All Forum Posts by: Adrian M

Hello Fellow Investors!

I would really appreciate your advice on this matter.

Background Information
I own a condo in Santa Monica, CA that I am currently renting-out. I'd like to sell the condo in 2 or 3 years (after a bit more appreciation).

The condo is in a nice area. Although the condo is small (in sq footage), I wouldn't mind moving back to it if it makes the most sense financially.

When I eventually sell, I will use the equity to buy about 5 or 6 SFRs, in cash-flowing states (not California).

By the time I sell, I will have about 7 properties. So, the acquisition of an additional 5 or 6 will put me over the 10 property Fannie Mae limit.

Essentially, I am trying to decide between the following strategies.

STRATEGY A - 1031
Continue to Rent the Property to Tenants.

Then, in 2 or 3 years, do a 1031 into SFRs in a cash-flowing state (not California).

Pros
- I can avoid Capital Gains Tax on all of my equity.

Cons or Concerns
- I have never done a 1031. I'm concerned about hidden fees, the strict 1031 timelines (45 days to identify, 180 days to close). I'm very concerned about Underwriting 5 or 6 Loans at the same, especially since I will be going over the 10 property Fannie Mae limit.

STRATEGY B - Owner Occupied Capital Gains Exclusion
I would move into the Condo (and use as personal residence).

Then, in 2 or 3 years, use the Owner Occupied Capital Gains exclusion.
- I'm single, so this exclusion would be $250k.
- The equity in the property is currently about $250k.
- I expect the equity to be more in 2 or 3 years.

Pros
- This will allow me more time to find the properties that fit my investing style.
- I could possibly take-out a Home Equity Loan (or Line of Credit) to buy more cash flowing homes now. Are Lenders making Home Equity Loans again?

Cons or Concerns
- Equity over $250k will be taxed.

Please share your related knowledge/experiences. Any advice

offered will be appreciated!! Thank you for your time!!!

Hi Jon. Thanks for the feedback regarding the fees. I understand your concern. It does not make sense for a single property in a State (paying the Foreign State fee and the Domestic State fee). But, when dealing with multiple properties, it would be cost effective. For example, 10 properties, would not increase the cost of the entity structures (still paying for the 1 Foreign Entity and the 1 Domestic Entity). Each property would be placed into it's own Series.

And G. Founder and Robert, thank you for your feedback as well! I understand that there is little case law regarding the Series LLCs. If I pursue this approach, I would also purchase a substantial Umbrella Insurance Policy to provide additional protection.

Thank you again for your feedback! I will give this approach more thought (and do more research).

Can anyone offer some advice on this topic? Any feedback would be appreciated! Thanks!!

Thanks Michael!! And thanks also for the book suggestion! I'll check-it-out!

Can I use a single Delware Series LLC to hold properties in multiple states? Providing that I register the LLC in each state.

Thanks for the response Kevin!!

Speaking of CPA's, do we have any CPA's in the Forum that can throw in their 2 cents?

I have been investing for several years. Initially, I met with a Tax Consultant to ask how to categorize Misc Expenses. Expenses that cannot be tied to a particular property. He advised that I either not report the expenses or randomly relate them to a property. So they would then be reported on the Schedule E. I am not content with this answer. I have legitimate expenses that do not relate to a particular property (examples: education and researching geographical areas and opportunities). I am considering the use of a Business (Schedule C) in addition to the Real Estate Profit and Loss (Schedule E). However, the Business will never have income. All of the income will be generated from the Real Estate (Schedule E).

I am very interested to get some opinions on how to structure these Misc Expenses. Please let me know what approach you have taken, and how well that approach has worked for you. And please enlighten me on any Tax Guidelines that I might be overlooking.

Thank you for your time!!,
Adrian

Hey Brad. I used to use Quickbooks. Quickbooks is great. But, I decided that I really didn't need most of the functionality in Quickbooks. For example, I don't invoice my Tenants. I like to keep the business as simple as possible. [AD FOR OWN SOFTWARE REMOVED] That's my 2 cents.

-Adrian

PS: I also recommend a separate checking account for each property. Separate accounts will make your accounting a breeze!