All Forum Posts by: John Clark

If you have ever used an AirBnB and are interested in investing in real estate, this post is for you!

For individuals navigating the demands of a w2 job and grappling with substantial tax obligations, exploring the potential of short-term rentals unveils a compelling avenue to mitigate tax burdens. A noteworthy tax loophole, particularly beneficial for those yet to attain Real Estate Professional Status, offers a strategic approach to potentially offsetting OR EVEN ELIMINATING the impact of high job-related taxes.

At its core, this tax loophole revolves around discerning between passive and non-passive activities within the realm of rentals. Those whose rental pursuits fall under the non-passive umbrella may find solace in this tax-saving provision. The federal tax code establishes stringent criteria, including guest stays limited to seven days on average and the provision of basic hotel-like services, to qualify for this advantageous tax treatment.

Understanding the mechanics of the short-term rental tax loophole is imperative. Section 469 of the federal tax code initially classified all rental properties as passive. However, an essential exception emerged in the 1990s, allowing specific rental income to be categorized as non-passive. To leverage this benefit, prospective property owners must engage in short-term rentals and provide substantial services to guests, such as daily cleaning, meal provisions, or transportation services.

Additionally, navigating a material participation test becomes crucial. This entails dedicating a significant amount of time and effort to the short-term rental business. Meeting the test criteria, which includes working over 500 hours in the business, overseeing all necessary tasks personally, or substantially participating alongside a partner, facilitates the strategic utilization of the short-term rental tax loophole. For individuals tethered to a W-2 job, this presents an opportunity to judiciously manage their tax liabilities while exploring supplemental income avenues.

If this sounds like something that fits your investing goals, please reach out. We would be more than happy to assist in answering any questions!

Hello Biggerpockets community, I am looking for a good 18 hr city in TX or NC to invest in. Can I please have some suggestions?  Thank you, Ben Su

Hi, i currently own a 3 family with a 4% mortgage, which is doing very well. I am about to purchase a SFH foreclosure for $65k cash (this week), and wanted to find out if there was a way to pull out some cash to pay down debt since it will be paid for? My credit score is only 603. Also, the first property is in an LLC, and this one will be purchased in another LLC.

Afternoon BP, 

I fear that I know the answer to my issue but want to get the advice of someone who is an expert in the Insurance game. The exciting part is that I am a first-time investor and am in the process of closing on my first ever investment property. I am currently living in NY and am in the option period on a SFH in Texas that will be used as a rental property Investment, that's the good news.

From what I've learned and researched, it is "standard" and smart that I should have an umbrella policy to cover myself for any liability issues that come along with owing a property with renters, here lies the start of my problem. Currently I am living with my in-laws.  What I suddenly found out today after attempting to get an umbrella quote is that I cannot get an umbrella policy if I currently do not have homeowners or renters' insurance.  Something that may seem like I should have known but am learning about now. The reason I don't have either is that my wife and I are currently house hunting for our own home here in NY and in the meantime, we were fortunate enough that my in-laws are allowing us to stay with them till we do find a home. 

My issue now is that I cannot get a quote or a policy. If there is someone out there with the knowledge or can provide advice on how to or if there is even a way to work around this, I would appreciate any and all feedback.  

One of the ideas I did have was that currently my mother lives in NY as well and has an apartment that she has renters' insurance on. Would I be able to add myself to that policy which would then allow me to get the umbrella? 

Appreciate any help as I don't want this to derail my first RE investment purchase. 

Thank you! 
 

Afternoon BP, 

I fear that I know the answer to my issue but want to get the advice of someone who is an expert in the Insurance game. The exciting part is that I am a first-time investor and am in the process of closing on my first ever investment property. I am currently living in NY and am in the option period on a SFH in Texas that will be used as a rental property Investment, that's the good news.

From what I've learned and researched, it is "standard" and smart that I should have an umbrella policy to cover myself for any liability issues that come along with owing a property with renters, here lies the start of my problem. Currently I am living with my in-laws.  What I suddenly found out today after attempting to get an umbrella quote is that I cannot get an umbrella policy if I currently do not have homeowners or renters' insurance.  Something that may seem like I should have known but am learning about now. The reason I don't have either is that my wife and I are currently house hunting for our own home here in NY and in the meantime, we were fortunate enough that my in-laws are allowing us to stay with them till we do find a home. 

My issue now is that I cannot get a quote or a policy. If there is someone out there with the knowledge or can provide advice on how to or if there is even a way to work around this, I would appreciate any and all feedback.  

One of the ideas I did have was that currently my mother lives in NY as well and has an apartment that she has renters' insurance on. Would I be able to add myself to that policy which would then allow me to get the umbrella? 

Appreciate any help as I don't want this to derail my first RE investment purchase. 

Thank you! 
 

I'm just a naive Midwesterner peaking into the Texas constitution. Feel free to enlighten me. I would guess real estate is a moot point if the local consensus is that this movement is a nonstarter. 

This post is not intended to elicit normative value statements on whether the secession of Texas from the Union is right or wrong but rather to explore the early and potential implications on real estate.

For those not up to speed on the matter, in summary, the Texas Nationalist Movement delivered signatures to the Republican Party Headquarters for the Texit Referendum this month. According to the movement's website:

Utilizing a provision in the Texas Election Code, if the TNM collected a minimum of 97,709 valid signatures on the petition, the question, "Should the State of Texas reassert its status as an independent nation?" must, by law, be placed on the primary ballot in March of 2024.

I understand that many news outlets are dismissing it as a nonstarter, citing Texas vs White. On the other side, there appears to be a growing base for the movement calling for a different interpretation of that case and saying they project majority support if the question of secession came to a vote.

For the Texans out there, are there any conversations happening about this among buyers or sellers? Any local insights into the general opinions on this matter? Whether it's a matter of perception or reality, it's reasonable to assume that further movement in this direction would have an impact on real estate for investors.

I recently tried to purchase a delinquent land contract note from owner/note holder. Things got touchy with owner and he backed out. I'm thinking of approaching the delinquent buyer of the land contract and offering to pay off land contract balance and a fee to them for the deed. I was originally buying note for $25,000. Since that fell through, I would offer delinquent buyer to pay land contract balance of $40,000 and fee to them of $5,000 for starters for the deed. Paying $45,000 still makes sense because property is worth about $150,000.

I'm not being shady for going to delinquent buyer after negotiating and getting contract details from owner/note holder and then falling out am I?

I've posted multiple questions about this duplex we are (potentially) about to close on. I am in over my head and need more advice. The duplex was a SFH converted to a duplex. They listed it while the plumbing wasn't finished. We were supposed to close on Monday but the permits are still open. They were supposed to put a firewall in the attic on Monday and we had more inspections Tuesday. When we got there Tuesday, they were still doing the firewall and there was a hole in the ceiling from where they fell through. There were 4 other noticeable ceiling patch jobs and the drywall in between the units was popped out slightly. A toilet was also cracked and leaking. All of this happened since we went under contract. The inspector noticed that the water barely flows through the pipes when multiple things are running on both sides. My realtor told the listing agent everything we found and she drove over to be at the inspection, and then the buyer showed up. Lol

They were supposed to add ventilation to the crawl space, grade the front yard, remove an old brick post and cement slab, add flashings to the roof, and more but he didn’t do any of it (we were supposed to close Monday- he’s had over a month and has gone out of town). 

We told the listing agent that we would not proceed if the water pressure wasn’t fixed yesterday and then this morning they requested that we go ahead and close with the open permits and the promise that he’d complete the job. We told them absolutely not and I started to get concerned. We haven’t even gotten the appraisal. And there’s no certificate of occupancy yet??? The listing agent has lied multiple times about different things, and there are multiple red flags that have popped up. I did some digging and it turns out the seller (he’s a flipper) has been sued at least twice for not paying people back (a contractor and someone for a home loan). And he refused to give me the names for his contractors.

This is our first purchase and I feel like this is just chaos. I really don’t even want to close on it anymore. I feel like he probably cut corners, he’s run out of money, and he’s doing shoddy work to try and get things done. Does anyone have any advice? 

 Since you asked so "nicely":

Why does everyone want to chase strangers – and ignore their own personal network?

Which do you think will be more competitive, buying from wholesalers or your own referrals?

Per this NY Times article, the average American knows around 600 people.
https://www.nytimes.com/2013/02/19/science/the-average-american-knows-how-many-people.html#:~:text=The%20average%20American%20knows%20about,do%20you%20know%20named%20Kevin%3F

Per the US Census Bureau, the average American moves 11.7 time in their life, which based upon an approximate lifespan of 84 years, works out to be about every 7 years.
https://www.census.gov/topics/population/migration/guidance/calculating-migration-expectancy.html#:~:text=Using%202007%20ACS%20data%2C%20it,one%20move%20per%20single%20year

So, if the average American knows 600 people and they each move about every 7 years, that means that the average American knows around 85 people that move in any given year.

How many of those moves do you want to be involved in?

To maximize the number of transactions you’re involved in you will need to:

• Be Top of Mind when they think about moving - which requires consistent reminders.
• Be seen as an Expert – which requires a consistent message and Evidence of Success stories
• Gain their Trust – which requires communicating integrity

So, start out by listing everyone you know in an Excel spreadsheet.

Why Excel? Because later, you can easily use it as your mailing list! Create columns for Name, Street Address, City, State, Zip and then contact info: Last Contact, Relationship, Status, Email & Phone.

IMPORTANT: do NOT ask people for THEIR business, ask for referrals! Why? Because they will get defensive if they feel you are pressuring them. Remember, they can always refer themselves😊

Now, make it a goal to call at least 5-10 of these people EVERY day and ask a MAX OF THREE off the list below of who they know that:

• Just inherited a home
• Had a loved one pass away
• Is behind on their mortgage or tax payments
• Has a relative that can’t take care of their house anymore
• Has a house they’re having trouble selling
• Is facing bankruptcy
• Knows a probate attorney
• Knows a bankruptcy attorney
• etc

Why only three off the list per contact? Because on average, we can only remember three things at a time. If you try to go over the whole list, you’ll lose the attention of an average person and they won’t remember anything!

It should only take you about a month or two to contact everyone on your list and then the tough part – you start all over again.

Why the repetition? Because it takes repetition for people to remember things and you have to be top-of-mind when they encounter a potential client for you!

Have you ever been to McDonalds? Of course you have! So, why is McDonalds still spending billions on advertising?

One more tip – people remember stories that trigger their emotions. So, tell a story of how you (or a fellow wholesaler) helped a seller out with their challenge(s). Change your story each month as different stories will resonate with different people AND use each story to emphasize one of your “who do you know…” questions.

As you start closing deals, you will need to reinvest your profits into mailing lists and other scalable activities to grow your business.

One last thing – we recommended you create a Status column on your spreadsheet, now we’ll explain why. If you find someone that seems to know a lot of people needing your services, wouldn’t it make sense to focus more resources on them? Conversely, you will run into people on your list that just seem to be a waste of time, so you’ll want to avoid them. So, create status codes for both of these and a few in-between codes to help you work smarter, not harder.