Greetings, I purchased a SFR home to rent out. We purchased this house in 2011 and are still working on the refurb so it did not generate any income in 2011 but will (hopefully) in 2012. Do I show the expenses for the purchase and repairs on this years taxes? Info: The purchase was in my name (not including spouse) and we didn't put it in our trust as we purchased it from HUD and were told it could only be sold to an individual. Didn't follow that at the time but just bought it in my name to close the deal. It was a cash purchase and there is no mortgage involved. So essentially we have purchase price, closing costs and associated expenses to put the house in order. (those costs are ongoing but we have good records of what/when).
I don't have an LLC or other entity at this time to "own" the property other than myself. The deductability is not that critical as our income is relatively low but we don't want to miss out on doing something that we should have done on our 2011 return. We purchased the home solely for income purposes and have no other intentions for it.
I have a small business (very small) that I will be doing a schedule C for and also expensing some items on a 4562. I understand the schedule C as I have done them in the past but the rental thing is new to us. Thanks.
You nailed it! I hear people say do not pre pay your mortgage because you will loose the measly tax deduction on interest. I ask them what is the amoritized ammount of interest over 30 years you are actually paying versus saving 600 bucks a year on your taxes. 10K versus 300K in some cases.
Now if I could just find a certified CPA knowledged in LLC dedcutions for free (or one that works for beer or cheap, heck even one that is good I would pay)on FW!@
One of the reasons we built the LLC (we did it ourselves and filed with the state cost us 275 in total) is that is allows you to pass losses and profits through members. In our case I had over 7,000 of losses on one property. The standard 1040 caps our losses at some ammount. My understanding it that I can use an IRS form to break out the losses PER member and thus maximizing the actual losses.
So this landlord thing is now my full time job and I have aquired about a dozen propeties. It is a rather lonely job and I have searched the internet for groups so that I can network with people doing the same things as I am. I came across a group, on meetup.com, and they stated they discuss how to buy short sales, foreclosures, wholoesales, and no money down purchases. I thought great, I'll go! Turns out it is a "Real Estate School" that seems to be a multi-level marketing program where once you join, the more "students" you get to join, the more money you make from their tutition. My question is...what does the "school" offer that I need to know that I am not paying my Real Estate Agent to do? The only thing I lack knowledge on is buying wholesale and no money down. They briefly mentioned using a persons retirement account to buy a property as long as the profit from the sale of that property goes back into the retirement account. What is the BIG Secret about buying shortsales and foreclosures? The MLS is flooded with them. Also the mentioned putting money into a tax deferred "health savings account." Cant my accountant just deduct my health care payments at the end of the year since Im self-employed? Why the "health care savings account." The name of the school is RENATUS.
danteshors said: One of the reasons we built the LLC (we did it ourselves and filed with the state cost us 275 in total) is that is allows you to pass losses and profits through members. In our case I had over 7,000 of losses on one property. The standard 1040 caps our losses at some ammount. My understanding it that I can use an IRS form to break out the losses PER member and thus maximizing the actual losses.
I suggest reading IRS pub 527.
You can deduct up to $25,000 in rental losses per year on property, but this phases out starting at $100,000 in income. You lose $1,000 in deductions for every $2,000 in income over $100k. So at 100k income you can deduct 25k, 120k you can take 15k, 140k you can take 5k, 150k you get nothing. Now you don't lose the losses, they are just suspended.
I'm afraid putting the property into an LLC does nothing for your ability to deduct losses. The income and deductions flow through from the LLC to your 1040, so you end up with the same amounts. All you are doing is moving the details from schedule E on your 1040 to form 8825 on your partnership. And you also now have to pay a lot more to get your taxes prepared (you have to file two returns now), and you probably have annual fees to pay to the state to keep the LLC active.
Hello everyone. Very new to this forum and have been doing a lot of reading. I am wanting to buy a new home and use my current house as a rental property and would like to get your opinions and advice. I just did a refi, 30 year of $88,000 on my current home to get my monthly payment as low as possible. We would like to be in a bigger home by the end of the year. Houses similar to my house rent for $1200 a month in my neighborhood. We are looking in the $200-$250,000 range for the new house. I'd like to know what I need to do to put myself in a position to make this happen. I have been successfully self employed for the last years, make $120,000 to $150,000 each year, and have all the paperwork to backup all my income (wife was an accountant before becoming a stay at home Mom). Both me and my wife have good credit scores, both above 750.
So what do you guys think? Whats the best way for us to make this happen? Is there any type of loans or programs we should be looking into? We would also like to have a low down payment on the new property if possible. We have a nice savings but would rather not wipe it out to get into a new house. Thanks in advance for any advice and tips.
Klaus135 said: So this landlord thing is now my full time job and I have aquired about a dozen propeties. It is a rather lonely job and I have searched the internet for groups so that I can network with people doing the same things as I am. I came across a group, on meetup.com, and they stated they discuss how to buy short sales, foreclosures, wholoesales, and no money down purchases. I thought great, I'll go! Turns out it is a "Real Estate School" that seems to be a multi-level marketing program where once you join, the more "students" you get to join, the more money you make from their tutition. My question is...what does the "school" offer that I need to know that I am not paying my Real Estate Agent to do? The only thing I lack knowledge on is buying wholesale and no money down. They briefly mentioned using a persons retirement account to buy a property as long as the profit from the sale of that property goes back into the retirement account. What is the BIG Secret about buying shortsales and foreclosures? The MLS is flooded with them. Also the mentioned putting money into a tax deferred "health savings account." Cant my accountant just deduct my health care payments at the end of the year since Im self-employed? Why the "health care savings account." The name of the school is RENATUS.I'v never heard of it/them. In what area of the country do you live?
Klaus135 said: Cant my accountant just deduct my health care payments at the end of the year since Im self-employed? Why the "health care savings account."
Health Savings Accounts are great regardless of whether you are able to deduct your health insurance payments by another means. I'm not going to list all the benefits as there are plenty of threads that address it, but the main ones are:
1. tax deductible contributions 2. tax free earnings 3. tax free distributions that can be taken whenever you want, assuming you've had unreimbursed medical expenses at any point since opening the account
But in general you cannot deduct your health insurance payments, and certainly not deduct other medical expenses, because you don't pay self-employment tax on your real estate earnings. That's a good thing though. I'd rather lose a $5,000 deduction than pay $5,000 in SE tax.
I find myself in an awkward situation which I don't like. Twenty years ago, my brother-in-law and I inherited some very nice condos (ranch style that are all connected in a lovely part of town). Over the years he and I have sold one or two here and there. Currently, we each own 4, 8 total (all rentals), out 18 condominiums. My brother-in-law and I are the board of directors and I maintain and hire people to keep up the property. I am friendly with many of the owners, but recently Fannie Mae came up with new guidelines about selling condos. Everyone knows we own these, but now there are some residents that want to sell. In fact, one family who has a 2 bedroom and a young child just got a really good offer on their condo, but the buyer who was pre-approved and had 20% got turned down because we own too many! Needless to say, these people went through the process, got a great offer, and it is because of the new Fannie Mae guidelines, and our ownership that they can't sell their house. I inherited these, I know they set these rules up for people who gobble up property...but we are exactly the opposite. We sell them off as retirement, and now there are 2 more people that want to put their condos on the market. Is there anything I can do to get us all out of this predicament. I would also like to sell in a year because I am retired and getting tired of being a landlord on my rental properties, but apparently we are shooting ourselves in the foot!
These rules stink, my brother in law and I love this community, we didn't buy, we inherited it, and have no interest in gobbling up property around us. So these new guidelines meant to protect the market...are really hurting all the wrong people. Alot of these people blame us, even though they know it didn't matter we owned them a few years ago, it just has put everyone else's lives on hold. I feel terrible and want to help. Is there anything we can do?
I find myself in an awkward situation which I don't like. Twenty years ago, my brother-in-law and I inherited some very nice condos (ranch style that are all connected in a lovely part of town). Over the years he and I have sold one or two here and there. Currently, we each own 4, 8 total (all rentals), out 18 condominiums. My brother-in-law and I are the board of directors and I maintain and hire people to keep up the property. I am friendly with many of the owners, but recently Fannie Mae came up with new guidelines about selling condos. Everyone knows we own these, but now there are some residents that want to sell. In fact, one family who has a 2 bedroom and a young child just got a really good offer on their condo, but the buyer who was pre-approved and had 20% got turned down because we own too many! Needless to say, these people went through the process, got a great offer, and it is because of the new Fannie Mae guidelines, and our ownership that they can't sell their house. I inherited these, I know they set these rules up for people who gobble up property...but we are exactly the opposite. We sell them off as retirement, and now there are 2 more people that want to put their condos on the market. Is there anything I can do to get us all out of this predicament. I would also like to sell in a year because I am retired and getting tired of being a landlord on my rental properties, but apparently we are shooting ourselves in the foot!
These rules stink, my brother in law and I love this community, we didn't buy, we inherited it, and have no interest in gobbling up property around us. So these new guidelines meant to protect the market...are really hurting all the wrong people. Alot of these people blame us, even though they know it didn't matter we owned them a few years ago, it just has put everyone else's lives on hold. I feel terrible and want to help. Is there anything we can do?
Thank you for any help you can offer, Patricia
I believe you're running into the rule that says that a single investor shouldn't own more than 10% of the units. That would mean less than 1.8 units which basically limits you to one investor owned unit. Not sure if it would work, but you could put your other three units into three different trusts. I believe it's the board that fills out the condo questionnaire and then you might be able to say that there isn't more than 10% ownership. I think the ownership of a trust isn't disclosed. You'd have to run it by a lawyer to see how that would work or if it'd work.
Not sure if this option would work either, but you could reform the condominium association where the two of you own one part and the rest are a separate association in which case you wouldn't have any investor owned units. Wouldn't work if the layout/units don't quite mesh. This is how mixed commercial and residential units get around those rules, a condo association for the commercial and another for the residential and they jointly share common expenses. I've seen some condo associations made up of 4 different associations, one for residential, one for commercial, one for rentals and another for parking. Probably not worth it if you're going to sell soon.
The other thing is that you could have those buyers use a different bank. I had BoA do one of these deals a while ago. They were able to get an exception somehow and do it as a regular 30 year. The other option is to use a local bank that won't sell the loan to Fannie, then it doesn't have to meet their guidelines. In those cases they sometimes will only do a 5 year arm and require 20% down. The reason you need 20% down is because you would need PMI otherwise, and if you need PMI, you'd have to go through Fannie and Fannie doesn't allow more than 10% investor.... Oh, you could also do a seller second of 10%, but the seller has to be willing to hold a 10% second mortgage.
I was wondering if anyone has any experience with southeast, metro Detroit Michigan. After doing research it seems that there are numerous properties ranging from 20k-50k in value that could pull 600-800 in rent. Not all of them are in the city either, some are in semi respectable neighborhoods.
Are these properties feasible? What are their downsides (high prop taxes?, Difficulty in finding Renters?)
Just seems like there is a lot of opportunity to buy up cheap houses that have plummeted in value over the past 5 years and rent them out for a nice pos cash flow
Hello. I am looking to buy a dental practice in PA and need some help in determining FMV.
- It is 30 years old, property taxes are about $3,300 with an increase of 2-3% every year. - One floors + basement, sits on 0.24 acre lot. There is a slight crawl space above the first floor, but just used for storage. - First floor covered area is about 1,541 sq feet. - Is handicap accessible ( ramp along side) - Parking is limited to 5 spaces, but there is an empty lot across the place that the owner has contract with so that employees can park there. In return, the owner of the empty lot gets free service at this place. - Property is zoned Suburban Residential and is adjacent to a commercial zoned area and one block from a very busy commercial main connecting road. - Property is Not in a flood zone area.
Owner is asking $275,000 for it, some of the appliances AC (16 yrs), water heater are towards end of life so that should bring the price down somewhat. I do plan on taking a loan so I know the bank will do their own appraisal as well. The current appraisal was formally done and I have a report on it as well. What else can I look for ? I should have done this sooner, appreciate some quick responses. Thanks.
danteshors said: You nailed it! I hear people say do not pre pay your mortgage because you will loose the measly tax deduction on interest. I ask them what is the amoritized ammount of interest over 30 years you are actually paying versus saving 600 bucks a year on your taxes. 10K versus 300K in some cases.
Now if I could just find a certified CPA knowledged in LLC dedcutions for free (or one that works for beer or cheap, heck even one that is good I would pay)on FW!@
I don't think that's the main reason that people suggest not paying off your mortgage ahead of time, its just a nice side benefit. From my understanding, it has more to do with the fact that you can usually earn a rate of return higher than your mortgage interest rate over the long term by investing any over payment elsewhere.
i typically buy anything under 125k as cash and anything over as financed. If cash, I tend to lowball. if they accept, then i consider that "Savings"
tehlorax said: danteshors said: You nailed it! I hear people say do not pre pay your mortgage because you will loose the measly tax deduction on interest. I ask them what is the amoritized ammount of interest over 30 years you are actually paying versus saving 600 bucks a year on your taxes. 10K versus 300K in some cases.
Now if I could just find a certified CPA knowledged in LLC dedcutions for free (or one that works for beer or cheap, heck even one that is good I would pay)on FW!@
I don't think that's the main reason that people suggest not paying off your mortgage ahead of time, its just a nice side benefit. From my understanding, it has more to do with the fact that you can usually earn a rate of return higher than your mortgage interest rate over the long term by investing any over payment elsewhere.
I have a question about what you just explained. Is it $ 25000 loss cap per year per property or on all of your properties? If the loss more than $ 25K stays suspended, then would you be able to deduct it from the capital gain at the time of selling the same property?
awstick said: danteshors said: One of the reasons we built the LLC (we did it ourselves and filed with the state cost us 275 in total) is that is allows you to pass losses and profits through members. In our case I had over 7,000 of losses on one property. The standard 1040 caps our losses at some ammount. My understanding it that I can use an IRS form to break out the losses PER member and thus maximizing the actual losses.
I suggest reading IRS pub 527.
You can deduct up to $25,000 in rental losses per year on property, but this phases out starting at $100,000 in income. You lose $1,000 in deductions for every $2,000 in income over $100k. So at 100k income you can deduct 25k, 120k you can take 15k, 140k you can take 5k, 150k you get nothing. Now you don't lose the losses, they are just suspended.
I'm afraid putting the property into an LLC does nothing for your ability to deduct losses. The income and deductions flow through from the LLC to your 1040, so you end up with the same amounts. All you are doing is moving the details from schedule E on your 1040 to form 8825 on your partnership. And you also now have to pay a lot more to get your taxes prepared (you have to file two returns now), and you probably have annual fees to pay to the state to keep the LLC active.
vadeltachi said: Klaus135 said: So this landlord thing is now my full time job and I have aquired about a dozen propeties. It is a rather lonely job and I have searched the internet for groups so that I can network with people doing the same things as I am. I came across a group, on meetup.com, and they stated they discuss how to buy short sales, foreclosures, wholoesales, and no money down purchases. I thought great, I'll go! Turns out it is a "Real Estate School" that seems to be a multi-level marketing program where once you join, the more "students" you get to join, the more money you make from their tutition. My question is...what does the "school" offer that I need to know that I am not paying my Real Estate Agent to do? The only thing I lack knowledge on is buying wholesale and no money down. They briefly mentioned using a persons retirement account to buy a property as long as the profit from the sale of that property goes back into the retirement account. What is the BIG Secret about buying shortsales and foreclosures? The MLS is flooded with them. Also the mentioned putting money into a tax deferred "health savings account." Cant my accountant just deduct my health care payments at the end of the year since Im self-employed? Why the "health care savings account." The name of the school is RENATUS.I'v never heard of it/them. In what area of the country do you live?
I'm looking to purchase my first rental property. I have a few questions:
1) How do I find a real estate agent? I reached out to a few on redfin. Is this a good strategy? 2) Can I use redfin + craigslist to evaluate cash flow properties successfully? I was looking at rental prices and then trying to match them to recent purchases on redfin to get an estimate of cash flow for an area. I'm only worried that I might be buying in an area with high unemployment and it could take time to find renters. 3) Anyone with recent success buying cashflow properties in the Inland Empire CA?
If there's any must know/read advice for a first time buyer please share. Thanks!
I have a question about what you just explained. Is it $ 25000 loss cap per year per property or on all of your properties? If the loss more than $ 25K stays suspended, then would you be able to deduct it from the capital gain at the time of selling the same property?
It's $25,000 max no matter how many properties you have. Selling a property will free up any unused losses, but as you would expect there are all kinds of caveats that could affect the transaction.
For instance if you're a passive investor (someone else does all the work, you only put up money) in a property you can't deduct any losses each year, the entire amount would be suspended until you sell.
If you own multiple units and want to group them all together then you could basically net the gains and losses and take them as a group. This would be helpful if you had a some that were turning a profit and some that were a loss that would otherwise be disallowed.
But then if you do that and have a net suspended loss for the entire group, then if you sell one you don't get to recapture the loss until you get rid of all of the properties in that group.
Hello, we plan on buying our first rental propert(ies). Enjoyed reading the thread and I have a few questions. We are looking to buy in the SF Bay Area (loosely defined) and looking for properties with cash on cash return. We will be divesting some of our equities holdings into the downpayments for properties. The way I see it, we are just swapping out a bit of our equities exposure with real estate exposure. If I can get a mid single digit cash on cash return on my capital I am good. If I include the principal payments I'd get close to 10% total return based on my calculation. That's not bad and we are willing to swap out some equity exposure for that kind of return profile. Plus I want to short the long bond given the fed's distortion at the long end of the curve, and what better way to do it than to borrow as much long term money as possible?
1) I am using the 1% rule to screen, and for follow up I am building a more detailed cash flow model based on some spreadsheets I see. I have included expenses for PITI, garbage, water, maintenance, and property management (we have no interest in hands on work). Am I missing any expenses that I should incorporate into my model? 2) Maintenance expenses - what should I model? I have seen suggestions at 10% of rent. I understand that it is variable based on the condition at move in. We plan on rehabing the properties to good condition before renting out. Any suggestions as a starting point for my model will be great. 3) Liability protection is priority number one for us. We did quite well with our original investments and we figure real estate is a good asset class to divest into at this time. The last thing we want to do is to deal with some slip and fall incident that may jepordize our core personal net worth. We plan on using a real estate attorney to establish an LLC. Questions. 1) How much umbrella insurance do you buy? Should it be based on a ratio / multiple of some figure like rent or equity in the LLC? 2) How do you extract vlaue (rental income and equity) from the LLC to your personal net worth without jepordizing the separate LLC liability protection? 4) For those in the bay area - do you buy earthquake insurance for your properties? Are there insurance products that cover lost rental income in case of an earthquake?
Thanks for answering my query. Let me ask you coulple of more points on your reply:
I have one rental property right now and planning of buying 1 or 2 more. I understood that if the losses on all my properties are more than $ 25000 then I can't take losses more than $ 25K, which also depends on my income. Now, if I sell one of my units and my properties are at different locations in same city or different, then I should be able to deduct the loss according to you, correct? I hired a management company to run my unit as sudden moving left me with no option, but I still consider myself an active investor as I try to get involved in some month-to-month decisions and also declare myself as an active investor with IRS(according to my tax accountant). Does hiring a management company makes me a passive investor and would prevent me in taking any current extra losses above $ 25K against future capital gains?
Fellow members, please discuss this issue and explain your understanding.
awstick said: sam81 said: Awstick,
I have a question about what you just explained. Is it $ 25000 loss cap per year per property or on all of your properties? If the loss more than $ 25K stays suspended, then would you be able to deduct it from the capital gain at the time of selling the same property?
It's $25,000 max no matter how many properties you have. Selling a property will free up any unused losses, but as you would expect there are all kinds of caveats that could affect the transaction.
For instance if you're a passive investor (someone else does all the work, you only put up money) in a property you can't deduct any losses each year, the entire amount would be suspended until you sell.
If you own multiple units and want to group them all together then you could basically net the gains and losses and take them as a group. This would be helpful if you had a some that were turning a profit and some that were a loss that would otherwise be disallowed.
But then if you do that and have a net suspended loss for the entire group, then if you sell one you don't get to recapture the loss until you get rid of all of the properties in that group.
sam81 said: 1. Now, if I sell one of my units and my properties are at different locations in same city or different, then I should be able to deduct the loss according to you, correct? 2. I hired a management company to run my unit as sudden moving left me with no option, but I still consider myself an active investor as I try to get involved in some month-to-month decisions and also declare myself as an active investor with IRS(according to my tax accountant). Does hiring a management company makes me a passive investor and would prevent me in taking any current extra losses above $ 25K against future capital gains?
Fellow members, please discuss this issue and explain your understanding.
1. Yes, selling a property will always free up any losses, whether you are active, passive, or a real estate professional, so long as you haven't made an election to group that property with any others to net the gains/losses.
2. Yes, you can still be active if you use a management company. You just need to make some management decisions. From the IRS: "Management decisions that count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions."
Thanks for fast reply and I am sorry to buy you again with one more question:
What do you mean by, "so long as you haven't made an election to group that property with any others to net the gains/losses"? I am not sure what do you mean by group here? I bought the property in 2008 with combined name of my wife. We haven't bought any rental property since then and are also not planning to combine this with any other rental properties in the same complex. Would this make me eligible to take losses for anything that I can't take right now on my taxes? How should I play in future if I am planning of making one more purchase for rental property?
Thanks again!
awstick said: sam81 said: 1. Now, if I sell one of my units and my properties are at different locations in same city or different, then I should be able to deduct the loss according to you, correct? 2. I hired a management company to run my unit as sudden moving left me with no option, but I still consider myself an active investor as I try to get involved in some month-to-month decisions and also declare myself as an active investor with IRS(according to my tax accountant). Does hiring a management company makes me a passive investor and would prevent me in taking any current extra losses above $ 25K against future capital gains?
Fellow members, please discuss this issue and explain your understanding.
1. Yes, selling a property will always free up any losses, whether you are active, passive, or a real estate professional, so long as you haven't made an election to group that property with any others to net the gains/losses.
2. Yes, you can still be active if you use a management company. You just need to make some management decisions. From the IRS: "Management decisions that count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions."
Thanks for fast reply and I am sorry to buy you again with one more question:
What do you mean by, "so long as you haven't made an election to group that property with any others to net the gains/losses"? I am not sure what do you mean by group here? I bought the property in 2008 with combined name of my wife. We haven't bought any rental property since then and are also not planning to combine this with any other rental properties in the same complex. Would this make me eligible to take losses for anything that I can't take right now on my taxes? How should I play in future if I am planning of making one more purchase for rental property?
Thanks again!
I wouldn't really worry about it, it's a specialized thing you might do when you have certain properties throwing off large taxable gains and other ones with large losses you can't take. You are eligible to take suspended losses when you sell your property.
I am working through my taxes on Turbo Tax. Here is what TT says for depreciation on the property we converted from our residence to a rental on December 7th of 2011:
Your 2011 estimated expense for this asset is $56 Years to fully depreciate 27.5 years MACRS Convention MM Depreciation Method SL
Asset Information Description Rental House Cost / Cost basis $708,000 Cost of land $140,000 Date I started using it in this business 12/07/2011 Business use percentage 6.50 % Business Use Sold / Retired from business use in 2011 No
Does that seem right? Perhaps I don't understand depreciation, but in my mind, the value of the structure is $568k (708k minus 140k for land). If that $568k is depreciated straight line of 27.5 years, that means $20,654 per year. 6.5% (based on the fact it was only rental property for 6.5% of 2011) of that annual amount would be $1342 for depreciation for 2011. Why is it only giving me $56 for depreciation?
4chi said: I am working through my taxes on Turbo Tax. Here is what TT says for depreciation on the property we converted from our residence to a rental on December 7th of 2011:
Your 2011 estimated expense for this asset is $56 Years to fully depreciate 27.5 years MACRS Convention MM Depreciation Method SL
Asset Information Description Rental House Cost / Cost basis $708,000 Cost of land $140,000 Date I started using it in this business 12/07/2011 Business use percentage 6.50 % Business Use Sold / Retired from business use in 2011 No
Does that seem right? Perhaps I don't understand depreciation, but in my mind, the value of the structure is $568k (708k minus 140k for land). If that $568k is depreciated straight line of 27.5 years, that means $20,654 per year. 6.5% (based on the fact it was only rental property for 6.5% of 2011) of that annual amount would be $1342 for depreciation for 2011. Why is it only giving me $56 for depreciation?
What am I missing here?
Date I started using it in this business 12/07/2011
It looks like you're double counting the 6.5%. Just enter the full amount an date and Turbo Tax will calculate the correct portion of the year. What you told Turbo Tax is on 12/7 you rented out 6.5% of your house.
This looks better now, but I still don't get it. I had to say 100% in the box where is asks "business use percentage", otherwise it uses that December 7 date and auto populates the business use percentage field with 5.21% (I guess I had the 6.5% wrong). So now it says...
Your 2011 estimated expense for this asset is $861 Years to fully depreciate 27.5 years MACRS Convention MM Depreciation Method SL
Asset Information Description Rental House Cost / Cost basis $708,000 Cost of land $140,000 Date I started using it in this business 12/07/2011 Business use percentage 100.00 % Business Use Sold / Retired from business use in 2011 No
Asset Category I - Residential rental
But if I do the math, I get 568,000 / 27.5 years = $20,654.54 per year. It was rented 19 days out of 365, so 5.2% of the year. 5.2% of $20,654.54 is $1074.
Galun000 said: Hello, we plan on buying our first rental propert(ies). Enjoyed reading the thread and I have a few questions. We are looking to buy in the SF Bay Area (loosely defined) and looking for properties with cash on cash return. We will be divesting some of our equities holdings into the downpayments for properties. The way I see it, we are just swapping out a bit of our equities exposure with real estate exposure. If I can get a mid single digit cash on cash return on my capital I am good. If I include the principal payments I'd get close to 10% total return based on my calculation. That's not bad and we are willing to swap out some equity exposure for that kind of return profile. Plus I want to short the long bond given the fed's distortion at the long end of the curve, and what better way to do it than to borrow as much long term money as possible?
4) For those in the bay area - do you buy earthquake insurance for your properties? Are there insurance products that cover lost rental income in case of an earthquake?
Thanks very much!
Have you looked into the insurance? SF's earthquake insurance is extremly expensive, and it has a very high deductible from what my dad showed me. Basically, what it costs to rebuild will be coming out of your pocket whether you have insurance or not, unless you have a very fancy house.
Galun000 said: Hello, we plan on buying our first rental propert(ies). Enjoyed reading the thread and I have a few questions. We are looking to buy in the SF Bay Area (loosely defined) and looking for properties with cash on cash return. We will be divesting some of our equities holdings into the downpayments for properties. The way I see it, we are just swapping out a bit of our equities exposure with real estate exposure. If I can get a mid single digit cash on cash return on my capital I am good. If I include the principal payments I'd get close to 10% total return based on my calculation. That's not bad and we are willing to swap out some equity exposure for that kind of return profile. Plus I want to short the long bond given the fed's distortion at the long end of the curve, and what better way to do it than to borrow as much long term money as possible?
1) I am using the 1% rule to screen, and for follow up I am building a more detailed cash flow model based on some spreadsheets I see. I have included expenses for PITI, garbage, water, maintenance, and property management (we have no interest in hands on work). Am I missing any expenses that I should incorporate into my model? 2) Maintenance expenses - what should I model? I have seen suggestions at 10% of rent. I understand that it is variable based on the condition at move in. We plan on rehabing the properties to good condition before renting out. Any suggestions as a starting point for my model will be great. 3) Liability protection is priority number one for us. We did quite well with our original investments and we figure real estate is a good asset class to divest into at this time. The last thing we want to do is to deal with some slip and fall incident that may jepordize our core personal net worth. We plan on using a real estate attorney to establish an LLC. Questions. 1) How much umbrella insurance do you buy? Should it be based on a ratio / multiple of some figure like rent or equity in the LLC? 2) How do you extract vlaue (rental income and equity) from the LLC to your personal net worth without jepordizing the separate LLC liability protection? 4) For those in the bay area - do you buy earthquake insurance for your properties? Are there insurance products that cover lost rental income in case of an earthquake?
Thanks very much! i hear the SF Bay area courts/landlord law are VERY tenant-friendly, ie. hard to evict. worth looking into. and isnt there rent control in some areas?
also, in san fran itself, my understanding is that it is very hard to find good cash-flowing SFH's...kinda like NYC.
with your 100% hands-off approach and stated profit goal, it sounds to me like you are better off with a reputable REIT, personally.
Are there downsides to getting a 30 year mortgage and just treating it like a 15 year mortgage?
I want to pay off the mortgage as soon as possible, but I'd like the ability to make the lower monthly payments of a 30 year loan if I need to (say, for instance, I'm unemployed for a few months). I realize I'd get a higher interest rate on a 30 year, but, other than that, are there downsides? Could I get a 30, and just apply additional money to principal every month?
b534202 said: Galun000 said: Hello, we plan on buying our first rental propert(ies). Enjoyed reading the thread and I have a few questions. We are looking to buy in the SF Bay Area (loosely defined) and looking for properties with cash on cash return. We will be divesting some of our equities holdings into the downpayments for properties. The way I see it, we are just swapping out a bit of our equities exposure with real estate exposure. If I can get a mid single digit cash on cash return on my capital I am good. If I include the principal payments I'd get close to 10% total return based on my calculation. That's not bad and we are willing to swap out some equity exposure for that kind of return profile. Plus I want to short the long bond given the fed's distortion at the long end of the curve, and what better way to do it than to borrow as much long term money as possible?
4) For those in the bay area - do you buy earthquake insurance for your properties? Are there insurance products that cover lost rental income in case of an earthquake?
Thanks very much!
Have you looked into the insurance? SF's earthquake insurance is extremly expensive, and it has a very high deductible from what my dad showed me. Basically, what it costs to rebuild will be coming out of your pocket whether you have insurance or not, unless you have a very fancy house.
The policies have 10 - 15% deductibles. I think of it as catastrophic insurance as I don't want the potential to compound lost rental income, a mortgage, and a huge out of pocket cost to rebuild the house in case of a big earthquake.
solarUS said: Galun000 said: Hello, we plan on buying our first rental propert(ies). Enjoyed reading the thread and I have a few questions. We are looking to buy in the SF Bay Area (loosely defined) and looking for properties with cash on cash return. We will be divesting some of our equities holdings into the downpayments for properties. The way I see it, we are just swapping out a bit of our equities exposure with real estate exposure. If I can get a mid single digit cash on cash return on my capital I am good. If I include the principal payments I'd get close to 10% total return based on my calculation. That's not bad and we are willing to swap out some equity exposure for that kind of return profile. Plus I want to short the long bond given the fed's distortion at the long end of the curve, and what better way to do it than to borrow as much long term money as possible?
1) I am using the 1% rule to screen, and for follow up I am building a more detailed cash flow model based on some spreadsheets I see. I have included expenses for PITI, garbage, water, maintenance, and property management (we have no interest in hands on work). Am I missing any expenses that I should incorporate into my model? 2) Maintenance expenses - what should I model? I have seen suggestions at 10% of rent. I understand that it is variable based on the condition at move in. We plan on rehabing the properties to good condition before renting out. Any suggestions as a starting point for my model will be great. 3) Liability protection is priority number one for us. We did quite well with our original investments and we figure real estate is a good asset class to divest into at this time. The last thing we want to do is to deal with some slip and fall incident that may jepordize our core personal net worth. We plan on using a real estate attorney to establish an LLC. Questions. 1) How much umbrella insurance do you buy? Should it be based on a ratio / multiple of some figure like rent or equity in the LLC? 2) How do you extract vlaue (rental income and equity) from the LLC to your personal net worth without jepordizing the separate LLC liability protection? 4) For those in the bay area - do you buy earthquake insurance for your properties? Are there insurance products that cover lost rental income in case of an earthquake?
Thanks very much! i hear the SF Bay area courts/landlord law are VERY tenant-friendly, ie. hard to evict. worth looking into. and isnt there rent control in some areas?
also, in san fran itself, my understanding is that it is very hard to find good cash-flowing SFH's...kinda like NYC.
with your 100% hands-off approach and stated profit goal, it sounds to me like you are better off with a reputable REIT, personally.
I was loosely defining the the SF Bay Area. Not all cities have rent control.
Part of my reason for doing this is to short the long bond (by borrowing as much long term money as possible), and also improve my total return through leverage. REIT cannot achieve those goals.
The link to the property analyzer spreadsheet in the wiki post doesn't work any more. I found this one through a quick Google search. Would anyone else be willing to share any they use?
EDIT: Also how did you determine cost basis etc... Orig purchase/improvements?
That must be it...thank you.
Basis, I'm using what we paid for it. A recent appraisal was slightly higher, so the instructions say use the lesser of actual cost basis or FMV at the time of conversion into a rental. The 140,000 land value comes from the recent appraisal.
Fix up cost will be added to the basis of the home. You can not claim it this year.
Ranchland said: Greetings, I purchased a SFR home to rent out. We purchased this house in 2011 and are still working on the refurb so it did not generate any income in 2011 but will (hopefully) in 2012. Do I show the expenses for the purchase and repairs on this years taxes? Info: The purchase was in my name (not including spouse) and we didn't put it in our trust as we purchased it from HUD and were told it could only be sold to an individual. Didn't follow that at the time but just bought it in my name to close the deal. It was a cash purchase and there is no mortgage involved. So essentially we have purchase price, closing costs and associated expenses to put the house in order. (those costs are ongoing but we have good records of what/when).
I don't have an LLC or other entity at this time to "own" the property other than myself. The deductability is not that critical as our income is relatively low but we don't want to miss out on doing something that we should have done on our 2011 return. We purchased the home solely for income purposes and have no other intentions for it.
I have a small business (very small) that I will be doing a schedule C for and also expensing some items on a 4562. I understand the schedule C as I have done them in the past but the rental thing is new to us. Thanks.
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