All Forum Posts by: Lane Kawaoka

Note not tax advice, this is more for the high income earner...

Simple Scenarios: Using TurboTax

• Primary Use: TurboTax and similar tax preparation software are best suited for relatively straightforward tax situations. This includes individuals who primarily have W-2 income from employment, basic investment income, and perhaps own a home or have standard deductions.
• Rental Property: If you have one or two rental properties and feel comfortable managing the related expenses and deductions, tax software can handle this level of complexity, especially if your transactions are straightforward and well-documented.

Complex Scenarios: Hiring a CPA

• When to Consider: As your financial life becomes more complex—such as owning multiple rental properties, running a business, dealing with investment incomes, or having special tax considerations (like inheritance or foreign income)—the benefits of hiring a CPA increase.
• Cost Consideration: Hiring a CPA typically costs at least $1,000 to file your taxes, which can increase based on the complexity of your return. This cost is often justified by the value added through their expert advice, ensuring compliance, optimizing your tax return, and potentially saving you from costly mistakes.
• Audit Support: Another significant advantage of a CPA is their ability to represent you in the event of an IRS audit. They provide peace of mind knowing that your taxes are prepared correctly and can defend your filings if questioned.

Benefits of a CPA for High-Income Individuals

• Tax Planning: CPAs do more than just prepare your taxes; they can offer year-round tax planning advice to help reduce your tax liability through strategic decisions about investments, deductions, and other financial moves.
• Customized Advice: A CPA can provide tailored advice based on your specific financial goals and life situation, such as planning for a child’s education, buying or selling real estate, or planning for retirement.

Decision Factors

• Cost vs. Benefit: Assess whether the cost of hiring a CPA is outweighed by the potential tax savings, reduced risk, and the value of your time saved.
• Your Comfort Level: Consider how confident you feel about handling your tax situation. If the thought of dealing with the IRS directly in an audit is daunting, a CPA’s expertise might be invaluable.

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• Remote Rental eCourse: Perfect for beginners! Learn how to start with turnkey rental properties.

1. With your high income, increasing your passive income is crucial and offset with passive losses via real estate. One approach is real estate professional status (REPS), though this would typically require more active participation than you might prefer. However, your spouse could potentially qualify if they manage your properties or undertakes substantial renovation projects, allowing for more aggressive tax strategies such as accelerating depreciation.
   Another way to get passive losses is through Cost Segregation. Consider a cost segregation study for your rental properties to accelerate depreciation deductions, significantly reducing your taxable income.
2. Active Utilization of Your S-Corp: This is more small ball type of moves. I would focus on above that said reactivating your S-Corp could be strategic, especially with your spouse’s contractor license. This could allow you to more effectively manage renovations or developments, potentially offering services to other investors or personally managing the renovation of acquired properties to increase value.

Birmingham, Atlanta, Indianapolis, Gary (IN), St Louis, Huntsville, Phoenix/Tempe/Mesa, Kansas City, Memphis, Little Rock, Indianapolis, Harrisburg (PA), Greenville, Jacksonville, Tampa, Houston, San Antonio, Little Rock, Milwaukee, Cincinnati, Dayton, Cleveland, Ohio, or other secondary or tertiary markets.

Huntsville, AL: Population has surpassed Birmingham for top population in state. Known for its growing economy due to government and tech sector jobs, Huntsville offers a stable rental market with potential for appreciation. The city's real estate market benefits from the presence of large employers like NASA and the U.S. Army, attracting a steady influx of PHD education people.

Houston, TX: Houston's diverse economy spanning oil (used to be just this), healthcare, and technology provides a robust job market that supports housing demand. Its size and economic diversity make it a prime location for investment properties, offering both cash flow and the potential for property value increases.

BOLD is where I owned

Hi Trevor, I started this way from 2012-2015 when my net worth was 200k-1M. Great way to get started. When considering your first turnkey rental property, it's crucial to start with a thorough understanding of the market. Research the economic conditions, local job market, and future area developments to ensure strong rental demand and potential property value appreciation. Financial due diligence is also key; calculate all potential costs and expected income, including mortgage, taxes, management fees, and maintenance. Use a rental property analyzer to assess cash flow and return on investment. Additionally, select a reputable turnkey provider who manages the property post-purchase, ensuring they have a solid track record and offer quality renovations.

Always conduct a detailed property inspection, regardless of the turnkey label, to ensure the property's condition matches expectations. Understanding the management terms, including fees and tenant handling procedures, is also vital. Consulting with a real estate attorney and a tax professional will help navigate the legalities and optimize tax impacts of owning a rental property in your chosen location.

You can do that with a subscription of Yardi or CoStar... trouble is it costs 5-20K. A lot higher than your BP subscription and a turnkey rental property downpayment.

@Chris Holmes 

Obviously this community is heavy on REI and group think issues. Speaking from experience in the real estate sector, I'm increasingly inclined toward a diversified strategy - 25-75% REI to be broad. This seems especially prudent in an era marked by rising interest rates, a departure from the previously free access to capital.

Real estate, inherently, isn't known for its rapid fluctuations; it generally stabile. However, especially when considering the 20 to 30% dip seen in commercial real estate in recent times. Yet, the advantage lies in the potential for leverage and debt to amplify returns. A notable benefit of real estate investment is the accessibility of substantial bank financing.

Not saying one way or the other is that they pose a problem for the local community so there is political battle in the long term viability of these. No one wants a bunch of random people coming in their area with vagrant tenants. In Europe as cities enact bylaws for regulation and taxation, or in some cases, ban them entirely. Toronto is the latest to join this trend, driven by a scarcity of affordable housing. It has specifically banned STRs of secondary suites, though renting out primary residences or rooms within them is still allowed, subject to licensing fees and a nightly tax. 

I saw many people 2019-2024 jump on the STR bandwagon because numbers for LTRs got worse and worse. Plus a lot of general public started doing that which is the signal for the end... kinda like a good night club going down hill.

Moreover, the tax implications for vacation home rentals vary based on how often the property is rented out and used personally. Properties rented for less than 15 days a year enjoy simple tax rules, while those rented more frequently face a complex set of tax obligations. These include reporting rental income, allocating expenses between personal and rental use, and navigating new limits on mortgage interest and property tax deductions under the Tax Cuts and Jobs Act of 2017.

In places like Hawaii, STRs are subject to additional taxes, emphasizing the importance of understanding the local tax landscape. Despite the allure of STRs, the market's complexities and regulatory environment suggest a cautious approach. Investors are advised to consider more traditional real estate investments and to educate themselves thoroughly before diving into the STR market.

@Andrew O.

Hey, sorry you're going through this. I totally get it. Back in 2015, I had 11 rental properties myself.

(5 in Atlanta, 1 in Indy, 4 in Birmingham, and one in PA)

And yeah, the same issues here. Every time a tenant moved out 3 out of 8 evictions or so, it felt like a gamble, with someone leaving the place in ruins. The cost to fix everything? Could easily hit $30,000. It's enough to make you question everything, not just about people, but about the whole rental game. It certainly made me rethink my strategy, after seeing my profits disappear.

If you're an accredited investor, I'd say it's time to change course. It's what I did and what I've seen many in our circle do to move up to syndications and private placements is the way to go.

As a limited partner in these deals, you're not dealing with the day-to-day. No debt in your name. No legal headaches. And definitely none of that BS.

I would sell the properties on roof stock to a new investor.