All Forum Posts by: Alan Le

Hey John. I had a similar situation with my tenants last year. We had a close relationship and I had explained to them obligations of the lease which they were very understanding of. I would imagine most tenants would be of this mindset, they know the terms of the lease and that you cannot simply break it without repercussions. Nonetheless, I wanted to work something out with them and find middle-ground. I asked that they be flexible with showings and that if I find a tenant in time for their closing date, (which i was confident I could), that we could terminate the lease early without any penalty. Found my next tenants and moved them in week after existing tenants left.

All that to say, I wanted to extend some courtesy to the tenants while also not feeling pushed over. If you have a conversation and explain your side I think most would be understanding and that's how I approached it. Was able to terminate the lease early, find replacement tenants, no penalties, and everyone was happy.

You may owe taxes on the rental income from the property for when it was rented out, but you would be exempt from capital gains since you lived there at least 2 of the 5 years, (at least up to 250k single or 500k married). I would be skeptical if the CPA explicitly said you owe capital gains tax, but from what you have posted it sounds like the CPA was just talking about some Schedule E income tax?

Hey Jeremy, congratulations on jumping on your first property! Keep us updated on how it goes.

I had a somewhat similar situation recently so I can share my own tax situation. You may not be able to write off those expenses in your first year living there since it would be your primary residence. Not to worry though because these are all still costs associated with starting up your business and as such you could deduct/add to your cost basis at a later point (say once it is no longer your primary residence). This is even if the expense itself occurred outside of the fiscal year. 

For me, I was living in my first house-hack during 2021, (the year I first bought it), and was not able to deduct my expenses for the 2021 tax year but was able to for the 2022 year once I was all moved out and the house was a rental. So even though those expenses took place throughout 2021, I deducted it in the 2022 tax year. Bear in mind, I still had the home rented out during 2021, but treated it more of a "roommate" situation rather than a business rental so there was no income or expenses filed for it that first year. 

I would still verify with a CPA or accountant though, I'm sure there's a bit of nuance I am leaving out or not diving more into. Just sharing what my most recent experience was!

Hey Andrew! I think you pointed out a one of the best ways to learn-by-doing -- house hacking. I'm sure you're already familiar with the many benefits so I don't want to belabor it. Many of us also deal with the same plateau of spending time in the "learning phase" and not ultimately pulling the trigger to get started one way or another. I think getting started through house-hacking is an excellent way to get past this hesitancy and taking action; get some experience with renovations, maintenance, finding/hiring solid workers, screening tenants, and you'll find your footing and confidence in RE investing slowly. Good luck!

I require answering pre-screening questions at the least before showing a property. Employment history, combined income, pets, party size, etc. I think that is a very reasonable ask and is an easy step in your due diligence so you have some understanding of who they are before allowing to see your property. Also costs the potential tenants nothing. 

I use zillow rental manager to market my properties for rent. Makes it very easy and cost effective for prospective tenants as well. They pay zillow a pretty small fee to have an active rental application for 30 days. During that time, they can send their application to all the properties listed on zillow and its sister sites for the property managers to review. Zillow will do the credit and background check and they can also upload their proof of income through there. Worth checking out. I will still do my own verification of information on top of Zillow's if I choose to move forward with a tenant lease signing. 

Hey Jeremy -- I think starting out with house-hacking is an excellent way to get started into REI!

Agreed on above points on finding agents with lender relationships or vice versa. There certainly can be benefits to working with lenders from an agent's recommendation. A good agent will have at least 1 or 2 lenders they have built a strong relationship and trust with and this could be particularly beneficial when you need a lender to go out and bat for you.

Agreed on above points for analyzing your house hacks with the scenario of you living in it and as well as when you are moved out. 

I'd have to disagree though on allocating a grand total of 15% for vacancies, maintenance, and capex. Don't get me wrong, I also like to err on the conservative side and understand what my worse-case scenarios are, but doing a blanket 5% for each of those categories is going to over-expense a lot of analyses. Instead, I like to make these expense allocations dependent on the facts known about the property, (age of big ticket items like roof and appliances, landscaping, etc.). I was seeing in attached analysis that there was $1250 a month being allocated for these expenses, or $15k a year, which I don't think is a very likely annual expense for maintaining a duplex. You could get a new roof every year for less than that.

Regarding vacancies, the good thing I've found with investing in Denver is that there is a great supply of quality renters. I'm a relatively new landlord myself, but in the last 2 years and now 4 total rounds of tenant placement, I was able to find quality tenants and get them under leases within a week of posting the unit each time; on two occasions it was even within 2 days of posting! Again, kind of noobie landlord here, but I would bet that $3k a year on vacancy for this duplex would be too much -- particularly as a long term rental. If it's decently updated, in a decent part of Denver, and you have got some good pictures, I don't think you'll have much difficulty finding great tenants!

All that to say, I think this 5% rule is a major generalization, and does not scale very well. Best wishes on your investing journey, Roman!

Hi @Jarred Stangohr, great decision on buying your home within the next couple of months. We're seeing buyers have relatively more bargaining power compared to recent years and so I think there is still great opportunity for finding deals in Denver!

What you are planning is a similar strategy to what I did with my first home and how I first got my feet wet with real estate investing. I house-hacked a single-family home that had separate entrances; this allowed for the comfortability of living with privacy while also getting the benefit of rental income and qualifies you for the perks of owner-occupied loans. I am not sure what your living requirements are, but I can only strongly recommend a house-hack strategy for first time home-buyers/investors if your situation allows. Doing a nomadic strategy and living in it yourself without tenants and then moving out can also be a viable option to slowly growing your investments. Downside being that it doesn't come with the benefit of offsetting your living expenses-- which can be huge in fast-tracking your savings for that next house!

Either way, sounds like you plan to occupy it for at least the first year. This would allow you to deduct the property taxes you pay as well as the interest portion of your mortgage payments from your annual gross income. When it comes time to consider buying the second home, I would first focus on getting tenants into this first home as lenders will consider 75% of the rental income towards your monthly DTI when qualifying for another loan. This was the case for me when buying my second home in the Denver metro area and was what allowed me to take another mortgage in purchasing my 2nd house. As far as tax benefits when it comes time to rent the home, you will be able to deduct even more items-- including mortgage interest, property tax, operating expenses, and depreciation.

I don't really see any of it as downsides, but rather "responsibilities" of owning a home and running a rental business.

Hope this helps you and good luck on your journey!

Hi all, I have worked with Corporate Housing Specialists here in Denver, CO. In short, I advise against going with them. CHS essentially teaches people how to run short term rentals and then gets them connected to landlords that CHS reaches out to and collects their premium from this other party. So it's not CHS that actually manages the arbitrage but someone else they have trained.

The good: people managing the house have been good to work with, and have managed it decently well. No issues with tenants. Pretty hands off from me and payment is always early or on time. But again, it's not even CHS that manages the STR but someone they trained, so results I'm sure could vary wildly.

The bad: Their pitch is that they specialize in providing housing for traveling professionals, but in reality they just run it as an airbnb and make no effort to even target or specialize in that specific clientele. Classic bait and switch. At worst, the company is deceptive in this practice, at best they are incredibly poor communicators. 

I ended up finding middle ground with the people CHS connected with, and it's working out fine for me. Still, if you are intrigued with the revenue potential of STRs, I would go with a local management company that specializes in STRs and manages everything while taking a % of the revenue. You don't get a fixed income that an arbitrage offers but I would prefer cutting out the middleman and having my revenue be dependent on the bookings.

Hope this helps and good luck!

huh. looks like other photos were cut out from when i shared this posting from my profile deals. Feel free to check out the other photos from my profile!