All Forum Posts by: Bonnie Griffin Kaake

@Caroline Knight  You are on an exciting new journey! @Dmitriy Fomichenko made a great suggestion...set keyword alerts. You will also want to be sure to keep your eyes and ears open to the possible tax benefits of investing in RE. Why pay more in taxes than you need to pay.

Remember, just because you may consider house-hacking by living in one unit, don't overlook the tax benefits you can be available to you. Don't expect your CPA/tax professional to understand tax strategy with investment real estate. You need a team. 

@Ian Stromski You are in a great place to be investing and house-hacking. While you are considering options, be sure to consider the ability to leverage tax benefits available with investment property.

1. Since you will be in NJ for at least 4 years, be sure to take advantage of cost segregation on your multi-family investment purchase.

2. Even if you live in one unit, you can still cost seg the rest of the building and get about 6-8% of what you paid for the property plus any rehab needed, in taxes you will not have to pay up-front.

3. When you move, if you plan to divest of the investment property in NJ, do a 1031 exchange into your next larger investment property to avoid the capital gains and recapture tax. You can also do another cost segregation study on the new depreciable basis after the exchange.

4. Buy a larger multi-family rather than a duplex if you plan to live in one of the units. This will maximize the tax benefits available to you. You can only use the benefits on the portion of the property you are not occupying yourself. A small duplex with only 50% of the property qualifying for cost seg is not as valuable to you as the same amount of money invested in a 4-plex with 75% available for tax benefits of cost segregation.

5. Since the Bonus Depreciation is most likely to go back to 100% for purchases in 2023, 2024 and 2025, the time to buy is now!

6. Be sure you are working with a CPA that understands the value of leveraging the tax benefits on investment property and working with an engineering-based cost segregation company with on-site property reviews and audit defense at no cost if ever needed during your ownership. This is NOT the place to skimp on cheap services without good no-cost on-going consulting when you need help down the road.

Think this through as you are doing. You are headed for a wonderful investment future! 

Quote from @Kevin Ramos:

Quote from @Colleen F.:

@Kevin Ramos the other thing you might want to play to is the type of people who do rent MTR in your area. Point out what the demographic is compared to STR. You are talking about people relocating to the area for work or in the area temporarily for work not vacationers. Your goal would be to talk about how these people are more like them and not a disruption to the community. Examples of health care workers etc if that is your demographic. I am assuming of course that you aren't in a snowbird area but even then you could point out that crime goes down with age.

 Definitely good points. I used to be one of those people that lived off of 3 to 4 month leases in the area earlier in my career as an engineer, and everyone I know who did it was either a professional or just not ready to settle down. I scheduled some time to speak during a board meeting tomorrow

Remind the board that even the IRS says the MTR are actually classified as long-term rentals. Less than 30 days is a short term rental. Due to a lack of housing across the country, many are adding ADUs for relatives and seniors. Our neighborhood does not allow short term rentals but one family has built a 2-bedroom apartment in their basement with an outside entrance for a family that takes care of his wife who has MS during the day when he works. The HOA needs to think this through or be sued for discriminating against the disabled or elderly.

@Account Closed  Have you purchased any residential rental property or commercial property yet? If so, leverage those with cost segregation as soon as possible. There is a move in the Ways and Means Committee and another that has already passed with the majority of both Democrats an Republicans. Its purpose is to reintroduce the 100% bonus depreciation retroactively to 2023 and going forward, maybe 2 years. We will get the final news by the end of January in all likelihood. This would spark RE investments and give you extra tax benefits to leverage into new properties.

If you need more information or updates, I am here. 

@Manny Pascual Welcome to BP! Once you have done your research on the STR rules and regulations in a particular state, city, county and any HOA, you have more work to do. Be sure you understand the tax benefits and the errors that are often made that limit those tax benefits or come back to bite. You need a good tax strategist that understands these very unique twists to owning STRs.

Quote from @Gucci S.:

Thanks everyone for such detailed replies. 

Quick question- After you had the STR for 5-10 years and want to sell it now, can you just roll 1031, all the capital appreciation, and the bonus depreciation (claimed early on) into the next property and keep rolling the tax bill down the time lane?

Thanks

Gucci, the short answer is yes. If you leave the property to your heirs, you never have to pay the recapture tax and your heirs can do the cost segregation study again on the market value inheritance. Short-term rentals can be tricky when it comes to the tax filings and benefits. I am working with a client now to get studies done on six STRs where the initial tax filing was done on 27.5 years instead of 39 years. This person now has about $100K in tax benefits that were taken too early and now has to pay them back. Not a good situation to be in. Most CPAs/tax professionals do not have the time to study this calculation intense niche of real estate regulations. Taking on the risk of doing it wrong is another concern. They usually source it to a company that specializes in this area and offers audit defense if the client is ever questioned and at no cost. The best study is an engineering-based study with on site reviews of the property both inside and outside. 

@Samuel Coronado  There are tax benefits that are likely available to you with these park purchases. The best way to find out how much in tax benefits and extra cash flow is available, you will need a no-cost, no obligation cost segregation pre-analysis/estimate. Then you and your CPA/tax professional can review it to decide how a study can benefit your specific tax situation. CSSI and I have done many of these estimates and studies with great results. There are some essential questions that need to be answered to calculate the results you can expect. The sooner you explore these available tax benefits the better. I can help. 

@Diane Bonheur  There are a couple things you might want to also keep in mind before you are too deep in a deal. New Jersey and CT have the highest property tax rates in the country. Also, check assessed land values versus assessed total values in the county where the property sits. If the land value is very high, it can limit your tax benefits and cash flow with cost segregation.

Cost segregation can give you tax benefits and extra cash flow the first year you own the property. If you need to do extensive improvements/renovations down the road you will also have some nice tax benefits. The key is getting a good RE consultant that specializes in no-cost consulting, engineering-based cost segregation estimates, and reasonable study costs who works with your CPA/tax professional. Let me know if you have additional questions. 

@Rich Sandman  Congratulations! You are on an adventure. Some states require attorneys to close on a property and others allow real estate agents/brokers and title companies to do the deed.

Sometimes investors get bogged down in the buying and selling of properties and either forget or simply don't know there are some wonderful tax benefits and extra cash flow available with cost segregation and other tax benefits that are not commonly known by tax professionals/CPAs who are stretched thin. It is not part of their skill set and it is calculation complex. To do it correctly and avoid IRS audits, it is best to get a no-cost estimate from an engineering-based cost segregation company that actually does on-site reviews of your property inside and outside.

No, you don't need an LLC to own property or for each property. Many investors own properties in their own names. At some point in the investing journey, a good CPA/tax professional will recommend an LLC.

Since you want to learn fast, find yourself an experienced real estate broker/agent. Take that person to lunch or breakfast, pick their brain and work with them whether you are buying or selling a property. 

@Aspen Potter  If you are thinking mid-term rentals, be sure you look near hospitals, or medical facilities such as infusion centers. Traveling medical personnel (nurses, lab tech, x-ray and more) are in short supply. Many are traveling for 3 month contracts. They tend to be very responsible, pay rent on time, and leave the place cleaner from my experience.

Mid-term rentals are considered long-term rentals by the IRS. Therefore, they are depreciated over a 27.5 year term instead of 39 years like a STR. They are also eligible for expedited depreciation with cost segregation which gives you extra tax benefits and cash-flow up front. Let me know if you have more questions. Estimates are free.