All Forum Posts by: Ricky A.

I think the downsides far outweigh the upside.  If a family with kids values D+ then the probably already have it, so providing smart TVs where they can log into their subscription is sufficient.  For families with kids that don't have D+, providing it likely doesn't move the needle because it's not important enough for them to already be subscribed.

I think providing streaming services (that require login) can have huge downsides if the service gets logged out.  Do you provide the login credentials upfront in case the service gets logged out?  Do people take those credentials home with them and continue using your account.  Or do you provide the credentials when they call to complain that the service is logged out?  Does that inconvenience cause them to ding you when they leave a review?  Do you need to update your credentials once they check out so they don't continue to use your account? 

To me, it's a lot of downside with very little upside.  I suggest having smart TVs and let them log into their own accounts, preferably with a guest mode so they auto-log out after a certain number of days.

For catering to families, I would concentrate on providing amenities like puzzles and games.  Depending on the location and properties, consider having a game room.

I guess my procrastination skills are slipping!  I just did all but one of mine on Monday.  I had purposefully waited as long as I could in case it was blocked, but I figured chances were slim at this point.  Oh well.

However, if it does come back, what I found was that creating the optional "Individual" FinCEN ID makes things a lot easier.  Instead of having to enter personal info and upload an image of your driver's license for each Reporting Company, the Individual FinCEN ID allows you to input your personal data once and then link the Individual ID to your various Reporting Companies.  If your personal info changes in the future, you just update it for the one Individual ID versus having to update it in each of your Reporting Companies.  Also makes it easy for each individual to maintain their own info in multi-owner scenarios.

@Patricia Andriolo-Bull, not sure if they've iterated the system since you did yours, but now there's a button for downloading the filing transcript (a PDF containing all the info that you submitted).  But I wouldn't worry as long as your filings said successful.  

I need to dig into how TPG values AmEx points at 2%.  The way I've traditionally used them (i.e., simply transferring from AmEx to Delta SkyMiles), they're only worth 1%...well maybe a bit over 1.15% because I also have a personal Delta AmEx which makes mileage tickets come at a 15% discount.  Definitely some work to do because if I can get 2% out of those points, like you say, it makes those purchase points worth 4% versus the 2.5% cost.

@Nathan Gesner - Can you share the name of the book you read about points stacking?

@Andrew Steffens - I've got a lot to learn!  I've been pretty pedestrian just collecting AmEx points and moving them to Delta.  At my day job (non-RE), we have a recurring vendor that charges us about $150K/month.  For the longest, they allowed us to pay via CC without an upcharge.  AmEx Platinum gives 2x points for charges over $5K, so were were getting 300K points EVERY MONTH from this one vendor!  They started charging a 2.5% surcharge last month, so now we pay by check...man, I was bummed!

@Richard Nguyen

I just set up my first SDIRA a month or so ago, so I haven't had enough time to speak too much about experience, but the company I'm using (recommended by my CPA) doesn't charge AUM type fees.  They use more of a flat fee approach.  They have an option for a smaller flat fee with per-transaction fees, and then they have a slightly larger flat fee with unlimited transactions.  At 2 transactions per year, the unlimited becomes cheaper.  

Note, even though you may have a per-transaction fee or unlimited transactions, it looks like pretty much each transaction will still have some additional associated fees for things such as AHC/wire or expediting docs, but they seem reasonable.

When I was setting mine up, I was told that the flat fee isn't charged until your first transaction.  So, you could set it up, fund it, but then decide not to use it, and you'd never get hit with the annual flat fee.  There is a % fee for withdrawing and/or closing, but that fee is capped at $250, so overall the fee structure seems reasonable to me.

I'm not sure if I'm allowed to post the company's name here, so DM me and I can give you the name.

@Zach Rumfield

I agree with @Bill B. and @Bruce Woodruff that, financially, this is probably a no brainer and that you should run the numbers to see how it pencils out because, even though your dad already owns the property, there are likely still some upfront costs to consider.

1. I would find 2-3 local property managers to interview and do walk-throughs with.  I'd want to know their rent projections, what needs to be done to hit those projections, and what could optionally be done to get even better numbers.  I would expect start-up costs such as stocking linens/bedding, upgrading certain furnishing and amenities, and pass-through costs for listing on the OTAs (like VRBO, Airbnb).  There could also be increased ongoing costs for upgraded internet, cable TV, etc.

2.  As a good son, I would spot check the property managers' projections by doing my own research on VRBO/Airbnb/AirDNA to see what I think similar rentals are doing.  This is sometimes called the "Enemy Method," and you can search for more details.

3. Make sure you get the right property insurance policy.  Actually, it scares me a bit that you say the property is currently only being used about three weeks per year.  I would contact my agent IMMEDIATELY to make sure they know that and to make sure I currently *really* have the coverage I think I do.  Some policies have vacancy clauses, and if the property is empty for, say, 60 or 90 days, your coverage may be reduced and you may not have the coverage you think you have.  One of our STRs has such a clause, but the insurance company waives it because the property management company does walk-throughs at least monthly.

4.  Consider the emotional aspect too.  I think there's potentially a different feeling when you convert a personal residence to such an investment property versus purposefully buying an investment property.  I think guests hardly ever damage things intentionally, but when you have luggage coming in and out all the time and little kids running around a "new place," there IS a lot more wear-and-tear, scuffs/dents/scrapes, and broken glass.  I can imagine that, with the wrong mindset, it could feel like an invasion or disrespect of your personal space.  So I suggest really being clear about the "why" and the "what to expect" to keep these inevitabilities in perspective.  Reading those little books that guests and sign and comment in can be very helpful and grounding when you have those times when it seems like guests don't care.

@Bill Hampton lists some good ideas.  If this is a bonus that's coming soon, the timing could really limit the number of moves you can realistically make between now and Dec 31st to mitigate taxes.  I'd see if the employer would let me receive part or all of the bonus in 2025 for a number of reasons:

- More time to pursue and execute tax-saving strategies

- (Possibly) more time to hold on to the $$$ before taxes are due (2026 vs 2025)

- Chance that, post-election, there is a possibility that there could be tax changes effective 2025 that could possibly help your situation.  Other than reduced bonus depreciation (if you're using that strategy), without any tax law changes, rates will be largely the same for 2025 as 2024, so you may not lose much by delaying receipt of the bonus by a month or two.  Also, if it's a one-time bonus, you may want to push only a portion to next year if that minimizes the total taxes you pay over the two years based on your expected tax brackets.

I agree with @Michael Baum.  

Personally, I wouldn't spend money on an attorney because 1) I think the covenants/restrictions can sensibly be used against STRs and 2) because the HOA potentially has deep pockets if the officers decide to fight because they can pass the cost of the fight to the home owners.

I would reach out to the officers to get their sentiments and to plead my case, and I would start building my case with the other homeowners. Central to my argument would be that making sweeping changes to the covenants themselves or changing how the covenants have been historically enforced only addresses the current problem indirectly. For example, a homeowner could potentially act in the same nuisance ways. Argue that they, instead, confront the actual problem directly and address the nuisance issue itself. At the same time, I would reach out to that STR owner to try to get him to fix the nuisance issue.

That said, even if you are successful in staving off the issue for now, it could come back at any time based on the current board members or on wide community support for getting rid of STRs.

You could try to gather support for changing the covenants in your favor, but my gut is that that will be hard to do.  Even people who don't mind STRs may not be willing to specifically vote to enshrine them....depends on just how charismatic you can be!

Whether to consider selling or converting to LTR is really up to you.  If this is your dream retirement place, perhaps you use the LTR to simply subsidize your purchase even if it's not fully cash-flow positive.  You'll have to run those numbers to see if it makes sense.

@Brody Veilleux, to say "cash flow is tax free" is, at best, grossly misleading and, at worst, flat out wrong.

What is true is 1) taxes are based on net income and 2) cash flow does not equal net income.  Therefore, you could say something like "taxes aren't based on your cash flow," but if I were making such as statement, it would be more like "taxes aren't DIRECTLY based on your cash flow" because that better captures the spirit.

You have multiple sets of numbers: 1) [actual] cash flow, 2) net income, and since you mentioned running numbers 3) pro forma numbers (i.e., projected/estimated cash flow).  All three are different.

PRO FORMA vs ACTUAL CASH FLOW: In your pro forma, you may have *allowances* for things like vacancy and CapEx. These are great for setting expectations and as management tools (especially, if you actually set those amounts aside), but they aren't ACTUAL cashflows (even if you do set them aside). They aren't actual incurred expenses and are not deductible.

CASH FLOW vs NET INCOME:  There are three main sources of differences between your actual cash flow and your net income.  1) Mortgage Payments - Only the interest expense (and maybe mortgage insurance) is an expense and deductible.  Principal paydown is not an expense...it's just paying the cost of the asset over time.  Also, escrow payments aren't expenses.  Similar to the allowances in a pro forma, they are simply set asides and only become expenses when the property taxes/insurance are actually paid from them. 2) Capital Expenditures - They certainly feel like expenses, but certain improvements cannot be expensed outright but instead have to be capitalized and expensed/depreciated over time.  3) Depreciation - Finally some good news!  Depreciation represents expensing the cost of the asset over a period of time.  It acknowledges that long-lived assets (i.e., assets that tend to produce income for more than a year) are expensed over a specified "useful life."  Depreciation isn't an actual cash outflow [because we+the bank made the actual cash outflow at closing], but we get to write off the cost of the asset as an expense over time.

Since cash flow doesn't equal net income, there are different scenarios that can happen. 1) Cash flow can be higher than net income.  Like @Sean Graham said, you can have positive cashflow but zero or negative net income-->and thus no taxes. This is generally when depreciation pushes an otherwise positive profit to zero or below. HOWEVER, 2) you can also have situations where net income can be higher than cash flow. In fact, you can have a tax liability even with negative cashflow. This will often happen when a CapEx need wipes out all the cash flow yet has to be expensed/depreciated over time. It could also happen if you have large principal payments that outpace your other operating income.

Hope this helps.

I agree with @John Underwood & @Mike Grudzien, and I would expand on documenting *EVERYTHING*.  Everything??  Everything!!

COSTS: I would look at any-and-all things needed to run an STR including items that are often done by owners--for example, property management. There's value in property management, and you mention that you don't want to deal with guests regularly. You could determine FMV for property management and compensate the party providing it even if it's one of you. I think defining and compensating costs like these helps avoid resentment that can happen when a party has to do otherwise unpaid work or otherwise feels the workloads are unbalanced. You could even define quality metrics for some of these tasks to avoid a party doing subpar work (e.g., all guest questions must be answered within X hours/days).

OWNER USE: What if one party wants to use the property during the highest demand time?  Is that fair?  Is it not?  Do you say that owner use is valued per the property's rate sheet for true-up during profit splitting?

DECISIONS:  Will there be a majority owner?  If not, how will decisions be made?  Can one party make certain decisions, say under a certain threshold?  What decisions require consultation with both parties?  What happens if there's a tie.

BUYOUT PROVISIONS:  What happens if one party wants out?  What happens if things aren't working?

FINANCING:  Would they buy in under your existing financing or would you refinance the property?  Again, there is a value that should possibly be compensated if their names are not going on the mortgage but they are splitting ownership and other benefits (IMHO).

There are probably a number of other easily overlooked items to consider.