Expenses

[Peter Lampione]

Hi! This is Dina, Peter's partner (and wife!). We just introduced ourselves on BiggerPockets 2 days ago, and we warned everyone we have a bunch of questions...so, this is the first one that's been plaguing me. I'm a numbers person and love my spreadsheets and my formulas, so I've enjoyed running calculations (using the 50% rule) to practice evaluating properties. 

We know ultimately we have to replace estimates with real expense numbers, and we’re currently trying to figure out how to spread the overhead of running any business across a target property portfolio. The types of expenses we are grappling with are

• subscription costs (to things like bigger pockets, loopnet etc)
• software (quickbooks, property management)
• professional fees (accountants and lawyers)
• advertising
• office costs (telephone numbers, web hosting)

Obviously the more properties we ultimately own the less these overhead costs will be an impact on expenses for any one property, but as you start with your first property, these expenses could very quickly wipe out any CoC ROI.

Any suggestions on how to factor these types of expenses in the profitability of a specific property?

[Jeff B.]

Until you have REI income, there are no deductible expenses. The income is reported on the 1040 Sch E, along with the deductions - - in the first year of operations (and that means last years shopping spree is not deductible) .  

Even with a single SFR, the first year will have 'startup costs' and yes, the Sch E may show zero net profit if your purchase was thin and your expenses were out of control.

Boosting profits is about increasing income and reducing expenses, so out of the box, spend as little as possible (aka you don't need a website - - I did w/o for 19yrs).