All Forum Posts by: Joe Splitrock

 Most of my mortgage have been sold within a month or two of writing them. This is very common and has no effect on your mortgage contract or terms. It just affects who you send your payment to. Most likely when you refinanced, you signed paperwork stating you would owner occupy for a period of time. Probably a year or at least six months. Your original contract applies, so look at what you signed.

 This is a very broad question. Cost segregation will accelerate depreciation. That means more expenses in early years and less in later years. You are not getting more expenses, just shifting when you can claim them. There is three things to consider:

1. Is the cost of the study worth the benefit. It likely makes sense on a an apartment building, but a single family or small multifamily, it may not.

2. In your situation is it better to have the tax write off now versus in the future? If you are in a low tax bracket right now, it may make less sense than if you are in a high tax bracket.

3. Most importantly, can you benefit from the accelerated expenses? If your expectation is to take passive loss against W2 income, then you need to either qualify within the income level or qualify as a real estate professional. There is no reason to accelerate if you can't benefit from the tax loss. 

Also be aware there are algorithm based studies and engineered studies. The engineered studies involve someone coming on site and doing a full study. These are the gold standard for meeting IRS criteria, but they cost more due to the costs of the company performing them. These cost thousands of dollars. Algorithm based is when you plug numbers into a computer program and it generates the report. Nobody comes on site or looks at your specific property. These cost hundreds, but are more likely to be questioned by the IRS in an audit. Some of the companies performing algorithm based will stand behind them and even do a full engineered study if you are audited. 

Bottom line, make sure there is clear benefit because there is expense involved in this. 

I would request the late fee at the time rent is paid. We have a fixed fee plus $5 per day, which encourages rent payment as soon as possible. 

I would also be very careful with accepting cash payment. The tenant could claim they paid rent that they did not pay. Every cash payment should get a receipt from a receipt book. Mark clearly on the receipt what month you are accepting rent for and what portion is late fees. The receipt book has carbon copy and numbered receipts. If there is a dispute in the future, this receipt book is your proof of what was or was not received. It would be best to collect online rent payment, but that could be difficult without a checking account. Another option is money order or cashiers check. 

Just be careful because cash means your word against theirs.

Have you asked them to stop and if so, what did they say?

You have to decide how far you want to push this. If they are leaving in 3 months, I am not sure this is the "hill to die on" as the saying goes. Involving police may have limited effectiveness. Police departments are understaffed and in Maryland they have generally decriminalized and stopped enforcing marijuana laws. I would just let it go unless there is property damage concern.  

I should also clarify that I am assuming it is a few plants. If the entire basement is a massive grow operation, there may be more concern.

Welcome @Robert Abasolo and congrats on your new host position.

You can deduct HELOC interest in the USA too. Regardless of deductibility, it is an expense is all I am saying. Financial terminology is the same in USA or Canada. Cash flow is income minus expenses and minus debt service. That absolutely includes interest on a HELOC used for down payment.

Maybe the only way to be cash flow positive is finding an off market deal. The other option is accepting a negative cash flow deal, knowing it is negative because you are financing 100%. I do think it is dangerous to pretend like you have 20% equity and ignore the HELOC payment in your cash flow analysis. You need to know how much is this property making or costing every month. If it is losing money, you should calculate future state. Most likely rent increases or refinancing will turn the deal cash flow positive at some point in the future.

The US market really isn't much different in regards to cash flow. When you are financing 100%, there are very few deals that will cash flow, unless you are finding off market deals or not including all expenses like management and CAPEX in your numbers.

 Great point, never "go for it" if the wife isn't fully on board. I tell my wife all the time, "if you are not 100% on board, we are not doing it". 

Go buy a Schlage Encode that is directly wifi connected. That is what we use at our STR and our home with no issue.

The Yale assure is a mesh device that needs a wifi bridge. It should work, but you have an extra device in the middle so if the lock loses connectivity to the bridge or the bridge loses connectivity, you lose connection. I am not a fan of mesh devices unless it is security system sensors or other low data devices.

 Interest is absolutely an expense and should be included in cash flow calculations. Not including that would also be fudging the numbers. I would argue it is more important to understand the numbers. You may pay all cash for a property and have $1000 cash flow, but that isn't necessarily better than 100% financing and have $0 cash flow. It really depends on your goals and other benefits of the acquisition. As you pointed out, other factors such as taxes play into an investment. You have to look at MORE than just cash flow. Debt pay down, equity increase through appreciation, rent appreciation, future refinance, tax benefits are all other ways an investment can benefit you beyond cash flow. Thinking one dimensionally about anything is dangerous. 

That all being said, properties without cash flow can be risky. If you are just breaking even on all your properties, you may need to subsidize them with other income. That could be your W2, cash savings or other investments. 

Bottom line, keep your math accurate, but also understand what it represents. Run multiple metrics, not just cash flow.

Cash flow isn't the only measure or necessary the best measure of a deal. You also have to look at cash on cash return. When you 100% finance, the COC return is infinite.

Looking strictly at cash flow, positive cash flow is positive cash flow. It means $1 or more of money is going in your pocket after expenses, including debt service. If you pay all cash for a property, pretty much any property will cash flow. That doesn't mean the property is a good deal. It just means you are buying cash flow. If you finance 100% and have no cash flow, it doesn't mean it is a bad deal.