All Forum Posts by: Brandon Hall

@Tyrone Maxwell I don't think you will get many answers unless you elaborate and provide more detail.

@Weis Sherdel If I had to pick an area right now, it would be my old college town. Strong rental market, huge college. I know the area well and know exactly where to buy and what improvements need to be done to bring it to the average market quality. The returns are easily double, sometime triple what you would see in D.C. on a cash flow basis. The downside is that it is a 4-5 hour drive. Regardless, a good property management company will reduce my risk.

If I wanted something closer, I'd look into Baltimore, which is something I have been actively doing for the past month or so. 

@Alexander Merritt 

Technically, in other states, yes. However not necessarily in D.C. In D.C., only the landlord to the party can evict you. My landlord was the master tenant (Mr. W) and as long as I paid him, I could not be evicted. Now if the landlord evicted Mr. W, I want to say I too would be evicted. But the landlord cannot evict me without evicting W since I am not liable to the landlord. The best strategy for the landlord would be to get a lawyer to write up a sublease agreement, then ask (beg?) for me to sign it. Which he did, but at that point we had already moved out and W had two new guys in there.

 It turns into a perpetual month-to-month lease at the discretion of the tenant. When the tenant wants to move out, the tenant provides 30-day notice. Landlord cannot provide 30-day notice to move out unless there is a legitimate reason to do so (think massive repairs and capital expenditures). Tenant simply has to keep paying rent and at the increase rental rate if rent has increased. 

Pg. 4 of the Tenant Survival Guide: "No matter what type of lease you have—written or oral, month to month or annual—your landlord cannot evict you without a legally valid reason. (See the section on Evictions for details on the eviction process.) In fact, after a lease expires you can continue to stay in your apartment as long as you continue to pay rent. The terms of your expired lease continue to be in affect with the exception that your rent may increase after a valid 30 day notice. To  increase your rent, your landlord must file a notice with the RACD. Any increase must meet certain legal requirements."

@Nancy Roth I actually did a ton of research (hundreds of hours) on D.C. tenant laws during this entire experience in order to understand how to protect myself and roommate A from any liability we may have had (thank goodness we weren't liable for anything). I read a similar story to yours about a lawyer in D.C. who rented a place and screwed the landlord because he knew the law and exactly how to go about getting what he wanted. 

If anyone wants to invest in D.C., go listen to Michael Blank's podcast about when he bought an apartment complex in D.C. He has a story that parallels mine and apparently the tenant almost bankrupted him.

Investing in D.C. can be very lucrative. Hell, major Chinese investors are helping fund the SW Waterfront revitalization project which includes billions of investment dollars. However, I don't think I will be investing in D.C. unless I can bankroll a high-quality lawyer and I have a few more years of experience under my belt. And again, the returns (excluding appreciation) just aren't as good as other accessible locations. 

Well, if you have carried over losses you can use them to offset gains. You can also gift stock to family members or donate appreciate stock to charity. Other than that, I don't believe there is a way to avoid paying capital gains tax on your securities earnings upon liquidation. 

@Account Closed Sure. I'll preface the story with: once my current roommate and I realized what was going on, we promptly moved out. 

In February, I was looking for a place in D.C. and found one posted on craigslist. It was in the Chinatown area with really affordable rent. I checked the place out (built two years ago so it was nice) and also met the guy who had posted the ad. He was also going to be moving in at the same time and needed two roommates (we will call him W).

I told him I'd like to move in with him and asked about signing a lease. He told me not to worry about it since he was going to be on the lease. I told him I want something in writing, so I drafted a sublease and made him sign it prior to me giving him a deposit or moving in. 

I moved in and met my current roommate (call him A) who had also found the craiglist ad online. He used my sublease and had W sign it. 

A few months go by and W is constantly having arguments with the landlord and complaining about things that don't work (i.e. a window wouldn't open and an electrical socket wouldn't work). Not huge deals, especially for easy going people like A and me.

One day the landlord finds out A and me are living there and flips out. Turns out we were not supposed to be there (as is clearly stated on the lease that W signed but neglected to inform us about). A and I began to look at other apartments in the area.

While we are looking to move out, W's scheme falls apart and we now understand everything that he has been doing. 

First, W couldn't afford rent by himself so he needed roommates. The lease clearly stated that he was not allowed to have roommates, but once A and I moved in, D.C. law protects the hell out of us. The landlord can literally never kick us out unless we stop paying rent.

Second, turns out W was not paying rent to the landlord (A and I paid rent to W and he would then pay the landlord). That entire time he was complaining about the minor repair issues, he was withholding rent (effectively stealing A's and my rent). Of course, in D.C., you have an implied warranty of habitability. If these minor repairs are not cleared up, you don't have to pay rent. He didn't put the money into escrow like he should have been doing, but in D.C., turns out, that doesn't really matter that much. I think he was two or three months behind on rent.

We found out the landlord filed a motion to evict everyone from the home. W promptly filed a complaint with the landlord tenant court to have the property inspected for the repairs that needed to be complete. He argued the implied warranty of habitability during his eviction hearing, and the eviction was put on hold. 

The inspection took place and the landlord was ordered to make necessary repairs prior to receiving rents. He did so within a week. At this time, A and I moved out and lawyered up. Turns out we were going to be fine. Since we never paid our landlord (we only paid W making him our "master tenant") we were not liable to the landlord (HUGE issue in D.C. in my opinion). 

W has two new guys move in. They each pay a big security deposit. W backpays rent and the eviction case is dropped since apparently that's all it takes. W then refuses to pay current month rent citing more damages and repairs that need to be made. Landlord starts eviction process. then after two months (Oct. I believe), W moves out and leaves the landlord with a trashed house, no rent, and no one to go after. W moves states and is difficult to find, and apparently even if he is found, he won't pay up because he won't really need to. There is very little you can do once someone moves states. 

Morals of the story: 

1) If you invest in D.C., I suggest you read the "Tenant Survival Guide" and understand every word of it. You also need to have a REALLY good lawyer ready to move and fight quickly. 

2) If a subtenant moves into your place, make sure you have them sign a sublease with YOU. The fact that I was not liable to the landlord because my sublease was with W and I only paid W is absurd. I could have stayed there forever if I chose to because the landlord cannot evict me since I am not liable to him.

3) Make sure you screen your tenants with the best resources possible. My landlord used a  reputable realtor for these services and look how that turned out for him (they dropped the ball). I also discovered that once a place is leased in D.C., it is technically perpetually leased, meaning at the end of the year lease it will transition into a month-to-month lease for the life of the tenant (as long as the tenant continues to pay rent and at the increased rental rate). So if you get stuck with a bad tenant, you are screwed until the tenant decides to move out.

4) This tenant was an outlier but these things CAN happen and D.C. protects its tenants like crazy. Just know the law and make sure you are getting high quality tenants. 

I hope this helps some of you D.C. investors. Let me know if you have any questions. This was a high-level overview of my story, there are many more details but I don't currently have the time to relay them all.

I live in D.C. and after I watched my "old" craigslist roommate comfortably scam my landlord due to the extremely friendly tenant laws, I'm not sure I'd buy in D.C.

That being said, I do think the D.C. rental market is one of the strongest in the country. You will likely always have renters. I know firsthand that finding places to rent is difficult because they get scooped up so quickly. 

Whether or not you will make money depends on the deal you create. A few posters above me mentioned they are investing and are "cash flow positive," however that is not good enough for me. I've been watching the D.C. market for the past year and I can't help to notice I can get double the return in my college town and triple the return in Baltimore. 

Of course the disadvantage to investing in my college town and bmore is that it's not in my backyard, but I'll sacrifice distance for returns any day.

My conclusion is that D.C. is one of the best rental markets in the country, but that you can easily see better returns elsewhere. Of course if you are investing in commercial properties it's an entirely different ballgame. 

This may help: http://www.biggerpockets.com/forums/12/topics/81633-registering-a-biz--naics

@Adam R. I was a bit confused about your plan, but Bill is right in that "reinvesting" dividends or earnings cannot be classified as an expense. Unless of course you are using them to fund capital expenditures or maintenance or some other qualifying expense.

The way @Adam Johnson laid out the facts makes it sound sketchy, but my question to @Brian Eastman & @Jon Holdman is: can his IRA and his friend's IRA each purchase a 50% stake in a property as long as the proceeds (upon sale) are to benefit the IRA?

This would avoid the situation entirely. Is that a prohibited transaction?

@Darren Smith Jon is right by stating that you can either take the cents per mile (it may be 56 cents for 2014 but not sure off the top of my head) or you can keep really good receipts and expense items related to business use. Typically, it is much less of a hassle to just use the standard cents per mile. 

I'd like to note that you have a standard deduction of $6,200 ($12,400 if married filing jointly) and if your itemized expenses do not exceed $6,200, then you will just use the standard deduction for the year. A lot of people talk about itemizing expenses yet they don't realize that unless their itemized expenses exceed the standard deduction, they will simply be taking the standard deduction for the year.

Here is a good link regarding what you can itemize: http://www.irs.gov/taxtopics/tc500.html

I also want to say IRS Pub 505 goes into more detail. 

@Jon Holdman not to be a stickler (and I appreciate your posts) - but the $25,000 special allowance is based off of one's Modified Adjusted Gross Income (MAGI), not Adjusted Gross Income (AGI). AGI represents taxable income while MAGI better represents one's ability to pay by adding back certain (rare) deductions. It is applicable to BP users because while a passive loss can reduce AGI, it must be added back to determine your MAGI, which is then used to determine the special allowance deduction.