All Forum Posts by: Annie Balagot

Hi,

a little confused about the short term rental loophole. Seems i can use my paper losses on my STR against active income if my avg stays are less than 7 days and I pass the materially participation test. Here's my question: I purchased a STR property but it was under and existing LT lease (though the leasee was doing STR arbitrage and renting it out). We bought it in March but once the lease ends in July, we will manage ourselves. For the materiality test and avg days test, does the fact that it was rented long term and had other property managers negate my ability to claim it as active income/loss. I'm guessing maybe I can separate out the period of LTR and STR for income but does that also pertain to the tests? hope that made sense. Would love to be able to take advantage of this loophole this year.

Hi! This is a kind of House Hack/BRRR. We live in an expensive neighborhood in NY where there's usually nothing that would cashflow. But our primary home would be a great rental and potentially net us $3-4k per month after all expenses. We recently renovated so it's in great shape. I found a house in town at a great price that needs only a little work and has lots of expansion potential (estate sale - possible seller financing). We could buy that house and end up paying about the same amount of mortgage and expenses as our current house. Problem is my 3 kids hate the idea of it. The new house is about the same size, same school district, but just opposite side of town and older feeling. Do I just do it anyway? It makes a lot of economic sense but I feel a little the same as them... what would you do? I know there's no right answer but would love to hear any thoughts or concerns I haven't thought of. The idea is to maybe keep doing this in town (very low inventory of rentals and very high demand). Thanks!

Still new to all this. I own 2 new rental properties in my personal name. 1 in TX (LTR) and 1 in FL (STR). I live in NY. Should I create separate LLCs for each property in the states they are in, or should I create 1 in the state I live in and file each as foreign entities in the states they are physically in? Do I need 2 separate LLCs or is it ok to put in just 1? Thanks in advance!

Thanks @Scott E.!

@Steve Ward I appreciate your feedback! Would love to hear your thoughts being an Austin native. My husband has wanted to buy in Austin for years but we had trouble selling our NY apt and now we finally did and Austin was crazy! We were doing a 1031 so didn't have much time and lost out on many other homes so can't say it was the most financially solid transaction, but think over time, Austin will be very successful for us as we can manage for the long term. We bought a SFH 4/2 in Hornsby Bend, near the Tesla factory. There's not much there yet but hoping proximity to Tesla and the airport helps to grow that area.

@Michael Dumler Thanks for your reply. Yes, the flooring would eat into the ROI but thinking in the long term, it will save costs of carpet cleaning and replacement in a couple years, and reduce turnaround time, and I think I can get 50% bonus depreciation if I do it in the first year versus a few yrs down the road. Also, would like to price slightly higher rent unless renters want/expect carpet, which is my main concern. Wondering if there are any agents or property managers in Austin that might be able to chime in on the desirability of carpet - though I can't imagine anyone liking basic brown carpeting.

Hi,

we just purchased a SFH in Austin that is only a few years old, however, has builder grade brown carpet that is generally OK once cleaned but thinking I want to replace all the carpet with good quality laminate now as this will be a long term rental and would reduce cleaning and fixing on each turn. But while looking at lots of other homes for sale and rent, most have carpet in living area and bedrooms. Is this typical in Austin? I live in NY and everyone hates carpet. I want to make sure I'm not going to alienate renters who expect carpet.

Thanks!

Annie

Thanks everyone for your suggestions. Looks like I will find a balance on the loan interest rate and rental fee that will still keep this a win-win. Though, looks like her parents have a few months left to sell and get the $500k exemption. They will still have a $100k+ tax bill but investing all the profit might still be more beneficial and less complicated for them. We shall see...

Thanks @Twana Rasoul.  I did encourage my friend to continue renting the house. It was rented at market rates and they had a property manager, yet still don't want the hassle. She is on the cusp of selling to redfin but I think they will lose a lot on taxes.

I was thinking they wouldn't be able to do a cashout refinance because her parents who own the home are elderly and have no income besides social security and retirement. Unless I'm wrong, but I don't think banks would lend. they'd probably offer a reverse mortgage, but that still doesn't solve my friends problem of not wanting to continue renting even with a property manager. I guess their actual cost is the loss of value of not investing the $ if they sell today vs my plan.

Hi Bigger Pocket Experts. I'm trying to help a friend while also trying to make what I think is a really interesting deal for me.  My friend's elderly parents live in a senior facility and has been renting their prior home out for a few years (in Carlsbad/San Diego) but now it's a big hassle for my friend to manage and they just want to sell. however, this home is worth ~$1.3M but their basis is something like $200k. I told her not to sell as the house basis will step up at the time of their death, then they should sell. But she doesn't want to deal with it now and needs cash to help pay for both parent's care. So, here is what I'm thinking - looking for reactions about this plan.

1) they continue to hold title to the property but agree to rent the house to me for $0.

2) They borrow $250k from me at 0% which comes due after the parent's passing (when they sell the house).

3) I can sub lease the house to a third party at $5k per month (or more).

4) We set up an option contract where, say within 6mths of both parent's passing, I have the option to purchase the house at an agreed upon price ($1.3M) and they pay 0 capital gains taxes.

So, I see it as a win-win. My friend gets cash today to help pay for parent's care and does not have to worry about managing the property and can eventually sell the house and save at least $100k in taxes (assuming $1.3M sales price - $200k basis - $500k exemption = $600k taxable gains * 15% federal + CA taxes)

I get a property I can rent out $60k per year w/0 financing costs so assume 50% expenses = $30k/yr which is a 12% cash return. I may be able to rent out even higher so that's all upside. And, i have the option of purchasing the house in the future at a fixed price and I get my $250k back (would that be an infinite return then?), which I can use as the down payment to buy or if the market drops, I don't have to buy it but i would expect San Diego pricing to continue to increase.

Does this make sense? would this work? any problems you see? What are the risks? Thanks for any feedback!