All Forum Posts by: Jerry W.

@Don Konipol, long time no see bud.  I do some mid term rentals with my VRs during winter.  Not a lot of tourists going to Yellowstone at 20 degrees below zero.  I always leave everything in them.  Furniture, linens, towels, soap for dishwasher, trash bags etc.  I will let them bring a piece of furniture sometimes, but usually not.  I can rent them a storage facility if needed.  If they move their furniture in your work is massively more.  Stuff can be broken, stolen etc.  When they move out the movers will take all of your stuff and load it too.  I lost a very nice table that way along with other stuff.  The cost of towels is very minor, leave 4 per person, leave at least 2 sets of linens per bed.  I go for at least $500 per month more than regular rent.  Take out all of your $300 dollar bedspreads etc .  I don't get stuff stolen, but it can get worn out or dirty.  I really like traveling nurses, or government workers with a housing voucher.

@Bolek Schwab, I am going to say stop and get some expert tax advice. The amount you can transfer free from inheritance tax is the same if you gift it now as compared to him getting it at death. The huge problem you are not considering is capital gains tax. Why are you doing a 1031? To avoid capital gains taxes. If you gift the property to your child now then their tax basis is your current tax basis. If they ever sell it they must pay taxes based upon your basis in the property you did the 1031 on. If your son inherits the property upon your death he will get it at full market value and will not have any capital gains except the increase in value after your death. Lets assume your basis for your current one half ownership is $100K and it is now worth $300K. You tax defer into a $300K property that is now worth $600k. Your basis is still only $100K as would your son's basis if you gift it while living. If you or he sells it the $500K is taxed as capital gains, and the rate will vary upon a lot of factors. Lets say the taxes end up being between $55K and $150K. If your son inherits the property upon your death and he sells it for $600k, its value at the time of your death, he pays $o in capital gains taxes. Repeat $ zero in taxes. I would plan more before gifting it now and see an expert on how to transfer it to keep the free stepped up basis you get in estates. Do a transfer on death deed or perhaps an LLC where you own 99% but he owns 1% but on death he gets the rest but can get 90% of the profit from it now. Just some ideas.

For what it's worth, I have had amazing results with using a duplex for VRs.  I have had the occasional problem of one guest doing laundry until 4 a.m. and the other guest was kept awake, but by and large it was a huge success.

A couple of other things to worry about if you don't have enough.  Violations of code, like not having GFCI outlets on plug ins near the sinks, tubs or showers, not having licensed professionals do work on electrical, plumbing or heating.  There was a horrible case awhile back where improper venting of the furnace killed a doctor and injured the wife pretty badly.  I think damages came to about $12 million.  Way over even my umbrella policy.  Had a licensed plumber done the work it would have probably been able to be defended against and the plumber's insurance would have taken the brunt of it.  How about not having a licensed contractor and having workers not on workman's comp working on your property and getting injured.  Now you have a guy with a $50k hospital bill out of work a few months, and they sue everyone, the land owner, the guy who hired them, etc.  Finally just plain slip and fall litigation.  Many times your insurance will pick those costs up, but having documentation of having your property reviewed and maintenance done can be incredibly helpful.  How many of you have records showing how you respond to and fix problems you hear about.  A colleague of mine was sued recently because a guest of his tenant fell when a railing was broken and the guy fell off the porch.  Turns out they claimed they had told him for months about the bad railing but the LL ignored it.  However the LL showed a list of every complaint the tenant had made and how quickly it was fixed.  There was never a complaint about the railing, and he had proof.  He made them put any complaint in writing and kept a record of the complaint and the repair.  Later evidence from the hospital eventually showed that guest was quite intoxicated, and some injuries were not consistent with a fall but of a fight.

Just some random thoughts from actual cases I have read about or heard about from first parties.

@Gabriela Rezende, excellent post.  Thank you for taking the time to post this, it was very helpful.

In all the states I invest in the property taxes are tied to the value of the property unless it is a special assessment.  The fact that your property taxes went up 10% means your property was assessed about 10% higher by your assessor this last year.  The good thing is that rents have gone up a lot also.  By the way property taxes are a local government tax, not a federal tax.  The federal tax is based upon income, not value of your property except for inheritance taxes.

I have never had guests sign a separate agreement.  I do have some private bookings, but they are all guests from other stays.  I have been doing it for maybe 6 years now without a problem.  I can see why some want the extra protection.  For the 3 month periods I rent to traveling nurses they sign a modified property lease.

@Kathi Miller, if it is truly a documented animal you do not get to charge a pet fee.  On my rental application I have that if any information supplied is not true it is grounds to terminate the lease.  They have the right to a ESA or service animal if it is legitimate.  Perhaps my logic is flawed, people who lie on their applications are automatically evicted with me.

@Carolyn Richards doing a 1031 in your situation is a VERY bad idea.  If it has been your primary home or homestead for 2 out of the last 5 years you can get a $250K per person or $500K tax exemption from the sale of your house.  If you do a 1031 transfer you will eventually have to pay taxes on it unless you die owning it and pass it to your children.  Get tax free money then have a higher basis to depreciate from and lower taxes later.

@Huong Luu, since I am in the US, I don't know if my situation will help or not. I own 3 properties in my personal name, so when I pass they will go to my children and get the free stepped up basis. My main investments are in 2 Sub S corporations that will not enable the properties to get the benefit of the free stepped up basis. To help overcome this I started an LLC for future acquisitions, and have been buying in it. I am looking at starting a wholly owned LLC owned by my sub S corporation, then hope to transfer real estate into it and take notes back, then collapse the Sub S leaving the LLC owning everything. I have more work to make sure this will work, but so far it looks promising.

I am also starting to slowly bring my kids into the business, and my daughter has been helping me fix up a vacation rental or 2.  They need to do more than inherit at a stepped up basis, they need to know how to properly run the business as well.