All Forum Posts by: Matt W.

Quote from @Dave E.:

@Steve K. I don’t understand why everyone gives so much anxiety to the due on sale clause. There is a simple solution. Just notify your lender of what you are planning on doing ahead of time. If they tell you no, then stop and find a different strategy. If they say yes, then you are golden and can proceed. Communication is easy people. Just communicate and it is not an issue.

Dave, I tried this with my 3 mortgages (attempting to move into LLCs on my attorney's advice, he also said to request written permission) but each lender only would give me a form that you fill out AFTER the fact, notifying them that you have done a transfer. This seems like a huge trap to me. How did you get them to give you permission?

Hi BP, 

I wanted to post to make sure I'm understanding the depreciation recapture process using an overly simplified example.  I'm leaving out deductions for closing costs, maintenance, repairs etc.

Say I buy a house for $300k, land value is $100k. I know you deduct the standard 1/27.5th of the improvement value, $200k.  After 5 years I sell the house for $400k.

So $200k x 3.636% x 5 years = $36,360 deducted. So when I sell the profit is actually $100k plus $36,360, correct? 

Also, does it really matter if I am "adding to the profit" side of the equation or "deducting from the basis" side? Seems like it's just 6 of one, half dozen of the other.

Thanks.

Quote from @Jennifer Cramer:

I'm a new member and this is my first post so please go easy on me!  I'm interested in investing in my first LTR or MTR.  I have a full-time job in NYC and travel excessively for work so I will need a property manager.  My goal is geared towards long-term wealth and eventually reaching a point where I don't have to work as hard because I'll have passive income to offset some of the income I will lose when I "take my foot off the gas".  I am not interested in house hacking as my plan is more centered around Buying and Holding.

The idea is to start in one area, build my team and then purchase my first property.  Eventually, I hope to build my rental property portfolio in the area I choose.  Initial budget is small, up to 300K with 25% down for the first property. Looking for Class A/B areas.    I don't really care about making a profit off the monthly rent in the short-term (though it will be nice!), I just want to build equity and not "lose" money.  Right now, I can't even narrow it down by state, much less city!!!  Here are my options:

1) Georgia - my old company was headquartered in ATL so I know the area well and have friends in the surrounding areas. Hower, it seems really over saturated so not sure if I should still look there

2) NC -  I'm drawn to this state but am not as familiar with the cities.  Looked at the Wilmington area but open to any suggestions

3) NY - upstate, NYC or even far out in LI (mastic Beach?).  It's my home state but property and taxes are so expensive outside of the city and in NYC you're dealing with maintenance fees, boards etc. I just think my money will go further elsewhere

3) Maine - I'm drawn here because eventually I want a second home in this state but this is my heart talking, not my brain

My question is, how did you go about deciding where you to invest? What resources did you use? Who did you talk to initially?  Does anyone have feedback on any of the areas I listed above? Are there other areas I should consider?  I realize this is incredibly broad, so I apologize but I'm feeling a bit overwhelmed.  Once I narrow it down, I feel like I will move but right now I'm stuck. Thanks in advance for your help. Looking forward to learning from all of you.

Wilmington, NC has exploded in the last 10 years. I don't think it's possible to get a class A or B for under $300k. There are plenty of cookie cutter neighborhoods that are B- that make great rentals, but it's pretty hard to cash flow them with current rates even managing yourself. I own several rentals and flip here and competition for any deal is fierce!

I actually have a furnished rental for sale that would be a good Airbnb or mid term/nurse rental. (Short term is too involved for me, I've discovered)

PM me if you'd like to know more!

I've been diving into research about being an LP (limited partner) on many types of syndications, multifamily being the most common. As everyone knows, anybody who started a syndication in the last 5 years made money, so it's hard to tell good operators from bad. 

As J Scott has said in podcasts, if you're good enough at P&Ls and spreadsheets you can fool your investors. Many of the multifamily syndicators do so many deals, it would be easy to money from the latest deal to be going out the door to pay investors of the older deals, aka a Ponzi scheme. 

How can I specifically protect myself from this danger? I know the operator is the most important part of the deal and you can google and full on background search them for shady dealings, but is there a particular line item that would be a red flag in their financials?

Thanks.

Quote from @Carlos Ptriawan:

Quote from @Matt W.:

Hi BP, 

I've heard different answers about 1031s so I'd love some clarification: (using simple numbers and assuming I hold for 2 years, leaving out depreciation and selling costs, and making the differences in purchase prices extreme to illustrate the different ideas).

Say I buy house A for 100k cash, and sell 2 years later for 200k (100k gain), then do a 1031 exchange of all 200k as 10% down on a $2,000,000 house B (I know this isn't realistic, but using it for the sake of illustration). Now, after another 2 years, I sell the $2 million house B for $2,100,000 ($100k gain again) but this time just cash out and don't do a 1031.  So as I understand it, I'd owe taxes on the house A $100k gain and the house B 100k gain, so 200k total taxable gain. 

A friend (who seems smart about real estate) tells me that in the example I used, the taxable gain would be the difference between the sale price of house B and the original purchase price of house A ($2,100,000-100,000=2,000,000 taxable "gain"). So at 20% LTCG tax rate, you would owe $400k, completely negating the actual $200k gain and owing an additional $200k!

So to me this seems crazy and not how it should work, but maybe I am missing something? If his version is true, you could 1031 so many times or to such high values that you would owe many times more in taxes than you ever made in gains, which seems completely backwards to the core concept that you only pay taxes when you profit. 

Thanks in advance!

(Edit: changed the value of house B from $1MM to $2MM to illustrate the extreme problem more clearly.)

@Dave Foster

 here is the logic if you are programmer :

Gain Simplified = ( Sold Price Property A - Cost Basis Property A) + ( Sold Price Property B - Cost Basis Property B) + ( Sold Price Property n - Cost Basis Property n)

 Where does "property n" come into it? Obviously I'm not a programmer!

Hi BP, 

I've heard different answers about 1031s so I'd love some clarification: (using simple numbers and assuming I hold for 2 years, leaving out depreciation and selling costs, and making the differences in purchase prices extreme to illustrate the different ideas).

Say I buy house A for 100k cash, and sell 2 years later for 200k (100k gain), then do a 1031 exchange of all 200k as 10% down on a $2,000,000 house B (I know this isn't realistic, but using it for the sake of illustration). Now, after another 2 years, I sell the $2 million house B for $2,100,000 ($100k gain again) but this time just cash out and don't do a 1031.  So as I understand it, I'd owe taxes on the house A $100k gain and the house B 100k gain, so 200k total taxable gain. 

A friend (who seems smart about real estate) tells me that in the example I used, the taxable gain would be the difference between the sale price of house B and the original purchase price of house A ($2,100,000-100,000=2,000,000 taxable "gain"). So at 20% LTCG tax rate, you would owe $400k, completely negating the actual $200k gain and owing an additional $200k!

So to me this seems crazy and not how it should work, but maybe I am missing something? If his version is true, you could 1031 so many times or to such high values that you would owe many times more in taxes than you ever made in gains, which seems completely backwards to the core concept that you only pay taxes when you profit. 

Thanks in advance!

(Edit: changed the value of house B from $1MM to $2MM to illustrate the extreme problem more clearly.)

@Dave Foster

I'm looking at a two story house that is currently a 2/2 1300 sq ft living area, but all that 1300 area is on the top floor. The ground floor is also about 1300, divided between a 450 sqft garage and a 850 sqft storage area. Its a very inefficient use of space and is begging to be made into conditioned living area. Given, it was built this way because it is in a flood zone, but is on a beautiful tidal creek that joins the ICWW, so you take the good with the bad. 

This house is the proverbial "ugliest house on the the nice street" and every other house that has the same layout has converted the downstairs. So my question is, should I add 2 bedrooms and one bath, or should I create a "mother in law" suite with one bed, one bath and a small kitchenette? I plan to rent it for a few years after rehab, but I don't think I would be allowed to rent it as a duplex per the HOA. But I can still see the appeal to renters to have a mother in law suite. Or does making it a 4 bed/3 bath create more resale value down the line?

Thanks in advance!

I have a 3/1 furnished home I am considering selling. It is furnished and was just rented as a medium term rental to nurses. Lots of upgrades and improvements like new roof, new water heater, new back deck, huge fenced back yard, interior paint and all new light fixtures and fans. 

I'm selling because at current interest rates it is only profitable as a short term/Airbnb, which I have zero interest in. It is 1 block from UNCW, short drive to Wrightsville Beach and 1/2 mile from the Orthopedic hospital in Wilmington. 

Looking to get $350k without using realtors. I would also consider doing an "airbnb Arbitrage" situation to an experienced short term operator. 

DM me if interested, Thanks!

Gotta watch out, 1 mile from the river can include some great areas and some not so great, but Church and 3rd is fine. Any off market deal in town is a possible advantage, as things are still selling fast.  I lived downtown back in the day, and my and all my friends' houses were very "quirky" like all the floors are uneven, no windows and doors shut properly, etc. Obviously for an Airbnb you'd like to provide a better product, but some people think old wavy floors are part of the charm. 

Quote from @Lane Kawaoka:

1031 exchanges not really the answer for transitioning from single-family homes to syndications. Syndications are "businesses" and not a LIKE KIND exchange with real estate investments, making it impractical to use a 1031 exchange to invest in them. While there is an option called a tenant in common (TIC) exchange, it involves legal complexities and expenses that may not be worth it unless you're bringing in a significant amount of equity, usually over a million or two million dollars. As a passive LP investor, it's generally not advisable to pursue this route since think about it... when the syndication deal exits in three to five years you will be in the same situation.

Personally, I sold seven of my rental properties in 2017 and gradually divested the rest over the following years. This approach allowed me to take advantage of passive activity losses and the 8582 form, which is crucial for accredited investors investing in private placements. This makes the 1031 exchange obsolete since it's more advantageous to offset taxes with passive activity losses. This is the approach for investors who have decent salaries and are becoming accredited investors and those who realize that owning multiple rental properties is not scalable, so you move on to private placements and syndications.

I'm happy to help, as there aren't many accredited investors on these forums who are actively involved in syndications. Many individuals here are still caught up in the single-family home rat race, where they buy, rent, and rehab properties. While this can be great for those with lower net worth, typically under a quarter or half a million dollars, it's not a scalable strategy.

 Hi Lane, 

Im not familiar with the 8582, is this the same concept as a "lazy 1031?" Where instead of offsetting the capital gains from the relinquished property, you get an equal or greater deduction from the new property? 

FWIW, I'm accredited/RE professional. My wife is a high W2 earner and being a RE pro allows us to offset some of her income. Reach out via PM if you could explain some more, thanks.