All Forum Posts by: John McAuley

We recently went under contract on a Fannie property as well. We offered $1000 EMD and they accepted that.

I am from the Rocky Mount area and would view that as a highly risky investment, especially if you are planning to invest from CA.  I suppose if you specialize in C/D neighborhoods that you will most likely see no appreciation from anytime soon, and are comfortable managing it from 3000 miles away, and it was a REALLY GOOD deal....maybe still.  Just pull it up on the map.  That set of tracks going north and south about 5 blocks to the west is a very good indicator you are looking in an area you may not want to be in.

Also, since I noticed you are nowhere near Rocky Mount, be careful about what areas you are looking at.  A quick Google search will lead you to a lot of information about crime, etc...  There are areas where that is more prevalent and those that are ok, so just be careful if you don't know.  Generally, you want to stay on the Nash County side of the RR tracks that split Rocky Mount between Nash and Edgecombe counties.  If you have a RM address and listed as Edgecombe county, you are looking in a C/D neighborhood most likely with little chance of improvement.  Remember, it's very hard to change neighborhoods regardless of the deal.

Make sure you check the flood plain.  Some of the areas near the Tar River have some cheap houses but there is a reason for that.

After negotiating, we had Fannie accept an offer on a property but the listing agent does not seem to be with it. We have gotten them everything they requested except the earnest money deposit simply because the LA hasn't been able to tell us who it is. We opted to use the Fannie attorney because their offer said they would pay the attorney costs and title insurance if we used their attorney. However, we have no idea who to make the EMD check out to. Again, we've been hounding the LA for two days now and he hasn't come back with an answer. He is responding but hasn't been able to answer. With everything I've read about these properties, getting them the EMD quickly is imperative. So I'm a bit worried at this point. Any recommendations?

Thanks @Account Closed.  I meant outdated simply because they are no longer used.  At some point someone ran overhead HVAC and put a heat pump in so these are in every room but not used.

Thanks @Brandon Hall and @Jered Sturm.  All makes sense.  I guess the bottom line is that I was hoping to be able to use the excess losses to offset my W2 income but it looks like the only way I can do that is to scale it to the point where my wife could handle that business and qualify as an RE pro.  I completely understand that the expenses can offset rental income and I get that.  I have just discovered over the past few years the awesome benefits of using other businesses to offset high W2 income, growing net worth instead of growing Uncle Sam's pockets.  I was hoping our real estate ventures were going to be another way to do that...just sounds like I may have to wait a little for that to kick in.  Thanks again!

@Brandon Hall, thanks for the reply. I already understood what you explained above, I just didn't understand why an LLC set up for a real estate business is viewed differently as an LLC set up for another example (like my farming business for example). In that business, of course all my expenses are used to offset the income and any losses flow directly to offset my W2 income. I guess I just don't understand why those two LLCs are viewed differently, but perhaps it's just the way the IRS views real estate investing vs. small business investing.

So with suspended passive losses, how far do those carry forward?  Let's say we continue to increase the portfolio to the point where my wife does qualify as a RE pro in 4 years.  Will I then be able to use those losses from 4 years earlier (this year) to offset against income then?

Thanks again for the help here.

John

Hey Everyone,

This is the first year we will have rental property on our tax returns. I'm familiar with W2 income and income from our other businesses (LLCs). However, I'm not clear on the active vs. passive rules when it comes to being able to offset other income with my passive rental losses. I'm above the 100K limit on rental losses and since I only have my first rental, it's hard for us to make the argument that my wife spends the 750 hours on our real estate. But does this mean that we won't be able to deduct any losses from our real estate LLC holding the property or does it just mean the rental property itself. In other words, there have been a lot of expenses associated with the typical process of buying a property (mileage, legal fees for LLC formation, property management software, etc.). Are all of those expenses under the LLC prohibited as well or will I at least be able to use a portion of the LLC expenses to offset my other income but not the losses of the property (interest, depreciation, etc.)

Hopefully it is clear what I'm trying to ask. I just find it very hard to believe that I would be disallowed to use the loss from this business like any other business I have just because it's a real estate focused LLC and I exceed the income limits.

Thanks in advance for any help.

John

Thanks for the ideas everyone.