All Forum Posts by: Ethan Giller

Thanks all. Going to local REIAs is definitely top on my to-do list.

And I didn't mean to imply that I've only been working on those three triplexes for the last 18 months. Along with my (passive) partner, we have already successfully renovated and rented a good number of single- and multi-family units in the West Philly area. In fact, my biggest mistake was growing too fast too soon, and then having properties sit and projects get mismanaged.

Hi all,

I'm a relatively new investor, in the process of building a buy-and-hold rental portfolio - I've learned a ton since I started about 18 months ago but still have plenty of room for improvement. Made some stupidly expensive mistakes along the way (ok, realistically, still making them) by jumping right in, but I certainly did get a great hands-on RE crash course. I finally have a pretty decent team put together, and right now we're finishing up a full rehab of three triplexes (all on the same block of West Philly).

Right now I'm working a full-time job, and actually have access to more capital (from private money partners) than I do the ability to find and manage deals. So I'm looking for leads on under market properties, wholesale leads, projects to finance, and local investors to bounce ideas off.

I've listened to the podcasts and read the blog posts for a while, but haven't explored the forums much. I think Josh & Brandon have done an awesome job creating this supportive community. Keep up the good work, fellas.

-Ethan

Hey all,

Here's the situation. I'm planning to move in with my girlfriend in a new city and we're thinking about buying a property instead of renting. I'm thinking about buying a cheap "fixer upper" that has sat on the market for a while and I can put some sweat equity into during the three years that we will be in the location.

For sake of this example, let's assume the following:
-I already own a house nearby that I rent out 4 of the 5 bedrooms and would keep that as my primary residence for tax purposes.
-Both of us have enough cash saved to purchase a $150K house with no mortgage.
-We are planning to live in the property together.
-I'm looking to maximize our joint return, not to maximize my personal savings.

So here's scenario 1 (standard):
I buy a house for $150K and I pay:
$10,000 in yearly repairs and maintenance.
$4,000 in real estate tax.
$3,600 in utilities.
$1,500 in homeowner's insurance.

She pays:
$0

Total cost to us both = $19,100

Scenario 2:
I buy a house for $150K using a loan of $100K from the girlfriend, paying her 10% annual interest. I rent out the property to her for a monthly rent of $1,200. Since my primary residence will be elsewhere, I can depreciate the entire property and show all income & expenses on a Schedule E.

So I'm now paying:
$10,000 in yearly repairs and maintenance.
$10,000 in interest
$4,000 in real estate tax.
$3,600 in utilities.
$1,500 in homeowner's insurance.

And receiving:
$14,400 in rent.

Total cost to me = $14,700

She's paying:
$14,400 in rent.

She's receiving:
$10,000 in interest

Total cost to her = $4,400

Total cost to us both = $19,100

So far these are the same. However, once you consider the tax implications...

She pays tax on the $10,000 in interest.
Total additional cost to her = ~$2,500 (25%)

I show a rental expense of $14,700, minus depreciation on the property ($100K after subtracting land value = $3,636 per year for 27.5 years) = $18,300 loss = tax savings of ~$4,575 (25%).

Total cost = $15,500 + $2,500 - $3,675 = $17,025
Thus, total savings over scenario 1 = $2,075

The question is... what am I missing? Property is rented at market rate, and loan rate is on the low end for a hard money loan. But I'm concerned that if this Schedule E was audited it might be a problem that the lender is the same party as the renter, so the transaction isn't at arms length even if the rates are reasonable.

Any opinions, drawbacks, or things I'm not considering? Sorry if it's confusing, it would be easier to show all of this in table format.