All Forum Posts by: Brian Schmelzlen

My advice to clients is to not let taxes control their life decisions.  It does not make sense to pay mortgage interest just so that you can get a percentage of that mortgage interest back through your tax deductions.  That is especially true with the tax law change that went into effect this year; the standard deduction nearly doubled, so the taxes you save by itemizing might be much less than they were in the past (in other words, because you are getting a larger benefit through the larger standard deduction the "cost" of not having the mortgage interest deduction might be less).

I can see an argument for there being better uses for your money than to pay off a mortgage with a 5.5% interest rate (if you can make an investment that pays at least 6% for example), but if your quality of life will improve because you paid off your debt and are now "financially independent" then that is what you should do.

If you have a partner, always form an entity.  If you have a "partner" and are operating with a profit motive, by default you are a general partnership.  You never want to be in a general partnership because it means that you are liable for anything that your partner does.

If your partner gets into a car accident while driving towards your deal, you can be sued personally.  If your partner does anything that he/she could be liable for and it can in any way be tied to the partnership, if you have the deeper pockets you will be the one sued.

You are not really saving much by not forming an LLC. You are still going to have to file a partnership tax return.

If you are operating on your own, insurance might make sense instead of an LLC (especially if you are only talking about a handful of deals). When you are doing deals with a partner, it is (as a general rule) a very good idea to be set up as an entity.

There is a whole, fairly complicated subset of tax law that deals with economic substance and all that, but to keep things simple, no you cannot specially allocate depreciation simply to get a better tax result.  The IRS really does not like it when something is done purely to minimize taxes (there has to be a business purpose and economic substance).

The best option, as @Caleb Heimsoth mentioned, is probably to "house hack" by living there. There are FHA loans available that only require 3.5% down. You would be required to live there for at least a year.

If living there is not an option for you, you can attempt to negotiate a carryback from the seller.  Essentially, you would ask them to loan you a portion of the down payment which would be secured by a second position mortgage.

Third, you can try to raise money for a down payment from private lenders.  This would be the same idea as a seller carryback, except that you would actually be raising money instead of simply asking the seller to accept a deferred payment in exchange for interest.

Finally, you can try to find a partner.  This can be a good option (especially if the other option is not investing at all), but I think that you should consider it as a last resort unless you are also getting something other than money (i.e. someone with a lot of experience who can teach you).  If all you are getting from a partner is money, giving up equity is less appealing to me if there are other good options.

I haven't done a triple net lease, so you should take this with a grain of salt.

Rent increases are typically written into the lease as a percentage increase per year.  Of course that doesn't mean that it cannot be a set dollar amount increase per year, but I believe percentages are the norm.

The dollar per square foot that you should use for your initial contract year depends upon your market.  What do other triple net leases in your market typically charge per square foot.  You may have to make adjustments for other factors, but a comparison to other triple nets in your market is a good starting point.

If you are trying to find a good attorney, there is no better way IMO than getting a referral from someone who has personally used that attorney.  Absent that, I would look at online reviews (with a healthy amount of skepticism).

Yes, checking Box 7 of CA Form 593-C should work.  You definitely do not want taxes withheld at the partnership level because you will be pulling your hair out trying to get it back from California.

As long as it is truly placed in service, then yes you are able to expense some repairs rather than capitalizing them.

Under the de minimis rule, it is "per item per invoice", so that means that as long as your "projects" are not grouped together as one item on an invoice you are able to expense them.

It might even be a bit high.

I would attempt to determine how much deferred maintenance and cap-ex will be required to be performed on this building.  My guess is that it is quite a bit.  After that, I would look at what your cash on cash return would be at different offering prices, and make an offer based on that.  You are dealing with a city as a seller, not an emotionally attached individual, so you don't have to worry about offending anyone by making a lowball offer.

Instead of starting with fix and flips and moving to buy and hold, why don't you start with a BRRRR strategy? You can use your $200k to purchase deeply discounted properties, fix them up, and if you did a good job you will be able to do a cash-out refi to get your full investment back and be left with a cash-flowing property. It will not make you rich quick, but it will get you to your buy and hold goal faster.

While having an established business as a tenant is generally a good thing, my concern is the fact that it has been around for 20+ years.  If one guy owns the entire business and he is potentially thinking about retirement, you will need to be sure that: 1) he has a succession plan in place, and 2) you can trust whoever the successor is to honor the lease.

If you cannot negotiate a personal guarantee for the entire 12 years, would the owner be willing to offer a personal guarantee for a portion of it (perhaps 8 years)?