All Forum Posts by: Mohamed Youssef

I don't think this will be discussed anywhere in the tax code, but from what I know from reading court cases and hearing other people talking about it, is that it will be very hard to convince the IRS of meeting the requirements for either REPS or STR loophole remotely and having a PM in place. I personally vote against it, but I could be wrong.

Good question, this trips up a lot of STR owners. Generally, time spent at the property before it's listed for rent can count as personal use, especially if you're furnishing, decorating, or getting it "guest-ready." The IRS only makes an exception for days primarily spent on repairs or maintenance (like fixing a broken sink or painting). So if you're staying there while doing mostly setup or improvements, those days might still be considered personal.

After it’s listed, doing some upgrades while the place is still available to rent usually isn’t a big deal, but if the place is offline for major work, those days might not count as rental days either. It’s a gray area, so keep solid records and definitely check with your CPA to make sure you're handling it right.

One thing I’ve learned from working with real estate investors is: if you’re not consistently tracking the right metrics for your current portfolio or when researching new deals, it’s hard to know how properties are really performing.

Below are the key financial metrics I believe every investor should understand.

- Net Operating Income (NOI)
This shows how much income a property is generating after paying for operating expenses (things like maintenance, insurance, and property management). It doesn’t include debt payments or taxes.
A higher NOI usually means the property is performing well operationally.

- Debt Service Coverage Ratio (DSCR)
DSCR tells you whether your property's income is enough to cover your loan payments.
A ratio above 1.25 is generally considered solid. Below 1.0 means the property isn’t generating enough to pay the mortgage, which is a problem for both you and your lender.

- Occupancy Rate
This one’s straightforward; it’s the percentage of units currently rented (this is more important to track in multi-family and commercial properties)
A high occupancy rate is what you want. If you’re consistently seeing vacancies, it’s worth digging into pricing, location, or tenant experience.

- Cash Flow Projections
Looking ahead is just as important as looking back. Cash flow projections help you plan for upcoming expenses, anticipate shortfalls, and know when you’ll have money available to reinvest.
You don’t want surprises here like major capex, repairs, vacancies, etc.

- Capitalization Rate (Cap Rate)
Cap rate helps you assess how much income a property generates relative to its value. It’s a useful way to compare properties, especially in different markets.
A higher cap rate may mean a better return, but also potentially more risk. Lower cap rates tend to show up in stronger, more stable markets.

- Internal Rate of Return (IRR)
IRR measures the overall return on an investment over time, including cash flow and appreciation.
It’s helpful when comparing deals with different timelines or structures. Higher IRR is better, but context matters: timing, risk, and assumptions all play a role.

- Cash on Cash Return
This tells you how much return you’re earning on the actual cash (down payment) you put into a deal.
It’s especially useful if you’re using financing. The higher the return, the more efficient your investment, but again, it depends on risk and strategy.

- Gross Rent Multiplier (GRM)
GRM is a quick way to compare a property's price to its rental income. It doesn't account for expenses, so it's just a starting point.
In general, lower GRM means better value, but always dig deeper before relying on it.

These metrics don’t tell you everything, but together they give you a solid view of how your portfolio is doing and where you might need to make changes.

If you’re already tracking some of these, great. If not, I’d start small, pick a couple, and build from there.

Please let me know which metrics you focus on or if there’s one you’ve found especially useful in your own investing.

Correct. The IRS prohibits "double dipping" in the context of taxes.

"Double dipping" refers to the practice of receiving a tax benefit for an expense or item that has already received a tax benefit or was paid for with pre-tax dollars. Essentially, you cannot get two tax advantages for the same expense.

When we start working with new clients, one of the first things we check is how their finances are structured, and more often than not, it’s all jumbled together.

We’ve seen property income going into personal checking accounts, expenses paid with the owner’s Amex, and bookkeeping done off a spreadsheet labeled “rental tracker.” It may seem harmless at first, especially if you only have a few properties, but as you scale, that setup becomes a real liability.

It makes tax prep harder. You miss deductions because they’re buried in your personal transactions. Lenders get confused when they ask for financials. And if you ever bring in investors or partners, it raises red flags.

It’s important to create a clean separation early:
– A dedicated bank account for each entity
– One credit card (or virtual card) for property expenses
– A reliable bookkeeping system that tracks everything at the entity level

Meeting the 100 hour material participation requirement is definitely doable if you live in the same area where the STR is located.

The most important point to watch for is not to hire a management company in the first year or two until you recognize the benefits from the depreciation or any suspended losses. Just manage it yourself from furnishing to guest communication during that period to ensure you meet the requirements.

Good luck!

@Christine Brown sorry, I meant to say if you are the only investor and don't have too many properties 

@Christine Brown

if you are the only investor and you don't have too many investors, you should put it all in one single member LLC. The insurance policy is more important, if you can get an umbrella for at least $2 mm that would good, $5mm coverage is great.

If you don't want to say real estate investor, you can just say I work in real estate.

For a residential property, the cost of the study is usually around $3000 if you hire a reputable cost seg company that does a site visit, photos and a full report. I heard that there are some online companies that would do it for around $1000 but I personally would never use something like that, only because I'm not sure if it will hold in case of an IRS audit.

Cost seg. will definitely return the investment if you can use the losses generated from the accelerated depreciation to offset other income, i.e. you qualify for the Real Estate Professional Status or to offset the income generated from the other profitable properties. I believe you mentioned your other triple-net leases' cash flow.

This is just my opinion, but perhaps your CPA has a good reason for not recommending it based on your specific situation.