All Forum Posts by: Becky Lai

I’m in contract on a 4-plex in Norcross, GA and would love recommendations on great property management companies you’ve had a excellent experience with and property management companies to avoid. I searched old posts and many responses were from PMs themselves so I’m really hoping to hear feedback from fellow investors.

Thanks in advance for your insight!

@Jose Contreras

The way the IRS defines “real estate professional” is very specific and doesn’t have anything to do with having a real estate license or anything like that.

Here’s an article that goes in depth on the rules: https://www.thetaxadviser.com/issues/2017/mar/navigating-real-estate-professional-rules.html

Here’s an excerpt:

Steps to Qualify as a Real Estate Professional

The following steps should be followed to determine whether a taxpayer first qualifies as a real estate professional, and if so, whether the taxpayer's rental activities are nonpassive:

Step 1: Identify and group the taxpayer's real property trades or businesses.

Step 2: Identify the taxpayer's real property trades or businesses in which the taxpayer material participates.

Step 3: Total the hours of participation in those real property trades or businesses in which the taxpayer materially participates. If the taxpayer is married, only count the hours from the spouse seeking to qualify as a real estate professional.

Step 4: Apply the hours from Step 3 to the two quantitative tests of Sec. 469(c)(7)(B):

Do the hours represent more than one-half of the total personal service hours the taxpayer performed during the year in all trades or businesses? (*This is why it’s hard to qualify if you work full time at a W-2 job*)

Do the hours exceed 750?

Step 5: A taxpayer who passes both tests in Step 4 is a qualifying real estate professional. The qualifying real estate professional must next establish material participation in his or her rental activities.

Does the taxpayer materially participate in each separate rental activity?

Each rental activity in which a qualifying real estate professional materially participates is nonpassive. PAny rental activity in which the taxpayer fails to materially participate, however, is passive despite the taxpayer's qualification as a real estate professional.13

As an alternative, a qualifying real estate professional may elect to aggregate all of his or her rental activities for purposes of establishing material participation.

If the taxpayer elects to aggregate all rental activities, does the taxpayer materially participate in the combined activity?

If the taxpayer materially participates in the combined rental activities, all of the rental activities are nonpassive. If the taxpayer fails to materially participate in the combined activity, all of the rental activities will remain passive.

A detailed discussion of each step follows, highlighting traps for the unwary and planning opportunities, as illustrated by case law and IRS rulings.

@April Clark

I think it always helps to think through backup plans and contingencies. With STR many cities are still slow to regulation. Does Canyon Lake have rules similar to Austin with registration? https://www.austintexas.gov/department/apply-short-term-rental-license

If not it’s more profitable but it also carries the risk of new regulations being passed which would really change the math for you. Check out New York state’s “anti airBnb law” if you haven’t already.

I’d run the numbers to see if the property could also be a regular long term rental as a backup down the road. Always good to know what your options are.

@Judy Wang

After a lot of reading online I set up the umbrella bc it was pretty cheap ($1M=$305/yr, $2M=$534/yr and it led to savings on car insurance policies that offset the cost quite a bit) and I’m planning to set up LLCs this year.

Here’s an article that explained the utility of each protection with examples.

https://www.apartments.com/rental-manager/resources/article/umbrella-insurance-vs.-llc-the-best-option-for-your-rental

LLC is more expensive bc we're in CA (compared to other states) but $800 and whatever extra tax prep fees seems relatively small considering the amount of assets it's protecting. I personally think it's worth the peace of mind.

@Kenton LeVay Having just recently purchased two rentals in Austin, if you haven’t already done so, I would highly recommend taking the time to study the market closely in Austin. The bidding wars have gotten really nuts with homes selling well over listing price, cash offers, no contingency, etc. Make sure you feel confident you can find a neighborhood you like at what you can afford before you sell!

I don't know your financial situation but assuming this next move is not big enough to replace your day job, if you want to tap into the equity you have on your CA properties but you may want to consider doing a cash-out refinance instead of selling them (1031 or otherwise). That way you can hold onto an appreciating asset and you can invest in some higher cashflow markets.

@David K. Thanks for that feedback. Do you have properties in Cartersville or Douglasville or both?

I've been looking into investing in single family homes in the Atlanta suburbs (buy & hold) -- I was wondering what city shows more promise for appreciation and rent growth: Cartersville or Douglasville? On paper it looks like Cartersville is a little bit better but I'm wondering if the shorter commute from Douglasville to Atlanta and the eventual development of the west side of the city will ultimately change the calculus 5-10 years from now. Any and all opinions welcome!

@Sudhir, were you able to find a good broker for purchasing multifamily properties in Cincinnati?