All Forum Posts by: Joe Splitrock

@Scott Trench most likely didn't send that message. Are you sure you are following the right Scott Trench? There are people creating spoof accounts all the time pretending to be someone famous to build trust and attract followers. The real IG should be scott_trench so make sure it is not a scam account.

I have no idea why a tax professional wouldn't accept information in Excel. Most will take a shoe box full of receipts, although the more disorganized you are, the more they will bill you. One question during the interview process is asking them how they want you to organize and provide information to them to make their job easier. Given that you have state taxes in addition to Federal, I would work with someone in California. 

It is good to work with a professional. IRS would quickly tell you that "not knowing how to do it right" is not a defense if you do it wrong. More importantly, a tax professional should be able to help you develop a tax strategy that will increase your tax benefits.

Quote from @Account Closed:

The area of my building in west Humboldt park over by Augusta Blvd & west of Hamlin ( especially my block) is always busy and well.. you know, sketchy. I understand this can change drastically within the next few years. But I’d like more experienced opinions. How long do you think it’ll stay this way for? 

I’m wondering because obviously if the area changes quicker than expected, value increases. 

 There are cities or neighborhoods that turned around and other that got worse over time. It depends on several factors. Local economy is critical. If people want to move into the area for jobs, they may be willing to take less desirable locations, then fight to improve them once they get there. They will rehab properties and push the city to address the sketchiness issues. Another critical factor is local government officials and how aggressively they attack crime. This generally requires the residents to get mad enough that they demand or vote for change. Of course even the best politician may have trouble changing the tide if the city lacks proper financial management or lacks tax revenue. Some cities get caught in a cycle where affluent tax payers move out, causing tax revenue to decrease, making problems worse. If it gets bad enough, even businesses move out because crime makes it hard to operate a retail operation.

I don't have any specific knowledge of your location. I am just commenting in general how cities have turned the tide in the past. 

Just to clarify this is the number of inbound versus outbound based on United Van Lines moving company data. This does not reflect net population or percentage gain. For example in one state, 1000 people could move in and 100 move out. In another state, 100,000 could move in and 2000 move out. Even though one state had much larger net gain, the percentage of inbound versus outbound was lower. Looking at pure population growth, I believe Texas is the largest net gain winner for 2021, followed by Florida. If you look at percentage growth, I believe Idaho is the largest percentage gain in 2021. It is interesting, but doesn't paint the full picture, especially considering United Van lines only represents a portion of moving traffic.

Here is US Census Bureau data on actual population gain/loss in 2021:

https://www.census.gov/newsroo...

Top 10 States in Numeric Growth, 2020 to 2021
Rank	Geographic Area	April 1, 2020 (Estimates Base)	July 1, 2020	July 1, 2021	Numeric Growth
1	Texas	29,145,505	29,217,653	29,527,941	310,288
2	Florida	21,538,187	21,569,932	21,781,128	211,196
3	Arizona	7,151,502	7,177,986	7,276,316	98,330
4	North Carolina	10,439,388	10,457,177	10,551,162	93,985
5	Georgia	10,711,908	10,725,800	10,799,566	73,766
6	South Carolina	5,118,425	5,130,729	5,190,705	59,976
7	Utah	3,271,616	3,281,684	3,337,975	56,291
8	Tennessee	6,910,840	6,920,119	6,975,218	55,099
9	Idaho	1,839,106	1,847,772	1,900,923	53,151
10	Nevada	3,104,614	3,114,071	3,143,991	29,920

Top 10 States (or Equivalent)in Numeric Decline, 2020 to 2021
Rank	Geographic Area	April 1, 2020 (Estimates Base)	July 1, 2020	July 1, 2021	Numeric Decline
1	New York	20,201,249	20,154,933	19,835,913	-319,020
2	California	39,538,223	39,499,738	39,237,836	-261,902
3	Illinois	12,812,508	12,785,245	12,671,469	-113,776
4	Massachusetts	7,029,917	7,022,220	6,984,723	-37,497
5	Louisiana	4,657,757	4,651,203	4,624,047	-27,156
6	Pennsylvania	13,002,700	12,989,625	12,964,056	-25,569
7	District of Columbia	689,545	690,093	670,050	-20,043
8	Michigan	10,077,331	10,067,664	10,050,811	-16,853
9	New Jersey	9,288,994	9,279,743	9,267,130	-12,613
10	Ohio	11,799,448	11,790,587	11,780,017	-10,570

I just decided to do it and didn't overthink it. Honestly, I looked at all the people who owned rentals and determined, most of them were not smarter or more driven then me. Based on their success, I was confident I could succeed. It really depends on what you are willing to do. It is not just mailbox money, so if you are lazy or emotionally fragile, you could have a tough time. People say anyone can do it, which is true, but not everyone is willing to do what it takes.

@Kyle Smith as a traveler to the Smokies who has stayed at cabins and gone golfing there, I wouldn't want to look at a golf course and on the golf course I wouldn't want a better view of your cabin. Trees take 20+ years to get to the size you are talking about, so they are an asset to that property. If they were blocking the mountain view, I could see trimming them to open that up, but not the golf course. 

@Billy Daniel it is pretty clear with the IRS that depreciation is required for rehab and expenses are for repairs. There is an advantage to repairs, because the full cost is claimed in the year that the repair occurred. The problem is that it  really isn't your choice. It is either a repair or an improvement as defined by nature of the work, not what you label it. Lumber is very rarely used for repair and when lumber is used for repair, it is just a couple pieces. Also keep in mind that rehab happens before a property is "in service" as a rental, which means those expenses are going to be added to basis and depreciated. 

Some people think if they just come up with a good story, they can expense rehab as repair. There are two problems with that. First is that the burden of proof is on you, not the IRS. It is not for the IRS to prove that it wasn't a repair, it is for you to prove that it was a repair. Second issue is the IRS can see millions of tax returns and they understand full well what constitutes rehab versus repair. This is why it is good to detail the scope of work with all expenses and take before and after photos. Another way to substantiate repairs is invoices from qualified professionals that detail the scope of work.

There may be opportunity for bonus depreciation or de minimis safe harbor on certain expenses. These could provide similar benefits. Talk to your tax professional and they can help you figure it out. 

@Austin Watts talk to @Russell Brazil who is a regular in the forums and fellow moderator. He is a local realtor that is very familiar with the DC market. He also has a DC real estate podcast, which you may find helpful.

@Blake Ramsey one of the main risks is that short term rentals rely heavily on tourism. We know from previous recessions that tourism is the first industry to be hit when people start loosing jobs. That is because tourism is part of discretionary spending, meaning non life essential. The risk for you is that you have contracts with several people to pay rent, but you don't have the income to pay the rent. If you owned the property, you have more options. You could discount your nightly rate even more or convert to long term rental. This is possible because you have a lower monthly cost basis. 

As a property owner, there is no way I would rent a house to someone in college for rental arbitrage. Someone young, inexperienced and likely lacking capital is a huge risk. The risk is possibly higher for the property owner than it is for you. You could just stop paying and walk away. They may get a judgement against you in court, but you are young and could repay it over time. Even worse is when people use an LLC to rent for arbitrage, because there is no recourse for an owner.

I think the "naysayers" are looking at it from an owners perspective. An owner has far more to lose. 

You may be able to make some money doing this, but I am not convinced Springfield, MO is the best market for this. That is a separate topic all together.

@Jai Reddy thanks, it appears I misread the question. 

The reason savings account interest rates have not increased is that banks have an excess of money. That is mainly due to the pandemic, which resulted in massive government stimulus and payment freeze programs. On top of extra money coming in, expenses reduced because people stayed at home. They didn't go on vacation, out to concerts, to the store shopping or out to the restaurant. This left people with massive amounts of cash, which they could either spend or invest. Many put their money in the bank, which has left banks with high cash reserves. Simply put they don't need cash, so the rates reflect that. Also consider that lending rates have only recently began to increase, so there is some lag time to see all the effects. It is fair to say over time that savings interest rates will increase. For example, back in 2018 when I got a 4.5% 30 year mortgage on an investment property, I was getting close to 2% in my high yield savings. Still not very high all things considered. The Feds monetary policy makes it unlikely we will see savings account interest rates like we did in the 1980's or 1990's, when 8% to even double digits was common. As a nation we used to reward savers, but we now punish them. This is done intentionally, because spending is what makes the economy strong, so politicians want you to spend every penny you make. Strong economy means re-election.