All Forum Posts by: Brian Schmelzlen

I think @JD Martin's method is great.

Another rule that I would keep in mind is if you are not embarrassed by how low your offer is, then you are offering too much.

You could go in and offer $60,000 if you wanted.  I would be shocked if they accepted it, but maybe they would since they have been on the market so long.  Or at least maybe they will counter to a number that you are comfortable with.

The worst that can happen is that they will outright reject your offer, in which case you can make them a new offer.

Hi @Stephen Shelton,

I know there is a lot of debate on this topic, but I think that as you acquire more properties (or assets in general) it is important to have an LLC. Insurance will do most of the job for you, but the insurance companies will always try to find a reason to say that an incident was not covered under the policy.

For federal tax purposes, single-member (single-owner) LLCs are disregarded entities. That means that they would not file their own federal tax return; the activity would continue to be reported on the LLC owner's tax return (in this case on your individual tax return). Florida also does not require a state tax filing for single-member LLCs. However, according to the Florida Department of State webstie, it does require each LLC to pay a $125 initial filing fee, plus an additional $138.75 annual fee (as part of the annual report you would have to file).

Therefore, I would recommend not creating more LLCs than necessary. It may be beneficial to create more than 1 LLC, but I would make sure that your reason for doing so is thought out in advance.

Each house would not needs its own bank account, etc. However, each LLC would.

"Professional landlord" is not a tax term, so I am not positive about what your CPA meant by that.

Hi @Allena Williams,

Buying a multi-family home so that you can "house hack" is a great option for many people.  With the right purchase, it basically allows you to live in your home for free, which in turn lets you quickly save up more money.

However, a lot of things also depends upon the lifestyle you want.  Would you be comfortable living right next door to your tenants?

Hi Dale,

First, keep in mind that your gain for tax purposes is not how much cash you walk away with, but the selling price less your original purchase price (plus any capital improvements made; no depreciation in this case).

If your gain is still more than $250,000, there isn't anything that you can do directly.  However, there may be other ways to reduce your tax liability.  For example, if you own any stocks that have lost value you can do loss harvesting.  Another option is to attempt to create losses in your rental properties (particularly if you are classified as a real estate professional).  However, I wouldn't spend money simply to create a loss (spending a dollar to save 25 cents in taxes doesn't make sense).  I would only spend money that is a benefit to you (e.g. improves the value of the property) that also creates an immediate tax deduction for you.

Hi @Andrew C.,

Is this property your principal residence or an investment property?  I don't know much about Texas law, but a quick google search showed me that Texas has as homestead law (this is common in a lot of states).  This provides a great deal of legal protection for your principal residence.

I would strongly suggest consulting a Texas asset protection attorney.

Hi @Scott Loopstra,

No, the managing partner and the limited partner's capital do not immediately change upon the start of the partnership.  The managing partner's capital will be $0, and the limited partner's capital will be whatever cash is put into the property.

Each partner's capital account will change as income or losses are incurred, and when additional contributions or distributions are made.

While the entity will need some capital contributed to it directly to provide adequate capital (for liability protection purposes this is very important), another possibility is to structure the deal so that some of the money being contributed by the investor is in the form of a loan.

I agree with @Jay Hinrichs and @Caleb Heimsoth.  A PM company has value in itself, but most other real estate companies are really just valued at what inventory they have.  However, a possible exception might be for someone in your business looking to take over as part of a succession plan.  I think you would still have to sell the business at the value of the real estate, but by selling everything lump-sum (and without agents) to someone internally you would save a ton in transactions costs which in essence gives you a premium.

Hi @Ellie Narie,

You are correct that if the average stay is less than 7 days it does not qualify as a rental activity, so it must be reported on Schedule C.  However, @Ashish Acharya is correct that in order for it to then be subject to self-employment taxes substantial services must be rendered beyond what is normally included in a regular rental (a long-term rental).  There is a specific exception in the Internal Revenue Code for rental activities, so self-employment taxes will only apply if you transform the activity into a non-rental activity (by providing substantial non-rental services).

I think it could be a good way to start since interest rates are still historically low. However, I would caution that they should never leverage themselves to the point where there is a realistic risk that they could lose their home if things do not go well. Statistically, most first flips do not go well. New flippers just don't know enough about to estimate ARV correctly, or keep their budget and timeline on track.

My advice would be if they can do it profitably with a HELOC even if things do not go well, then they should (unless there is a cheaper, safer alternative available to them).

Hi Charles,

I disagree with you about a 2% annual growth in revenue and a 2% annual growth in expenses would result in no change to the NOI.

Lets say annual revenue is $10,000, and annual expenses are $5,000 (for easier math). That means a $5,000 NOI initially. If revenue grows 2%, in year 2 it would be $10,200. If expenses grow 2%, in year 2 it would be $5,100. That means that NOI in year 2 would be $5,100 (still a growth of 2%).