All Forum Posts by: Brian Schmelzlen

@Account Closed, are you able to continue to profitably finance yourself through alternative financing?  If so, I don't see what would stop you from moving into MFRs or apartments.

Once you have a seasoned apartment, you don't need to worry about your personal tax return as much as my understanding is that commercial lenders will primarily care about the deal itself (particularly on a refi).

@Brooke McGilvery,

I think you should reconsider not wanting to use a realtor.  On the buying side, it is free.  The seller typically pays the commissions on both sides of the deal, and you generally wont get a discount for not using a realtor (unless the seller isn't either).  What I believe generally happens is that the seller's agent would get double the commission.

Even on the selling side, I would use a realtor.  My belief is that a good (even decent) realtor will sell the house faster and for more than you would be able to do yourself.

Now, if you are truly interested in not using a realtor, don't have much cash, and are looking for alternative ways to invest you could consider becoming a wholesaler (and as you build up your saving keeping some of the better deals for yourself).  I think wholesaling is very difficult in general and particularly difficult now given the current real estate market, but maybe it would work in your area.  You should do some research into it if that appeals to you.

1) Yes, you can use the de minis election for the plumbing and electrical work, countertops, and garage door as it looks like they were separately listed on your invoice (or you had multiple invoices) since all are less than $2,500.  The only issue I see is if a contractor gave you a lump-sum price and you are trying to allocate the cost.

2) Yes, I am on the opinion that a house is considered placed in service on the day it is listed for rent as long as it is being legitimately put up as available to be rented.  If you are advertising it but have no intention of letting anyone actually rent it for a few months while you make improvements, that would not work.

3) While I think there is an argument to be made for using the property tax assessment, I think if you have an actual appraisal that lists the value of the land and building you would have to have a strong justification for doing so (assume that you are going to have to defend the decision to the IRS).  Essentially, I think you would have to believe that the appraisal is not accurate.

4) In the past it definitely made a difference.  Starting in late September 2017 under the new tax law, it no longer does.  There is now 100% bonus depreciation available for new fixed asset purchases.

Hi @Caleb Anderson,

You definitely do not want to throw your hard earned money away by just getting started without any knowledge.  I think the podcast tries to be pretty clear about that; educate yourself, but be prepared to actually take action instead of using needing to educate yourself more as an excuse to never do anything.

Given that you already work 55+ hours a week and it doesn't sound like you are looking to leave your job right away, I would focus your REI activity towards creating a business rather than creating a second job for yourself. I don't think you are looking for something else to keep you away from your family for an addition 40+ hours a week, I think you need to figure out what type of investing you are interested in that can help you create the life you want.

My advise is to do research into what that is, and then learn the basics of that particular niche.  From there, take action and be prepared to continually learn while doing.

This is a very good point.  I could do all the administrative work in my tax practice, but I have an office manager to handle that so I can have more clients and make significantly more money than the cost of having the help (and in general be happier because I am doing the work I enjoy instead of the stuff that just has to be done).

I believe both are commercial.

Property 1 is commercial because there are 2 commercial storefronts, and its one building with 5+ units.

Property 2 is commercial because there are more than 6 units on one lot.

There are a good of good books, but I like Crushing It in Apartments and Commercial Real Estate by Brian Murray.  While it is, obviously, written for apartments and commercial real estate, I think a lot of the information is still applicable to real estate in general.  I think it is also helpful since a lot of people start in SFRs but move to MFRs and apartments.

When I get new clients that have previously prepared their own tax returns, I routinely find that they had been making mistakes or missing deductions that would have saved them more in taxes than the fees I charge them (sometimes by several times).  I am biased, but I think a good CPA is able to create value for investors that goes beyond making sure the tax return is prepared correctly.  A good CPA is able to help investors find the optimal structure for their business and transactions to work for their goals and minimize taxes.

If there is a significant difference of opinion on how to proceed, is it an option to buy your family member out?

Hi Kyle,

There are "in service" rules, as well as repair/capitalization regulations that impact this.  First, the repair regulations.  In general, every "repair" expenditure needs to be capitalized (treated as an asset rather than an expense) and depreciated- expensed- over a number of years; how long depends on the life of the asset).  However, there are 3 "safe harbors" that can allow you to expense the "repair" immediately.  I am going to over-simplify all of them, talk to your CPA for more info.  The first is the de minimis safe harbor.  If the repair is less than $2,500, you can expense it immediately.  The second is the small taxpayer safe harbor.  Basically, if all of the work done on the property is less than a threshold amount, you can deduct it all.  The third is the routine maintenance safe harbor.  Essentially, if you can reasonably expect to make a similar repair within the useful life of the asset (not to exceed 10 years) you can deduct it.  Those are just the safe harbors; you can try to take the deduction without use of the safe harbors but the IRS may challenge it.

With the "in service rules" you need to have the property "in service" in order to take any deductions.  Essentially, you have to be holding it out to rent in order to take any expenses on it.  There is reasonable debate among CPAs about when a property is in service, so you may get different opinions on that.  It can be somewhat subjective.  The bright line rule is if you are receiving rental income on the property, it is in service.  My opinion is that if you are actively trying to get it rented out then it is in service.  However, I know some CPAs take the position that if you are getting it into a condition to be rented out, and it is rented out that calendar year, then it was in service the whole time.

In regards to whether you can deduct your own labor, in general no.  You cannot deduct your own labor, unless you also pick up your own labor as income which you do not want to do.