All Forum Posts by: Brenton Way

Originally posted by @Chris Masons:

Brenton,

Be careful,  if you materially do NOT participate in your rental activities you cannot deduct standard 25k passive losses. I saw you mentioned you employ a management company for your holdings so that being said it may disqualify you from taking those losses from the IRS's standpoint....

 You actively participate if you are involved in meaningful management decisions regarding the rental property.

I guess you can still have Management in place and still participate but I'd double check with your accountant

thx,

Chris

 Thanks Chris! You make an excellent point. I had talked to my accountant about it and he had mentioned that it could be difficult to take the passive losses since I have a property management company depending on how involved I am in the business. I will have the discussion again during tax season if I end up with passive losses.

Edit: 

Active participation means making significant management decisions, such as approving rental terms, repairs, expenditures, and new tenants. Taxpayers who use a leasing agent or property manager are still considered active participants if they retain final management rights.

source: https://apps.irs.gov/app/vita/content/12/12_05_005.jsp

@Thea Linkfield The alternative is someone like myself. I work a W-2 job and I have a property manager for my two rental properties. Because I am not a real estate professional, losses from my rental business would be considered passive losses. What that means is that if my modified adjusted gross income (AGI) on my tax return is less than $150k I can deduct some or all of the losses up to $25k. There is a phase out that starts at $100k in modified AGI. If I am unable to deduct some or all of the losses then they are carried forward to future tax years when I have passive income.

Originally posted by @Thea Linkfield:

Hey Newbie question... I'm noticing a lot of these answers start out with: "if you're a real estate professional"... so what classifies someone as a real estate professional? @Brenton Way

 Here is a link with an explanation and some examples. I didn't read this to ensure its accuracy but it certainly looks to be from a credible source. 

https://www.irs.gov/pub/irs-utl/33-Real%20Estate%2...

Cliff Notes:

Real Estate Professional Qualification • Material participation in each specific rental • Material participation in separate Real Property Trade or business • 50% rule • 750 hours rule • 5% ownership rule

Real Estate Trade or Business Defined IRC Sec. 469(c)(7)(C) Any Real Property: • Development or redevelopment; • Construction or reconstruction; • Acquisition and/or conversion; • Rental Activity that is not a Passive Activity; • Property management; • Brokerage activities.

Example 1: Laura owns 5% or more of a real estate sales office • Works full time as a broker • She owns 3 rental properties and: • She finds the tenants; • Approves tenants and leases; • Approves and oversees repairs & improvements • Net rental losses are $31,000 and her modified AGI is $160,000 before the losses • Deduct the full $31,000 in the current tax year

Example 2: John acquires old homes and contracts 3rd parties to renovate and ready for resale. John is a single member LLC and files a Schedule C as a real estate trade or business. This is his main source of income. • He owns 2 rental properties that generate ($28,000) of losses in which he materially participates in the management: his modified AGI is $175,000 before the losses. Since he is a real estate professional the $25,000 limitation and modified AGI tests do not apply.

I interviewed 3 property managers before selecting one and all three charged 1/2 or a full months rent to place a tenant. Which property managers are you considering?

I am new myself so honestly I have never noticed people's post count prior to reading this thread. I look for replies that have supporting facts and I try to piece together information from various people. If I still have additional questions, I use the search function to try to find more threads on the topic so I can formulate my own opinion.

Originally posted by @Maggie G.:

What do you guys think about taking 8 weeks Mastery Course from Chicago Cash Flow for $18,000? This course supposes to teach me fundamentals of Real Estate Investing?  

Did anybody take this course from Chicago Cash Flow located in Oakbrook,  Illinois ? Any thoughts on this? 

 There are probably very few (if any) "guru" programs that are worth the price of admission. My real estate experience consists of listening to over a hundred podcasts, reading tons of forum posts, discussing real estate with other like minded individuals locally, and reading a few books. I combined all of that information and used it to buy two properties in 2017. 

People that end up being successful after attending a guru program would also likely be successful without the guru program. Real estate investing takes a lot of hard work and determination to persevere. If you put in the work regardless wether or not you do the guru program, you can be successful.

My wife has been asking for new flooring and a bathroom since we bought our house six years ago. In fairness the carpet was disgusting when we bought it and now we have a young son who crawls all over it. We had the carpet professionally cleaned and I figure I can get another year or two out of it. The bathroom hasn't worked since we bought the house because the grout cracked and the galvanized pan under the shower rusted out. We have another bathroom so it hasn't been a high priority for me. We got the house appraised and got a $50k heloc. Instead of doing work on our house I used the money along with some money I had saved to buy two rental properties. My wife still wants work done on our house but she is on board with investing so we can obtain financial freedom.

Gilbert Lugo Since my business partner is an agent he goes to look at new properties immediately when they come on the market if they fit our criteria. If he likes the property I may not step foot in it before we make the offer. Our strategy is buy and hold but we try to buy like a flipper. We want to make a cash offer with a two week close that will be low enough that we end up between 70-75% after we rehab the property.

Once I got serious and decided I was going to buy a property it took just over a month from the time I sat down with my business partner (he is an agent) to discuss criteria until we closed on our first property. My first purchase was from an estate and it was on the market for less than 24 hours before we had it under contract.

@Dave Foster