Just bought investment property; need passive income; have cash

[John McCandless]

Hi there. I am totally new to real estate investing. I was fortunate enough to come into some $ due the sale of a house in the Silicon Valley, and I used some of the proceeds to buy a beach house which I plan to rent out for at least for part of the year.

I am in a relatively high tax bracket (~35%) due to household income. 

Part of the logic of getting the beach house (in addition to enjoying it between rentals) was to be able to deduct expenses, mortgage, etc. However, in looking at the tax rules, it looks like I can only deduct from passive income, and when I do the quick math, the deductions (with depreciation as a large contributor at 1/27.5 of the home value each year, as well as mortgage interest and property tax, let alone property management fees, etc) will far outweigh rental income. 

As such, I am thinking I should be looking for other passive income, that does not operate at a loss. And my research thus far indicates that “investments” (stocks, group buys, peer to peer lending), while considered passive income colloquially, do not count as passive income to the IRS. But rental properties do seem to count as passive income to the IRS.

And I have additional $ left from the Silicon Valley sale.

So my thought is, buy an investment property (cash) to rent out and create passive income that I can deduct from, effectively making that additional income tax-free (at least until I sell it). Since CA is so expensive, I was thinking of buying out of state. I’ve done some quick searches, and Texas seems to have some good options where houses can be had for around $200k, and may return 10-15% based on rental income alone, let alone property appreciation. Houston was showing up on this list: 

https://www.google.com/amp/s/www.realwealthnetwork.com/learn/best-places-to-buy-rental-property/amp/

My wife and I went to Austin and felt it to be up-and-coming as well..

Is my thinking at all reasonable? Any other factors, advice, or next steps that you guys may suggest?

Thanks much!

[Tammie Jones]

John - Great first step!  We have a list of wholesale properties in the Northeast Indiana area if you are interested in this location!  We offer property management and sales!  We can help you out! See my business page. We have a whole staff ready to work for you!