All Forum Posts by: Brian Kelley

Some keyword cities:  Edmonds, Lynnwood, Shoreline, Everett, Mill Creek, Bothell, Kenmore, Mountlake Terrance, Brier

Two colleagues and I have formed an LLC to flip properties in the South Snohomish County through North Kind County area of Washington State. We have a hard money lender lined up with approval to $500k. One partner is a licensed contractor and the other a Real Estate agent. We are comfortable with some structural or systems issues on the property - this doesn't need to be a lipstick house. We have looked at dozens of on market deals but they are all getting snatched up above list price (and above where our margins work) quickly. We need to find something off market but do not have the skillset to do our own marketing at this time. Wholesalers - please let me know if grandma's house with the green carpet, yellow counter tops and the poodle puddles that never got cleaned up becomes available.

OK Jim - Vacations are brutal to get back from but the related tax documents are pouring in so I really need to make the phone call.  Keep your ringer on tomorrow around lunch your time and maybe we can chat! :)

Thanks Jim.  I'm out on vacation for about a week so I'll give you a call around the 24th or 25th.

@Jim Kennedy - if you pick up Edmonds does that give you 32 states?  I always like to bring something useful to the table!

Much less scary, thank you!  I put on a pretty significant addition in 2008 for about $150k that should help as well as an outbuilding this spring for about $20k. If I haven't claimed any depreciation (or perhaps just two weeks in 2016) on the house, is there much risk in those values adding up?  Does anyone have any recommendations on a Seattle-area CPA?  Alternatively, Is this something you could take on from NJ Jim?

After re-reading your comments, I am concerned about this:

"If a residence converted to rental property is later sold at a gain, the basis in the converted property is the original cost or other basis plus amounts paid for capital improvements, less any depreciation taken."

It would be impossible to account for nearly enough capital improvements to cover the roughly $370k in appreciation from the purchase in 1994 to the sale in 2017.  If I'm going to get stuck with capital gains on a couple of hundred thousand, I need to take a very different approach.  I recall reading about 'your primary residence for 3 of the last 5 years' was where I needed to focus - essentially that the house couldn't be a rental more than 2 years after I moved.  Does that ring a bell?

That is fantastic feedback Jim.  I believe I am safe under Sec. 121 as I lived in the property until the first week in December and haven't sold a property in many years.  My basis is important if capital gains are being considered because I purchased the property in 1994 for around $131k and it will sell for a bit over $500k.  This is the main reason I never considered holding the property for a long-term rental.  My hope is that the few months it is rented prior to the sale doesn't negatively impact from a tax standpoint and that I can use the costs of the rehab to help from a tax standpoint.

The unique arrangement with the renters/buyers provides a lot of flexibility to put the best approach on paper.

Hello everyone. I am getting back into RE investing and took the first big steps at the end of 2016. I’m curious about my tax strategy for the 2016 tax return in progress and also interested in a referral to a very good CPA in the Seattle area with expertise in real estate investing. Here’s my basic story:

I've owned my house for 20+ years and lived in it continuously but my family needs have been evolving and I have been wanted to sell it and move to something that fit better. This fall, a chance conversation with a colleague at work resulted in an agreement that her family would rent my house so I could purchase something different and move. We also agreed that they would purchase the house in the spring after her husband had been at his job for a year to satisfy the VA requirements for his financing. While this isn't a typical lease-option, we came up with an unusual agreement separate from the formal rental agreement needed for my new mortgage.

The house needed some updates so we agreed on an as-is price for the house as it sat. From there, I agreed to fund the rehab to their specs, working together with sweat equity and vendors she has access to through work. They have agreed to purchase the house for the ‘as-is price’ plus the cost of the improvements. We have been working together and it has been going to plan and on budget. I’m in my new house and they are in their new house. This is working well because they are choosing finishings they like but are essentially absorbing the full net cost when they buy.  Any incidental purchases they pay for out of pocket are just equity in their home. I got out of my old house without the need of bridging the gap between moving out and selling while relocating my family and am selling my house for pretty much market value off market so I save a ton in commissions. This is a true win/win and we are planning on working together on a few more investments after our collective families and finances ‘heal’ from this process.

My new house closed the first week in December and the lease started on December 20th so I have legitimate rental income for 2016. I also have about $25,000 in legitimate rehab costs also in 2016 that I can argue were necessary to move the new tenants in. These include rearranging some rooms, new floors, doors and trim, remodeling of two bathrooms and new paint and fixtures throughout.  My tentative plan was to have my fledgling rental business show a huge loss in 2016 and then sell the property in 2017 without having taken much depreciation and paying no capital gains since it was my primary residence so recently.

With these broad parameters in mind, what pitfalls am I missing? What details have I left out? I have around $20k in FWT sitting on my W2 just begging to be liberated. Cheers!

-Brian

Tim, this is fantastic information - thank you so much!  I'm not interested in doing any retail buyer/seller work.  I'm only planning on doing my own flips.  I suppose there could be the very occasional situation where I represent a friend or family member but otherwise it is just my own traffic.

Do you have a recommendation for an investor-friendly broker that will keep the fees the lowest?