All Forum Posts by: Michael Moreno

Michael Moreno has started 7 posts and replied 46 times.

There are many CPAs here and many investors who think they are CPAs.

The key issue to understand is: you cannot create any tax losses from renting rooms in your house.

So if I rent out one of my rooms at say $600 a month ($7200 a year), I cannot deduct more than $7200 in expenses?

Bingo!

Wow that’s awesome! Another question I have. Am I able to deduct purchases of furniture that I made last year for this year?

0 Votes

San Antonio, Texas

Quote from @Michael Plaks:

There are many CPAs here and many investors who think they are CPAs.

The key issue to understand is: you cannot create any tax losses from renting rooms in your house.

So if I rent out one of my rooms at say $600 a month ($7200 a year), I cannot deduct more than $7200 in expenses?

0 Votes

San Antonio, Texas

Hi everyone,

I am a 23-year-old beginner real estate investor, and I recently made my first purchase in September 2023—a one-story single-family primary residence with 3 bedrooms and 2 bathrooms. I currently occupy the principal room, leaving two vacant rooms.

My plan is to rent out one of the vacant rooms to someone I know, but I'm seeking advice on the tax implications of this move. I understand that as one acquires more types of assets, taxes can become more complex, and I want to ensure I'm maximizing my savings.

Are there any CPAs in this community who also own real estate and could offer guidance or share their experiences in navigating taxes as a real estate investor?

Looking forward to hearing from you all!

3 Votes

San Antonio, Texas

Quote from @Steve Harlow:

I'm not sure of the regs but I moved some money from my Trad IRA and Roth to SDIRA's years ago.

The fees are largely based on transactions not asset value. I own RE (STVR), fix and flips, RE notes, stocks, parts of businesses, land, oil and gas wells and other things in my SDIRA's. Its more work for you as you have to do the due diligence its not done for you. So you can end up with an investment that goes down to ZERO. I have. I've crushed my stock returns over the last 10 years in my trad and roth IRA. You will have to put in more work but its worth it.

How are you able to invest in such businesses? I know an SDIRA gives you access to alternative assets, but how do you buy these alternative assets? Is it just like buying shares of a stock in a regular account?

0 Votes

San Antonio, Texas

Quote from @Steve Harlow:

I would not put extra on your mortgage. I never did when I was young. You have a low mortgage rate historically. I'm retired and I still have not paid of my primary home. I use the money to invest where even my short term money is 9-12 percent.

Look at putting the 1K/month into a SDIRA. You can earn far more than the 4.85 or so your paying.

You are the second person to recommend me this. I have a Roth IRA with $9K in it. I do know that they are special types of IRAs and are charged a fee depending on the company that makes it for you.

What would I invest in a SDIRA?

0 Votes

San Antonio, Texas

Quote from @Account Closed:

I would not necessarily stop the extra principle payment. I would use it as more of a valve. Turn the valve off for a while and start saving up your cash reserves. When your cash reserves reach a comfortable point, turn the valve back on 20%, 30%, 40%…. There is something huge to be said for having a fully paid off primary as an investor. It will make your DTI calculation for almost all future investments almost laughable (in a good way) to the lender.

*This is not financial advice. This is just what I would do in your situation.

This is great, thank you.

I am so far going to pause on what I am doing with prepaying the principal and when have more take-home income, I will resume adding to the mortgage.

0 Votes

San Antonio, Texas

Quote from @Dan Goeckel:

Quote from @Michael Moreno:

Dear Community,

I hope this message finds you well. I'm currently faced with a financial dilemma and would greatly appreciate your insights and advice.

Background: I am 23 years old and earn a monthly salary of $3992.00. While I am committed to aggressively paying down my debt, particularly my mortgage, to achieve financial freedom in 12 years, I find myself losing money every month due to my repayment strategy.

Financial Breakdown:

Monthly Income: $3992.00
Mortgage Payment: $1608.86
Additional Mortgage Principal Payment: $1000.00
Furniture Payment: $500.00
Water Softener System Payment: $370.00
Investment Contributions:
- Coinbase: $500.00
- Schwab: $500.00
- TD Ameritrade: $812.50

Current Mortgage Status:

Remaining Balance: $249,000.00
Interest Rate: 4.875%

Dilemma: While I aim to invest in various accounts and accelerate my debt repayment, I am burning through my cash at a faster rate than anticipated. I am banking on a promotion in the fall, but without it, I fear I may run out of funds.

Question: Given my situation, what strategies would you recommend? How would you manage finances and investments if you were in my shoes?

Thank you all in advance for your invaluable advice and insights.

Good morning Michael. I read most of the replies and I read your description of your financial situation. I disagree with a lot of the replies(if this is personal finance related), they are not right or wrong but I just disagree. Title on your post is personal finance? I believe that to be so. In this case there seems to be missing income/expenses(living expenses) not discussed? Which is your choice, thank you for sharing what you have(shows you want to make changes), but in order to give a good assessment I’ll make some simple assumptions and ask you these simple questions;

Do you have a personal budget?

Have you heard of Dave Ramsey? Beans and rice, look him up, not for RE but personal finances.

1. Figure out a personal budget (ie: groceries 5-15% of your take home, clothing 2-5% of take home, etc. account for EVERY dollar. It took us 2-3 years to settle on a solid budget. We started about 16-17 years ago and still keep a personal budget.

2. Pick up a side “gig” to make extra money above and beyond your income…don’t let pride get in the way (I did when I was your age; new car, nice clothes, one job because I “went to school” to work one job; BS). My wife drove out van till we gave it family and they had it for 6 months, frame broke, axle broke from being worn out. Eventually went to Goodwill for my clothes, ate bologna sandwiches for lunch for years (I don’t/won’t now, lol), cut my own hair (still do, because I don’t have a lot of it anyway), we refinished garage sale furniture and sold it, we shoveled driveways, then got into online sales of dvd/blurays (still do it) weekends and nights sending stuff out. We put it all towards our mortgage and 12 years into a 30 year, paid off personal mortgage then used that equity to buy another building.

3. Live like one else does now so you can live like no one else does later…like 15-20 years!!! Part of this includes; Reference above, eat “beans and rice”, make your meals (healthier anyway) learn to not worry about what other think, even your friends when you don’t go out all the time.SACRIFICE for your goal. Don’t follow the herd.

If this is RE finance related then by all means take in a lot of the replies above. OPM is not a solution to a personal finances or taking out further loans.

If you would like an excel file listing out a personal budget guide, we give it out to tenants if they want it, then please reach out. I would love to help and see you succeed!

sincerely,
Dan

Hi Dan,

Yes I do have a personal budget. It was what I just listed at the beginning. My utilities are minimal since I don't spend much time at the house since I travel most of the time for work, so I don't count them. Also, food I don't count because my agency pays for it when I travel. Gasoline for the car as well. Many of the "everyday" expenses that most people have I don't count since I am always travelling and at a hotel during the weekday.

I have been thinking of going back to doing Uber Eats or Doordash. I made so much money during the pandemic and don't regret doing so that time during my college years. That would be a nice way to supplement my income. I also have been trying to sell my clothes and other personal belongings on Poshmark for extra dollars, but I've had no luck. I am going to try having a garage sale. I just hope my HOA isn't a douchebag.

And yes, I have been sacrificing like hell. I don't go out much and do the things most folks my age do when they graduate from college like travel or take a gap year. Most people don't get a job out of college since they didn't do the networking or job applying during their last two years of college, but I did. I also know some folks that do get a job but will excessively spend their money which makes them just live day to day. So yes, I am sacrificing a lot and not following the herd.

Thank you for your invaluable advice. I must ask, what do you think the best way is to have a garage sale if my HOA lets me? How would I market my garage sale?

0 Votes

San Antonio, Texas

Quote from @Josiah Cooper:

@Michael Moreno Hi Michael,

There’s nothing wrong with paying off your primary mortgage or rental properties for that matter. I believe we all want to have our properties paid off eventually, might as well start now. Im on a very similar journey myself. I would rather have fewer properties that are paid for vs. many doors and being over leveraged. I would pay off or free up the monthly furniture, water softener, and crypto. That’s an extra $1500 that could be going towards principal.

Best of luck to you!

This October, I will have paid off my water softener. I also will have paid off my furniture next October which will also free up some monthly income for the principal. I don't think I can let go of crypto since I contribute monthly regardless whether it up or down. I was down over 30% at one point in my account and am now up over 50%. I just dollar-cost average and stay patient since markets go up over time.

0 Votes

San Antonio, Texas

Quote from @Isaiah Cuellar:

Quote from @Michael Moreno:

Dear Community,

I hope this message finds you well. I'm currently faced with a financial dilemma and would greatly appreciate your insights and advice.

Financial Breakdown:

Monthly Income: $3992.00
Mortgage Payment: $1608.86
Additional Mortgage Principal Payment: $1000.00
Furniture Payment: $500.00
Water Softener System Payment: $370.00
Investment Contributions:
- Coinbase: $500.00
- Schwab: $500.00
- TD Ameritrade: $812.50

Current Mortgage Status:

Remaining Balance: $249,000.00
Interest Rate: 4.875%

Question: Given my situation, what strategies would you recommend? How would you manage finances and investments if you were in my shoes?

Thank you all in advance for your invaluable advice and insights.

Can I ask what it Coin base, schwabb and Ameritrade are and why you’re investing in all 3?

Coinbase is a cryptocurrency platform where you can invest in different tokens. I only invest in Bitcoin and Ethereum as they are like the Apple and Microsoft of the stock market. I don't invest in another alt coins, meme coins, or sh*t coins as they say. I am up over 50% on my crypto account so I can say I am content. My individual account with Charles Schwab is up over 10% and is invested in the Magnificent 7 stocks (Apple, Microsoft, Google, Tesla, Nvidia, Amazon, Meta). My roth ira with TD Ameritrade is invested in the SPY (SP500). Up also over 10%.

I invest in all three for the high volatility and appreciate that these investments offer. I am 23-years old and I have an extremely long time horizon so I can tolerate more risk.

0 Votes

San Antonio, Texas

Quote from @Dave Hagen:

Quote from @Michael Moreno:

Quote from @Erica Wright:

Hi Michael,

I always paid down debt and applied extra to my mortgage throughout my years only to learn that I should have kept my cash and invested.

Try snowballing your debt witht he highest interest rate paying it off and then adding that montly payment onto the next debt and so on. I agree with the others and would not focus on the mortgage at this time. You have a good rate and once the furniture/water softner is paid off you can apply extra towards the principal mortgage balance in the future.

Thanks for this advice Erica! I don't have any debt besides my mortgage (4.875% for 30 years), and my water softener (0% for 1 year) and furniture (0% for 2 years). Seems like most folks favor the liquidity aspect of building cash or investing it in more liquid assets for now.

The reason people are saying don't pay off the mortgage is because you are on a real estate investment site where having available cash to invest, and using equity, is important. You think of paying off a debt, but doing a refi, or getting a HELOC, just to access your equity will cost you. And having other investments is good, but you also need to have some cash on hand. If you lose your job, or have a big, unexpected expense come along, you don't want to be selling those investments at a bad time, or scrambling to refi. You can use a money market account to get higher interest, while making the money less available, without locking it up, and still have it easily available, in an emergency.
You are doing well, looking at renting out your spare rooms. Look at setting up goals and a budget, like a percentage to invest in stock, saving to purchase another property, money for repairs, etc., as well as allocating money for food, utilities, etc. It is always a good idea to make a plan, and then see how close you stick to it. And nothing can be more motivating than seeing your goals accomplished.
And don't be afraid to use those 0% water softener and furniture loans to the max. Often there is a minimum payment that won't pay off the balance by the end of the 0% term. That is fine, because you could stuff that into a money market and earn several percent interest, and then, at the end of the 0%, pay off the balance using the money you've saved in the money market account. The name of the game is figuring out how to make your money work for you. Also remember that the 0% financing may not be "free", but may be paid for by higher prices on what you bought.
Fingerhut is a great example of people paying more for an item and paying higher interest rates, just because they can make payments, instead of paying off the full amount. And then you look and see that they are paying off dozens of items at +28% interest rates. A water softener and furniture are both items that taking a few days to look around won't cause any problems. Find other ways to reduce your expenses. That will give you more money to invest and earn returns.
While you are saving up, then you can learn and make plans for what direction you want to take in real estate.
Congrats on asking, and taking the steps to improve your situation. And while being debt free is a nice feeling, that can be expensive. Remember that your home interest is tax deductible, and by maxing out your loan on your house, that allows you to have extra money to invest elsewhere. Learning all the details can make you far more comfortable with how you use debt. Dave Ramsey's plans to pay off debt are great for people who haven't controlled their spending and don't have any other plans or budget in place. It gives them goals that they can accomplish and feel better at the end. Real estate has different goals and different paths to using money.

Thanks for this information. I will take this into account. I do have cash on hand in my high-yield savings account of $15k. I don't plan on depleting it anymore since I am going to cut back on the prepayment of principal. I also have a very very very small chance of getting let go from my job since it is regulatory work for the state government. It has high job security and is always in demand. The banking industry will always have and need regulators.

I appreciate your advice and your words of encouragement. Thank you!

0 Votes

San Antonio, Texas

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All Forum Posts by: Michael Moreno

Michael Moreno has started 7 posts and replied 46 times.

Post: Seeking Tax Advice for Beginner Real Estate Investor

Post: Seeking Tax Advice for Beginner Real Estate Investor

Post: Seeking Tax Advice for Beginner Real Estate Investor

Post: Questions Regarding my Real Estate Strategy

Post: Questions Regarding my Real Estate Strategy

Post: Questions Regarding my Real Estate Strategy

Post: Questions Regarding my Real Estate Strategy

Post: Questions Regarding my Real Estate Strategy

Post: Questions Regarding my Real Estate Strategy

Post: Questions Regarding my Real Estate Strategy