All Forum Posts by: Bonnie Griffin Kaake

When you compare a STR to a LTR on the same property, you will find that the STR usually has a better ROI. Nevertheless, the amount of work that goes into a STR to qualify as an active investment rather than a passive investment is far greater for the STR. It is your choice.

Of course, if you qualify as a RE Professional, both STR and LTR will be active investments.

Thank you for the complement. 

Over the years, I have been a commercial real estate broker and an investor primarily in commercial real estate. At this point in my life, I have divested from my commercial properties and currently have a mid-term rental. Each person's situation can be different. 

Because each person's investment goals are personal, it is to your advantage to be talking to a tax consultant to maximize your tax benefits and cash flow. Then, the consultant working with your real estate savy CPA/tax professional can guide you in what is best in your specific situation. 

Think of CPAs/tax professionals as your medical GP. They have a broad knowledge of their subject. When you have a broken leg or a heart attack, you will want a specialist whose knowledge is deeply focused on surgery or heart issues. As a specialist in real estate taxation, strategy and available cash flow opportunities, I work with your CPA/tax professional to maximize your benefits in this complex area of tax laws and regulations at no cost to you. 

@Renee Adams

STRs can be active or passive. It depends on how it is being used and how you are participating in the management of it. Here below are two reasons the STR can be passive instead of active:

1. If you are not actively participating in the management of the property at least 100 hours per year and more than anyone else or any other entity.

2. If the average of the year's rental days is more than 7 days. It does not matter how many days you actively manage the property, it is a passive property. 

@Henry Le Short-term rentals have very different and more complex issues for owners. I teach continuing education classes for CPAs to make them aware of these complexities. Too many investors and tax professionals do not understand how vulnerable they are to audit by not knowing what they don't know. Just two things that come up over and over again: 1. STRs of less than 30 days, must be depreciated over 39 years. 2. Even if it is a STR the actual number of rental days MUST be 7 days or less on average for the total number of rental days per year. This is even with 100+ hours of personal management and more than any other person or entity in order to qualify for active investment treatment. If the average is more than 7 days, it is passive rather than an active investment no matter how many days you personally manage that property.

Contact me if you need additional information on tax benefits and increased cash-flow.   

@Jeff Flanigan Are these townhomes being built for sale or for lease? If they are going to be leased townhomes, you may have as much as $30 per sq ft in special tax benefits. If they are going to be purchased by individual investors, they can do cost segregation but it is not as lucrative. PM me if you have questions. I can offer both. 

 The only thing I see you missing is no mention of the tax benefits and extra cash flow available with a good cost segregation study for each of your properties. 

@Priyanka Verma  Short-term rentals have some unique challenges and opportunities. First, they need to be depreciated over 39 years, not 27.5 like most residential rentals. Second, if you are actively managing the property, more than 100 hours per year and more than any other person or entity, it can be considered an active rather than a passive investment and allows you to take cost segregation "losses" off your income for tax purposes. 

Look for a knowledgeable CPA/EA with a good grasp of real estate investment benefits that are available to you. Cost segregation is a big help, especially in the first years of ownership when your cash flow is more challenged. Cost seg increases your tax benefits and cash flow. 

Let me know if I can be of assistance.  

You likely have $60K to $90K in tax beneLfits and cash flow available to you plus more for any renovations you have done to date. Reliable no cost estimates are available for the asking. Let me know if I can help. 

@Luther Wilson III

You are correct in that too many don't think about the benefits of owner finance deals. Another benefit is that the buyer under the owner/finance sale gets to do a cost segregation study on the actual purchase price and often gets more in tax benefits and cash flow than the buyer originally put down on the deal. Contact me if you want more information about how this works. 

@Drew Sygit and @Sean Graham

There are additional benefits to being a building owner/occupant. If in the first year of ownership, provided the building owner(s) and business owner(s) are the same, the building can be grouped with the business. This makes the building an active rather than passive investment. When you do a cost segregation study on the building, the losses created can be used against your income from the business. This reduces your taxes and increases your cash flow. 

Too many business owners miss this opportunity because their CPA/tax professional is not aware of this benefit.