All Forum Posts by: John Tan

So for Myth 5, if you have REPS, there is no advantage to qualify as STR. if anything, the property qualifying to STR may disqualify your deduction if you fail material participation for STR but has REPS from material participation in long term rentals. The "loophole" becomes a trap...

I am placing a house into full time short term rental to try it out. But what are the tax consequences if I discover it is not as profitable as originally hoped and convert it back into my primary residence the following year? I saw one website that said IRA views this conversion as a "sale" and as such I assume I would then need to pay taxes on depreciation recapture if I took depreciation in the past when it was a rental. Is this true? (I am not selling the property and not looking at it from seeking the gains exclusion for primary residence).

I will seek CPA advice, so but just checking what folks here have encountered something like this before?

I am working on converting my conventional loans to portfolio loans to get around the 10 mortgaged property limit.  From what I am reading, it doesn't matter how the loans are financed (ie conventional or portfolio), if conventional lenders find you have 10 or more properties under mortgage, they won't lend you.  However, since my portfolio lender does not report to credit agencies, so if convert the conventional loans to portfolio through them, my credit report won't show I have 10 or more properties under mortgage and I can still get more conventional loans?  I just want to verify if this is correct and if anybody had experience with this?   Also, if I get a Heloc on a free and clear property, does it count as a property under mortgage once I open the credit line or only if I draw on it?

Now is not a great time to jump in, valuation is high by most metrics.  I would make her a deal, let her spend some of the funds but set aside the rest so you can get in at the next recession.

Thanks for the stats Sharon.  Seems like everything is on the up-an-up.  But I keep hearing Houston is over supplied in class A multifamily, I wonder if anybody is seeing it?

Thanks for the info Derek, I’ll try to make it!

Great info, but I have to respectfully disagree on investment vs speculation. 

The fundamental difference between investing vs speculating is not about risk of losing principal.   A good investment can be associated with a high risk of lossing the principal as long as the expected return vs cost is favorable.  

In equation form, if:

potential return x probability of gain >> cost of investment.

For example, a deal that costs 10K that is associated with a 50% change to earn $100k is a great investment! Since 100K x 0.5 = 50K >> 10K.   Think about startup investors, they know the chance of each company they invest in turning into a unicorn is small, however by investing in many companies their expected return is very high.  I would classify them as investors and not as speculators. 

Investment is about knowing the true value (cost) of what you are buying--calculated based on the expected future return of that property, and then obtaining that property at a relatively lower price. 

Speculation is about buying something without knowing how much it is worth (i.e. bitcoins) and hopes greater fools come along and buy it from you at a higher cost. 

For a good description on the difference between investing and speculating (the greater fool theory) read the first few chapters of the book below:

A Random Walk down Wall Street: The Time-tested Strategy for Successful Investing

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@Bevla, sounds like a concerning number.   But a % change can be very high when the basis (i.e. denominator) is very low to begin with.  I remember construction in Riverside county CA was up 300% in 2014 or 15, but it was due to 3 houses being built to 9....  Have you noticed a large build-up of inventory in AZ?  I know inventory is building in Houston...  

update, escrow ruled in our favor, no big surprise.  Still it shows even experienced brokers either don't understand or don't read the actual contracts.  The seller's broker is very insistent that they are right though the contract clearly states otherwise....  Just shows to be wary of who you get into contract with, some people are just unreasonable.

14% CAP seems high based on the market. $350 rent per one bedroom units? I would rerun numbers to make sure it is that high. If so, you are getting a steal or in for massive headaches others don't want to touch.