All Forum Posts by: Will Barnard

REAdvocate, in your example, couldn't that have been done without a RE license? I have a deal I am working on now for 4-plex units from a builder, I put them under contract via my LLC with earnest $ from my LLC and will assign some of the units I can not keep to my investors for an increased price/assignment fee.

As for the questions asked by Minna, I hope you can come back to the post and answer them. We all would like to hear what you have to say.

Plutopia,

I appologize for my last post on question #3.
I was thinking off IRA accounts not using debt financing, but with it, you are allowed the paper write-off of depreciation. See how confusing this stuff is!
As for the 1031 exchange, again I forgot to consider the debt fiancing situation. I have never looked into that so I can not say one way or another if you can do it. I would imagine itr is possible to offset the UBTI just as it can be done on cap gains tax.

As for question #1: You posted Outstanding debt / basis = UBTI
With my example of 30k down/70k debt fin. and purchase price 100k/ sell price 200k, please elaborate on your calcualtion. Perhaps I am missing something here, but 70,000 (debt) / $100000 (basis) = 70% UBTI on the 100k gain? That would be the highest tax rate of all investments ever. What am I missing here?

I have heard this statement soooooo many times "It will raise my tax bracket" and I just want to slap the person in the face to wake them up.
One of the problems in our country is the lack of financial knowledge by the average American. The statement is absurd if you know how the tax system works.
You can make up to $32,550 for 2008 which would put you in the 15% federal tax bracket. If you were to make an extra 1,000, your entire income does not jump to the 25% bracket, only the 1,000 above the lower bracket. So if you made $50,000, your taxes would look like this:
$0-8025 taxed at 10%
$8026-32,550 taxed at 15%
$32551-50,000 taxed at 25% (this example is assuming single filing)

So even though the person in this example would say that they are in the 25% tax bracket, there "effective" tax rate is less because the entire $50,000 is not taxed at 25%.

As the last poster stated, 1031 exchanges are just one tool to defer/avoid paying cap gains taxes (legally). Tax loopholes created by the IRS are more abundant in RE than in any other investment vehicle. The IRS puts loopholes in the code in order to induce a particular behavior. For example, if you have a child, you get a tax deduction. Why, you ask. The IRS wants you to have a child because, even though they give you a tax brake for it now, they know that they will get it back in the form of your child eventually paying into the system.

Knowing how taxes work and the loopholes that are available to you can have a tremendously positive affect on how much $ you keep in your pockets.

All but the laws remian the same.
As Mike said, RE investing does not change, but the markets do, so at times, you need to adjust or even change your strategy. The only thing that can really change is the laws which is why any RE investor should have good legal counsel on their team.

Also, as Mike said, the gurus claim to have "secrets" and ways of investing in RE that "nobody else knows". That is just a lie! There are no secrets, only experience. It takes experience to get the great deals done. That and educating yourself via reading, learning from others (here on BP as well), and putting into action what you have learned.

It is very difficult (not impossible) to jump full time into RE particularly without a job. If you plan on buying RE without a job, this lending market will demand a good credit worthiness and ability to pay the debt (a job), so you will need to partner with someone who can get the loan in their name. If the cash flow is poitive, that is your selling point to the partner and you manage the investment.

Good luck.

James, you are funny! Keep up the humor. It is a nice break betweenm all the serious discussion.

To answer Robmack's question, I do not believe you HAVE to move to a more favorable area to invest in the rental business. You simply have to find an area that supports your goals and provides the numbers sufficient for your investment criteria.

Buying out of state is not the immpossible/huge headache/etc./etc./etc. it is made out to be by some. While Mike runs a full time landlord business and operates that business by doing his own management/repairs/evictions(sometimes at gunpoint, ha, ha), you do not have to do the same to be successful. Numbers speak for themselves and if you can build a quality team in an area that supports the cash flow numbers needed, you can be a landlord via phone/fax/email/and the occassional flight.

I live in CA and NONE of my properties are here, excluding my persoanl residence and vacation home in Big Bear. Anyone for snowboarding? Oh wait, it is 100 degrees, perhaps Malibu Beach will be a better choice today.

What ever you decide, one thing is clear - the numbers Must work.
Good luck!

Looks like a short sale is the only way to make this work for you.
Just my opinion with the data provided.

First off, never assume anything. Get the facts on the repairs needed in order to represent an ARV of $350k. Second, what is your goal here? Flip, or hold as rental property? If you flip, I suggest you line up a buyer before closing on this deal and make sure you include all costs involved. Many leave out holding costs (interest, taxes, incurance, utilities, etc.), RE costs on the front and back end, possible value loss duirng hold time, possible necessity to fire sale below the $350k, etc. After all said and done, make sure the profit left over is worth your time/effort/risk.

If you plan on holding for rental, you will be negative cash flow with the numbers you provided. $2000 in rent with a total cost of $285k (235k+50k) is far below a 1% rent to purchase ratio.

Of course you may also be a speculator in "hopes" of holding out for appreciation while carrying a negative cash flow, certainly a well known strategy, but "risky" in this market and you better have capital and reserves to carry the losses.

If you are after your first deal, I suggest you look elsewhere for better.
Keep it up. This business can be very discouraging at first (a big emotional rollercoaster), but with persistance and dedication, you will get there!

Mike, I see you quoted me and took what I said out of context. I was in agreement with both you and Jon on this matter. My 1-5 properties with a 9-5 job example was sugggesting that anyone could get some rental properties using a partner who put up all the $, not just for acquisition, but also for reserves. I did not mean that $100 would get them 5 properties and of course over time cap expenses occur requiring cash reserves.
I started in the business that way. My first 8 deals where all done with partners who put up the cash and I found the deals, managed them, etc.
Certainly they still have to do the cash flow analysis, etc. etc. to make sure they are buying right. That is something we all agree on.

Although I do not agree with a lot of Mike's statements, I certainly agree on these points above. $100 or even 1,000 will get you nowhere in RE investing. You must have $/credit or find partners who have this in order to suceed in the landlording business.

Jon, nice response. You shot down the standard guru generalizations with one shot. :shoot:
I also agree with Mike on his response too. Yes anyone can do a deal with OPM and no $ out of his/her pocket, but if you plan on establishing a full-time landlord business like Mike does, you will have to have capital not only for acquisitions, but for maintenance, misc. capital expenses, etc.

Now if your plan is to simply buy and hold one or two or even 5 properties and continue your 9-5, then perhaps your no money strategy could be used with partners, etc.

Not only is it a great startegy for the investor, the buyer can control when and how much in cap gains taxes tehy pay by selling via owner finance.
WIN-WIN for both parties.