All Forum Posts by: Becca F.

I have been doing my own taxes and have a large amount of Passive Activity Losses from my rentals, don't want to mention the specific number but it's a lot in the thousands. I'm a W2 employee, all long term rentals, no STRs.

#1) If I have capital gains from stock dividends and interest income (high yield saving accounts, etc) are those offset by my PALs. Someone told me it doesn't. I have been buying stocks, index funds, and Master Limited Partnerships (which I will get a Form K-1). I would consider investing in stocks and index funds to be passive. Why does the IRS consider it ordinary income? Would ordinary income include my W2, stock dividends and interest income? 

#2) Why is everyone I know buying STRs and doing accelerated and bonus depreciation? I assume the STR loophole is to to offset active W2 income. If go buy a property for STR, can I then unlock all the PALs from previous years for my LTRs? That seems like a huge headache, managing an STR from out of state and meeting the material participation hours from OOS. Buying a property in the Bay Area to STR would cost over $1 million. I don't see the point of all these investors doing STRs for the tax savings, for higher cash flow OOS, it does make sense. I haven't done any cost segs on any of my SFH rentals. I thought unless you're REPS it doesn't make sense to do cost seg, and accelerated and bonus depreciation. Am I missing something here? I'm confused.

Following this. I have been doing my own taxes using TurboTax...yes I've been scolded several times. I'm W2 employee, no S Corps, no C Corps, long term rentals, no bonus and no accelerated depreciation. 

I sold a property in 2024, long story but sort of like a bad flip that I had intended to rent out but didn't. I didn't hold it for 12 months. I'm finally getting a CPA - there is one I'm leaning towards after talking with him. I had interviewed 4 other CPA firms, two were highly recommended by other real estate investors. I don't doubt that they would do a great job but the cost for tax advisory and tax preparation/filing were extremely high for my small portfolio. 

Quote from @John Morgan:

Most of my 29 properties are in my personal name. There are no tax advantages either. And if you ever go to court to evict, you need to hire an attorney to represent your LLC vs doing it yourself. So I went with the advice to just get extra liability on my properties and call it good. And it's extremely rare for a lawsuit to go for over 1 million in damages.

I agree with this, that any attorney can find out a lot of things and who owns the LLCs during discovery.  I don't have any LLCs and I have 4 properties (3 SFH, 1 Multi-family). I purchased extra liability insurance. Neither do most of my California investor friends who own several million in properties in the Bay Area. The only people I know with LLCs have turned real estate into a business and own over 20 properties. 

I talked to 2 asset protection companies. One was going to charge me $13,000 for the first year (set up fees, monthly fees) to have a Wyoming Trust over a holding company and one LLC per property. That's ridiculously high for 4 properties. Then annual fees after the first year still ranging in the thousands.

The only time I've heard of someone getting sued was the landlord was doing something illegal here.  Tenant in San Francisco discovered the in-law unit had fire code violations so sued landlord for $2 million. The tenant did this because they were angry that landlord was asking them to leave so a family member could move in. Case went to arbitration. Landlord had to pay tenant $70,000. The illegal in-law units/ADUs are somewhat common in the Bay Area - many people with paid off properties are collecting under the table rent money without reporting it to the IRS. The local laws in S.F. have said if these illegal units are discovered, the landlord needs to pay back all the rent charged to the tenant. The logic is if the unit is illegal, you shouldn't be charging rent to the tenant. 

Lesson: in a pro-tenant law city especially, don't do illegal things, don't have fire code or safety violations and if you ask someone to leave, follow all local laws. (I don't know this landlord, my investor friend does so they're may be more to this story). 

@Brian Quo

If you can afford the $900 to $1000 loss each month, it could work out. I talked to a couple of Bay Area investors who bought in the last 4 years and they're negative but they can afford it. 

Have you talked to any property management companies in Tracy, Lathrop and Manteca and asked how much they typically increase rent each year in different neighborhoods? Would your -$1000 decrease in a  few years as you raise rent? You would need to factor in property tax and insurance increases and future repairs/cap ex. 

Other areas you could consider are: Sacramento, which is within a 2 hour drive. I don't think Sacramento is on the table for me after looking at the numbers. I'm starting to look at Reno/Lake Tahoe which is about a 4 hour drive and Las Vegas but my goals are different from yours - I would buy this house to rent out and in the future, move into it as a primary when I decide to retire/semi-retire (Nevada has no state income tax unlike CA). I'm just now exploring this option so I don't have any numbers yet. 

I understand your hesitation with OOS investing - I also invest in Indianapolis metro area. Feel free to DM me with any questions.

Quote from @Adam Bartomeo:

You should be more afraid of buying a rental in CA!

 I invest in the Bay Area in one of the most pro-tenant law cities (San Francisco, Berkeley, and Oakland). Yes, there are nightmare stories but the majority of investors don't have problems - the ones who bought going way back to the 1970's and 80s and those that got deals in 2008 (and didn't sell in panic and have to foreclose) have achieved incredible appreciation and wealth. And these weren't high income earners, unlike the buyers today. I have to read the handbook on landlord-tenant laws before I do anything and just to be safe call the Rent Board, like my recent rent increase with lease renewal. 

The cities he picked are skew towards being "a little more landlord friendly". My advice to new Bay Area investors is not buy in the 3 cities I listed above and go for the suburbs. 

 SFHs aren't under currently under rent control in California and be careful if buying multi-family which are under rent control and know what tenants you're inheriting. As an aside, I'm voting no on Proposition 33 which is on the CA November ballot - they are trying to limit rent increases between tenants. Right now, if an old tenant moves out of a unit (an apartment which is rent controlled) you can charge market rate rent to the new tenant. (E.g Long term 30 year tenant with rent control is paying $1200 a month moves out, new tenant is now paying $3200 market rate rent on 1 bedroom apt). Prop 33 is trying to limit this rent increase. Didn't mean to get political but I generally vote no on anything that will cause more rent control or increase my property taxes (all the special assessments).  

I invest in Indiana also and I recently sold off one of my homes. My experience is that I don't think it's worth the headaches (documented in my many previous posts) for much slower appreciation than the western states. I'm keeping my Bay Area properties to pass onto my kids. My goal changed from acquiring more inexpensive properties to looking at real estate as a store of wealth - quality over quantity. I don't plan to buy in the Midwest anymore and am looking at the asset - if buy OOS it would be Nevada or possibly Arizona.  I do a know a few CA investors that buy all OOS (Texas is still a popular place to invest) but the majority of investors I've talked to at meet ups and friends and family still own in CA. There's not one right answer for everyone. 

Quote from @Priscilla Chin:

Hi Becca. I am looking to buy in Indy and your examples are so helpful for me to think about. If you're open, would love to connect. If you have any recommendations for realtors and PMs in Indy and are open to sharing, please lmk!

These threads with a thread give me a headache. I would say after my experience and I think several experienced investors would agree that it's important to look at the asset now more with higher prices in 2024 and higher interest rates make cash flow difficult. The market was much more forgiving and easier to find deals if you bought in 2012 to early 2022 and more so prior to 2012. 

I will DM you about Indy. 

Quote from @John Morgan:

@Tyler Bilinovic

It’s simple to do yourself. You will be showing a paper loss on your rentals so you want be paying any taxes off them. I have 29 properties and use turbo tax to do my taxes. It walks you through everything. And it keeps track of all your capitalization from year to year with each property.

 Wow I'm impressed. You have 29 properties and you use TurboTax. I have 4 properties and I'm getting a CPA for 2024 since I sold one (that was the 5th property) but I held it for less than a year, sort of like a did a bad flip but I did intend to rent it out (very long story).

I'm guessing the OP has two single family rentals and not some large apartment complex, if OP is still there. 

@Josh Edelman

Thank you for the updates. I'm starting to look at the Vegas area as a possible place to invest and move to in the future. The no state income tax in Nevada appeals to me vs. high state income tax in California for retirement or semi-retirement. My California investor friends love Vegas. 

@Tyler Bilinovic

I do my own taxes on Turbo Tax Premium and I have 4 properties (had 5 properties but sold one recently). One is a multi-family with co-owners. I've been scolded many times for doing my own taxes. I'm a W2 employee with long term rentals. I don't have any short term rentals, no S Corps or C Corps, no cost segregation. It was pretty straightforward when I had one single family rental but has gotten more complex especially with the multi-family. When I called TurboTax for help, it depends on who the CPA or enrolled agent is helping you - some know more about real estate than others. I'm not recommending that you use TurboTax just sharing what I did. 

I interviewed 5 CPAs, three were firms recommended by other real estate investors. In my case, the quotes were about $2500 to $4000 for the filing (federal and 2 states) and $5000 to over $6000 for tax advisory/planning. Two of them wouldn't do just the tax return filing but I would have to pay for tax advisory, more like a holistic approach. I felt that almost $10,000 was a lot. Your situation would likely be less even if you paid for tax advisory since you have 2 properties. I did have a CPA review my previous returns and he said everything looked in order. 

Going forward I'll be using a CPA since I sold one of the homes this year. Someone pointed out that I call a plumber or electrician when one of my rentals has  issues and I don't try to fix it myself. 

Whichever way you go, do your own taxes or get a CPA, make sure you have a good bookkeeping system for each rental and I'd recommend getting a business checking account - when I had my rental income and expenses mixed in with my personal account, it took a long time to sort through which was personal and business (rentals) with pages of bank statements. I also got a business credit card for buying things related to the rentals. 

 I'm a property owner on BP and a W2 employee (nothing involved with real estate). I've only been on BP a little over 2 years but my understanding is that when Josh Dorkin, the founder, sold BP, it started to change. I watch a lot of David Greene's YT videos and have messaged him directly and he gave me solid advice - if I'm going to buy outside of California, to go for appreciation states and look at the asset. That's come full circle because that's what I should have done  (no offense to anyone investing in the Midwest but I'm doing the slow exit out of Indiana, already sold one property).  I've watched very few of Brandon Turner's videos so I don't have an opinion of him. 

James, I watched your YouTube video referencing this post. I've spent a lot of time posting on the forums as in hours. I don't receive a dollar for any advice or for any referrals I give to agents, contractors, etc. I started to scale back on my comments, partially because real estate for me has gotten very stressful and I'm taking a break from buying anything. I get a lot of messages from investors in the Bay Area and I'm happy to talk to someone for an hour but as far as ongoing advice, I don't think I'm the best person to advise them since my properties fell into my lap pre-2013 (California and one Indiana property). I don't have time to mentor someone unless they want to compensate me, which I don't feel right about.