on mortgage leveraged properties? And also, what could a CPA suggest I even do in my scenario to eliminate taxes.  

I believe if I started buying properties in B+ area's, the depreciation would wipe out my gains on my C Class properties, however, I cannot justify touching anything in an appreciating market around my area at this time. The loss of equity in the next down turn wouldn't justify the savings on taxes. Also, I believe I could take my year end positive cashflow amount and invest that into a Solo 401K plan in which I could then reinvest back into real estate.  This could help get me away from paying taxes on the gains but would also force me to stick my money in a retirement vehicle which I could not touch for another 30+ years. 

 It is untrue that a good CPA will make it so you do not pay taxes on your RE investments unless you are also taking advise from your CPA prior to purchasing the properties. The worlds best CPA cannot get you more deductions than what you are allowed. If you purchase a property for 50K that earns $1000 per month in rent, you will likely have taxable income (ignoring other compensating factors in your return like other properties). However, if you purchase that same property for 100K you will most likely not have taxable income. The only thing that changed was your purchase price and therefore your depreciation. Would you rather make less money so you can pay less taxes?

The idea of netting zero on your rentals is that you can leverage your properties more to increase your mortgage interest expense or example. This way you are taking more advantage of the tax code. This however, can contradict other strategies if they call for less leverage on a property.

Simply put, the better the property and deal you find, the more likely you will be to earn an income from it that is high enough to be taxable. To keep my mind at ease I use the best real estate CPA I can find and that is all I can do (for the most part). If I have to pay taxes then so be it as long as I am cash flowing and increasing my net worth.

PS: I work for one of the big 4 accounting firms (Not in tax) and have my CPA. I still don't do my own taxes.

When I was starting to first analyze a property I would the same as you. Look on MLS and think of hypothetical costs to try to make the numbers work. This is a good way to learn the ratios by playing with the numbers but don't take those returns and make a decision on that. They are guesses at best and you need to really get an understanding for what you can expect for your area in order to analyze the deal. That and actually walking through a property to identify rehab costs. As to the ROI vs CoC question, this is how I picture it. The CoC is the return you are getting on the money you invested and not how much money you are making. $400 monthly cash flow might seem like what you are looking for. But if I told you that you could buy the house down the street and get the same $400 per month but buy it for $150K? Your original CoC return doesn't sound so sexy anymore right? That is the use of the ratio. It helps you compare how investing in one property will compare vs investing your money in another property, or the stock market, a CD at your bank. While I agree you shouldn't just chase a magical number and never buy a property, you also need to know if the money you are investing in something could have been better spent elsewhere. If your goal is to simply own an investment then $400 return sounds fine. If your goal is to own a good invest then you need to look at your CoC as well as other ratios such as CAP. Hope this helps. I know the numbers can get confusing at the start. I suggest you check here if there is a REA meeting near you. Local folks can help you in understanding what your markets return look like so you can compare.

I agree that through interpreting what she is asking for it sounds like she is trying to get creative with the 1031. I would be very careful not just for the LLC but for her sake since she is being advised by someone who is supposed to have her best interest in mind. You didn't specify but if she is taking advise from a true financial planner, I would really encourage her to seek the help of a CPA specializing in real estate or a tax/real estate attorney. Financial Planner is a very loose term and you would be surprised by how little some of them know. Being creative is not inherently bad as long as you take advantage of the tax code and not break the tax code.

During an audit the LLC could end up incurring attorney fees to get out of a mess you didn't mean to get involved in.

Hi everyone,

I was browsing the forum today and stumbled on someone's post recommending seedcapital.com and reading about their program is got me interested. Does anyone have any experience with them in establishing credit lines or anything? I was thinking that having some credit lines could help me in purchasing and rehabbing small properties quickly for "Cash" and using the BRRR strategy to pay the loans off.

I have excellent credit with good DTI. Currently I have a 30K unsecured credit line with my personal bank but need more to be able to fully find the rehab without hard money and such.

Originally posted by @William Walker:

So what are you calculating as the % you are losing with borrowing from your 401k?

Not trying to turn this into a personal financial forum.  You need to calculate what you're going to lose with borrowing from the 401k and you have to add that into your numbers when buying a property and renting it out. 

I think you should look at buying with FHA putting down 3.5%. Consult someone more knowledgeable than myself, but I believe you can purchase a duplex and rent the other side using a FHA loan. Talk to a loan specialist and see what your DTI ratio needs to be, what the lowest % down you can put, and try to achieve those goals.

 Well when you borrow from your 401K there will be a financing charge to it along the lines of maybe 3% just like a loan. So you need to consider this cost when calculating if borrowing from it would make sense. If you want to add to the complexity, during the 401K borrowing period you also forgo any possible gains since the money is not invested in the market. So that is another "cost" (Opportunity cost). 

You are exactly right on the loan amount being up to 50% of the balance only and there is usually a maximum number of times per year you can barrow (no matter the amount). In my case it was 1 year. So even though I borrowed much less than 50% and paid it in 20 days, I can't take another until the anniversary of the loan.

Originally posted by @Sergio Rodriguez:

@Jack B. @William Walker Thanks for the feedback. This is exactly why I joined the BiggerPockets Blog: to get advise from everyone with different perspectives such as everyone in this thread. 

Currently my Student loans are about 10x as much as my car loans and with 0% interest on my car loan plus not having to pay until 2018, I'm paying my student loans aggressively. It will probably take me 6 months to get my DTI below 40%. In the mean time I plan to study like crazy.

I purchased my first home with a loan from my 401k. Although I structured the deal to get some money back after closing and paid the loan off within 30 days, I would still have done it if I had to pay it back for longer. Loan is much better in terms of tax advantage but I depends on what kind of return you will get from the investment since you will be tacking on the interest payment of the 401k payments on top of it. 

About your situation your focus needs to be reducing your MONTHLY liabilities and not necessarily your debt. Paying 10K toward such a 50K student loan doesn't reduce your monthly payment unless the loans are broken up and you can payoff one completely. This means that it might be better to pay off the car first. 

Another thing to consider is how you are calculating your DTI ratio. You need to consider what your DTI will be including the new loan so generally you need it to be much lower than 40% before the investment so with it you can be below 43-46% or whatever your lender requires.

In summary, if you want to invest in the future you need to position yourself to be attractive to lenders. This might mean selling a car to pay the loan and drive around in a cheaper car, paying off some student loans, increasing your monthly income, etc. 

Bonus tip: if you buy a property that is currently under a lease, the lender will allow you to add the rent income to the income side of your DTI calculation. This could mean that buying the property actually lowers your DTI if it's a good deal.

Originally posted by @Account Closed:

Igor Messano I just resolved the above issue by doing what you said . I went to file for eviction and all of the sudden the other party got ahold of me .

Awesome I am glad I could be of a little help although I am very much new to this also. Great thing about having two people on the lease is that they are responsible for each other's actions or in your case inaction! Cheers and hope you replace with some great tenants. 

I agree with @Peter Tverdov that the policy might change and if you can acquire the property cheap enough to be a decent deal WITH the policy, it can become a home run if the policy reverses. Stuff like this boils my blood and idk how universities get away with pretty much creating a monopoly on student housing. 

depends on your contract and you should have known about this before signing. Check and if it's in there then they get it. I personally try to negotiate PM contracts that align my and PM's goals, and PM collecting late fees does not align with my goal of always receiving rent on time. It adds an incentive for the PM to have paid but late rents. In the other hand it gives them another incentive to chase late rent. You could always increase late fees and split the late fees. 

Paying a month rent after every vacancy also incentivizes turnover but I haven't figured out how to better structure this.

@Marian Smith can you further explain your last statement of giving preference to households with two adults? Are you communicating this? This sounds like a huge violation of the Fair Housing Act as you would be discrimination single family mothers for example.