All Forum Posts by: Maximilian Glodde

Hi Robbie, welcome and congrats on your purchase!

I currently have 3 rentals and happy to provide my 2 cents on the above:

Problem 1 (noise): I've had this complaint come up before and honestly I would try to stay out of it as much as you can. Usually there are quiet hours (e.g after 10pm), which state that you can't play loud music etc. If they're just walking around during the day and are heavy footed, there's not much you can do to be honest. It's really up to the tenants to work this out between them (they're adults). When you renovate, even with carpet, make sure you put down an acoustic underlayment (rubbery membrane), and then carpet. That should help things a lot.

Problem 2 (W/D): I assume you have checked what apartments in the area are renting for without a washer and dryer?! When you say there isn't much space, could you sacrifice some storage space for a W/D at all?

Problem 3: It's difficult to comment without knowing the cost, the estimated increase in rent you think this will bring and how much storage you are realistically adding in the kitchen that is absolutely necessary. The walk-in closet is a nice touch for tenants, especially a family with 1+ kids. Honestly depends on your target market. If your target market is single people that live with roommates, i would consider turning it into a 4th bedroom.

I also live just outside of Boston and am interested in doing something similar. Would love to hear more about it if you have time. Sorry, I don't have the answer to your question.

Sweet deal @Kenny Ramsey!!!! Nice work!

I'm using Venmo at the moment. Not ideal, but it works. When we transition into an LLC, we'll switch to Zelle.

Let's break down your scenario into two calculations: 1. You don't take the deduction, 2. You do.

Disclaimer: I am not a CPA, this is just my understanding and obviously very high level.

Assumptions: Purchase price $20K, land value $10K. Rent is $200 p month. Your marginal tax rate is 30%. You sell in 10 years for $40K. Cap gains tax is 20%.

Scenario 1 (no depreciation deduction taken)

Rental Income for 10 years: (200*12*10) = $24,000. Annual Depreciation deduction taken = $0.
Profit reported to IRS (over 10 years) = (24,000-$0*10) = $24,000. Total Tax paid = 24,000 * 0.3 = $7,200. Rental profit = $16,800.

IRS depreciates your property regardless (Over 27.5 years), which = $10,000/27.5=363 per year, which is $3,636 over ten years. To the IRS, your cost basis is now $20,000 - 3,636 = $16,364.

When you sell, you will pay taxes on the difference between $40k and the IRS cost basis. So you're paying capital gains (20%) on $40,000 - $16,364 = $23,636. Your net profit should be $23,636 * .8 = $18,908.

Scenario 2 (you take the depreciation deduction)

Rental Income for 10 years: (200*12*10) = $24,000. Annual Depreciation deduction = $363.
Profit reported to IRS= (24,000-$363*10)*.7 = $20,364. Total Tax paid = $20,364*0.3 = $6,109. Rental Profit = $24,000 - 6,109=$17,890 ($1,090 more than in scenario 1)

When you sell, you will make the same amount on the sale as in scenario 1.

When you compare the two scenarios, you end up making more money by taking the deduction. Obviously $20K property is small, but when you scale this up it really makes a difference.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $175,000
Cash invested: $17,500

Short term rental.
Negotiated deal and built instant equity.
Identical properties in the building selling for $200K+

What made you interested in investing in this type of deal?

Potential to build instant equity and good returns on short term rental. We also made sure that the long term rental rate would cash flow positive, which it does.

How did you find this deal and how did you negotiate it?

My partner works actively in the Phoenix real estate market.

How did you finance this deal?

10% down, conventional mortgage.

How did you add value to the deal?

Negotiated good price

What was the outcome?

Currently short term renting. Refinancing in 6 months to capture equity gain and reinvest.

Lessons learned? Challenges?

Do your math!!! At least a dozen times and be conservative.

Hi @Edward Liu, thanks for the points above!

1) We have a separate signed agreement detailing that we are 50/50 responsible for losses. The amount we are talking about is not enough to make me that worried - i know that's probably not the best way to justify this.

2) We can get better terms on the loan if I take out the loan in my name. The plan is to refinance out of the original loan into another loan once we have 80% LTV.

3) We have an Operating Agreement that defines what to do in these situations.

4) This is actually a very good call and I will work that into the agreement.

Thank you for your response and good food thought.

Thanks @Charlie MacPherson

Morning,

Does anyone know of a good tax and legal professionals in the Boston area? I need advice on my LLC and someone do sort out my taxes :)

Thanks

Max

Congrats!