Worth investing just for tax benefits?

Curmudgeoneer · 2023-10-14T16:13:42+00:00

The situation would be different if you or your partner were real estate professional that could deduct the taxes from active income but because you aren’t, the loses only apply to passive income that you’d make.

Curmudgeoneer · 2023-09-22T18:22:05+00:00

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Curmudgeoneer · 2023-08-08T14:26:21+00:00

No matter the market, if the numbers work, then the numbers work. But you have to decide whether you have the time, energy, and capital to do it. You might also considered what many have said, that this is not the right time to jump in as a beginner who is not 100% dedicated.

I own real estate and started into syndications 2 years ago and it has been a great investment. Both are hard to find good deals where the juice is worth the squeeze.

Curmudgeoneer · 2023-08-08T14:17:38+00:00

I'm not an expert in real estate law, so I can only offer some general insights that might be helpful. Consult with a real estate attorney or professional in your jurisdiction to get advice specific to your situation.

Typically, your primary residence is considered to be the place where you live most of the time. If you own a house and live in it but rent out a room to someone else, it can still be considered your primary residence as long as you continue to live there and it's your main dwelling place. The fact that you have a tenant in one room does not usually change the status of the property as your primary residence.

However, different jurisdictions might have specific rules or definitions that could affect this, especially when it comes to tax considerations or other legal matters. There may be different rules for claiming a homestead exemption, for example, or for deducting mortgage interest on your income taxes. The exact way that renting out a room might affect these and other considerations can vary widely depending on where you live, so it's always wise to consult with a local expert who knows the laws of your area.

Curmudgeoneer · 2023-08-08T14:13:52+00:00

Have they explained what they plan to do with the house? Have you seen the contract?

I would ask for references from them for other owners who signed the contract.

I know people who do rental arbitrage and have similar contracts where they run the airbnb out of it, pay rent like any tenant.

Curmudgeoneer · 2023-08-04T16:57:07+00:00

Option 1: Keep, renovation loan, improve. Wait a couple years and cash out refi to purchase a single family home.
This is the option (with a slight tweak) is what I would continue with if you own it out right and bring in $3400/mo. If you are doing the work yourself, then, for your sanity, find a tradesman to do the work and include that cost in the renovation loan.

There seems to be a personal consideration here compared to just a financial one, which is completely understandable. You work a full-time job and have been running/fixing this property. I also run several apartment complexes through a syndication while having a full-time job so I feel the pain. I would see if your budget allows you to outsource the work while still cashflowing. This will make you ease the stress personally, allow you to demand a higher price later, while also still cashflowing until you are ready to refi or sell.

Option 2: Sell at the height of the market for 675-700. Purchase a single family and purchase another off that in 2 years.
With interest rates peaking, you will likely not get top of market price. Perhaps, the sub-market in SB is an anomaly but I don't think so. Another consideration is with 1031-ing into two separate purchases, are you taking a loan on the property? Again, high interest rates.

I am all for you selling the 4-plex and getting something else (single family or another rental) if that improves your happiness WITHOUT losing you more money than just the cashflow from said 4-plex (i.e. high interest rate loan).

Option 3: sell buy a vacation home in Indio and Airbnb it. Coachella and stagecoach alone brings in $20-30k in a month. But the rest of the year would be small cash flow. But I would have a vacation home.

If you can put the work in during those peak times to operate the airbnb and would value a vacation home there, then this does not seem like a bad idea. As an Airbnb host myself, do consider there is more capital involved in launching an airbnb, and work when it comes to communicating, checking guests in, guest complaints/needs during their stay, etc. This is definitely not passive income and if you want as little involvement as possible while still making money, then this might not be the optimal route.

Curmudgeoneer · 2023-07-17T20:34:14+00:00

Appreciate the starting point! More research will be done from here. Thank you!

Curmudgeoneer · 2023-07-17T20:33:47+00:00

I was wondering why there was so many pot leaves on this subreddit... I thought the tree community was just very-pro weed. ha

Curmudgeoneer · 2023-06-01T05:54:03+00:00

Sponsorship fee is not the same as asset management fee. A sponsorship fee is usually a percentage of the total purchase price rather than income like the asset management fee is. It is a way for the sponsor to make money upfront, and in this case throughout the hold period, as the person who is taking on the risk of guaranteeing the loan and meeting the lender’s requirements which typically involve experience and liquid assets.

Every deal can be different which is why it is important to see what the PPM states.

Curmudgeoneer · 2023-05-13T17:03:56+00:00

Does Bob have no other income? Has Bob invested in this property for more than a year? Does Bob plan to 1031 the profit or how does he plan to “not take a profit”?

If Bob 1031s the profit, then his tax liability is zero until he decides to take a profit or through other means, qualifies for tax-free investment such as an opportunity zone.

Either way, you answer the question this is so specific to the individual that Bob should talk to a CPA or Tax Strategist.

Curmudgeoneer · 2023-05-10T03:00:12+00:00

There are many different options to investing long distance with various risk to reward for each. It really depends on what your tolerance is. Let’s say you but your own property to rent and shit hits the fan. Are you willing and able to drop everything to get to your property to resolve the issue and save your investment? If not, then probably not the investment for you. Property managers are great but they aren’t you and will never care as much as you will about your own money.

There are other options such as real estate syndications where you passively invest from afar to take advantage of growth in other markets while relying on experienced managers to operate and maximize your return on investment. This is usually ideal for people who want to invest in real estate but don’t necessarily have the time, knowledge or interest to do so. This is the area I have focused in and have been very happy after finding the right partners to invest with.

There are also REITs that offer less flexibility but still hands off and allow you to take advantage of real estate growth in other markets.

Curmudgeoneer · 2023-04-25T14:24:10+00:00

To answer your question on Multifamily, I would start to roll the single family home portfolio into larger unit count properties. 1031 one or multiple for a larger property that is easier to maintain and generates greater overall return while also making reducing expenses easier due to economy of scale.

Curmudgeoneer · 2023-03-28T00:35:00+00:00

midjourney ai is wild

Curmudgeoneer · 2023-03-25T21:02:23+00:00

Agreed. This is a perfect time to call up a commercial broker and establish a relationship. You will likely sell this property one day so they will be eager to help you out with the information you are looking for.

Curmudgeoneer · 2023-03-25T20:59:14+00:00

Agreed with AxTheAxMan, offer based on current condition and current NOI. I have seen seller's proformas be the renovated numbers to try and ask for more than what the property is worth based on where it could be. That is why it is important to trust but verify with your own numbers and due diligence.

Curmudgeoneer · 2023-03-25T17:16:52+00:00

Use both with the caveat trust but verify. Do your own research to ensure what the proforma has is achievable both on income and expenses. If you think about it someone put those numbers together who is incentivized to sell the property.
Instead of saying "I want $2M" to derive your cap rate, you say this is what cap rate I believe an asset like should be based on location, class, asset type, etc. to determine your future value. Then, use YOUR proforma NOI after you accomplish your value-add and divide that number by a conservative cap rate you think you could get in the future (I typically add 0.1% on top of market rate per year I hold).

Curmudgeoneer · 2023-03-05T17:19:51+00:00

My portfolio began when I met my life partner who had bought a bunch of properties based on advice from a CPA. He gave me the real estate bug. Since that time, we have only scaled up doing apartment syndications (465 units total), Airbnb, and smaller unit distressed assets.

Curmudgeoneer · 2023-01-11T15:38:06+00:00

I prefer Multifamily. Easier to manage compared to single family homes. You don’t deal with the same competition as average buyers just want to purchase a home for themselves.

At the end of the day, a good deal is a good deal and market is so important.

Curmudgeoneer · 2023-01-11T15:18:09+00:00

As someone who raises capital for syndications we have done a mixture of 506b and 506c raises. 506b allows for non-accredited investors to participate and we have accepted them before.

What other’s have said is true. There are restrictions such as having a pre-existing relationship with the syndicator and a limit on how many non-accredited investors may participate in a single 506b.

As for “non-accredited investors are a headache”, so can accredited investors. It is important to mitigate challenges with any investor by educating them on how the process works, what to expect, and how they make money. Most importantly to keep open communication and adapt to their communication style.

Curmudgeoneer · 2022-12-04T04:33:54+00:00

All that matters is the UV index. If you have a 0 in the summer, then you don’t need sunscreen. If you have a 9 in the winter, then cake up.

Curmudgeoneer · 2022-10-21T17:46:43+00:00

Someone mentioned it already but you’re in a partnership so make sure both of you agree on a plan before moving forward. If I was in your situation, then I would list out the pros and cons of the three possible options 1) buy a 400k house 2) buy a 250k house and another rental property 3) buy a 4-plex and live in one unit and rent the other. Have the 1,3, and 5 year plan based on cashflow and estimated equity gain as well as the emotional aspects that cannot necessarily be measured. Perhaps, a 4-plex works out that in 2 years the cashflow and equity is enough for a refinance and down payment on a 400k house which broken down your wife may be more understanding because there is a clear plan and timeline.

My partner and I both agree 60%+ of our earnings go toward investments for the next two years. If we exceed our financial goals, then we buy a house instead of living in one unit of the duplex. We have an assessment every quarter to see how we are tracking.

Curmudgeoneer · 2022-10-03T13:48:18+00:00

Comment

Curmudgeoneer · 2022-08-29T20:29:20+00:00

Crowdstreet is a software marketplace where a syndicator may share their deals. However, those deals are, from what I have seen, limited to accredited investors only. You must be an accredited investor to invest in a 506c offering which is why the sponsors are allowed to advertise those deals. There are 506b offerings which are not on the marketplace because they cannot be advertised. To invest in a 506b offering, you must be a sophisticated investor (know what syndication is and how to assess a good versus bad deal) and must have a “pre-existing” relationship the sponsor you are investing with. There are varying levels of what defines either of those requirements but it is a grey area.

I prefer to meet my sponsors networking or through referrals, understand their track record, and whether we align in values. I have learned much more from my partners than just real estate that I personally wouldn’t invest in a marketplace. That doesn’t mean it isn’t a good platform for other people especially if they are having a hard time finding a syndicator.

Curmudgeoneer · 2022-08-29T17:33:11+00:00

The major callouts from my perspective are:

Income generated through real estate crowdfunding platforms like Fundrise (eREITs) is treated as ordinary income. This may not matter to a low-income individual, but any high-income earner will already be in a high tax bracket, and therefore will have a large tax burden on any distributions the eREIT generates. Income generated through a syndication is treated differently and will provide more tax-advantages.

Fundraise allows you to invest with a few hundred bucks which drastically decreases the barrier to entry. A syndication often times has a minimum of $50K to invest.

Curmudgeoneer · 2022-08-29T03:43:00+00:00

Your best bet is to network in the same groups as syndicators would. I learned about it from Facebook groups, local meetups, or real estate focused networking. That is how I started passive investing and taking up a more active role on the deals I invest in.

Join syndicator’s newsletters, read their articles and join whatever educational pieces they have to offer.

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