All Forum Posts by: Buddy Holmes

@Dwayne McNab

Dwayne the answer very much depends on where you live. Best ask the building permit office of your local government what their requirements are.  Even in a very strict location like Orange Co, CA, I know the building office was helpful enough to show a landlord what was required so that they could get their permit without a formal professional set of drawing plans.

For sure you want to build with an approved building permit if required and meet their requirements. Otherwise you as the landlord are exposed to liabilities you do not want.

Cheers,

Buddy

@Corbett Brasington

Corbett, I am a retired engineer and did some project management as well. I am also an investor in single family rentals and in multi family DST's and syndications. If you are talking about new construction for a multi family apartment you have experience with a good tool for the job and I suggest you ask your very detailed and analytical questions to contractors. If you a considering new construction for SFR's then I would suggest that send your time looking at what it takes to make a Positive cash flowing deal. I think you will find those deals are anything but new construction. Just IMHO.

@Adam Berlinberg

Hello Adam. Comments depend on where you are living. IMHO, best to start with a SFR in your local area if you can find a property with a rent ratio of 1% or above. (monthly rent/purchase price) First you need to find a RE agent who know rental property and if possible does property management. They can look for property for you from the perspective of rent ratio.

Study the BP calculator to figure the cash flow potential of any deal you come up on.  Don't buy based of potential for appreciation, only on having positive cash flow with Property management, your mortgage, taxes, insurance and good reserves for rent vacancy, repairs and longer term capital expenses like roof and HVACs.  If you are in LA, NYC, Denver, Austin or such things could be much more difficult as you may need to look for a out of state deal in a better RE market.

Hope that helps a little.

Cheers, Buddy

@Patrick Bavaro

Patrick, you are correct if you look at your $2300 Rent vs your $265K cost. It is 0.9%.  However you should look at it from what amount f capital you have in the deal after construction.  You mentioned an appraisals of $340 to 410K.  If you use these numbers, you  are at a 0.7 to 0.6% ratio.  That is the view you should have.  That is your build efforts have earned you $75-145K of capital gain. This is a VERY good first effort!  If you sell and do a 1031 exchange, with say 10% cost of sale, you will clear $40 to $100K additional investment dollars to re-invest in lower cost existing properties which should have a much better rent ratio.

I would bet your build effort is in an area and a home that you wouldn't mind living in. Put on an investor hat and consider rentals that perhaps you would not live in but you or a property manager would collect rent and have a much better return n you newly increase investment capital pot!    Just my opinion of how to be a successful Investor.

Cheers,

Buddy

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@Patrick Bavaro

I have not tried to run any numbers on your case, but in many other cases I have found the old 1% rule pretty much a minimum is having positive cash flow.  If you were to use your after build number, you are approaching 0.5%.  My thoughts would be that you managed to build a great house to turn a profit on. I would sell it for the $400K and buy a couple(or three) of lower cost homes with a better rent ratios.

Just my first thoughts.  Congrads on the low cost build!!

@Account Closed

The Auditor (local in Charleston) claimed that unless all the properties were grouped together as an entity, I would have to show 750 hrs on one property.  My tax defender agreed with that but did not agree with the commuting ruling of the auditor.

As it happened one of the Government "shut downs" happened at that time.  The IRS folk were all not working (paid later but did not work) so the office got waaay behind was the statement of why there was no response.    She dropped the differences from ~$40k to $5k after I had supplied hundreds of files of records and receipts.  We still fought but she had passed my 2014 up her food chain into another office, so I paid and moved on to 2015 and 16.  I got close to agreement on 2015 paid and moved on to fight 2016.  The fine for the 2014 refund was refunded, not the difference in our numbers, just the fine for having a difference.

The appeal to get the fine refunded for 2015 went in to a black hole and I never heard any reply.

We took the 2016 to the Tax Court because the auditor just did her thing without every looking at the all the files of records and receipt I had sent her.   The Tax Court has an arbitration group that steps in to try to settle with out the court.  This was a MUCH MUCH kinder group that my defense helper had to make paper copies of all my files to mail to them. (The office told me I could mail e-files on a stick to them which I did)   Without specifics the said we could settle on a low figure for 2016 and no fine so I did.  This nightmare went from mid 2017 until December 2020, 3 1/2 years!

I have seen other Tax experts since then say that you could combine all your properties into a LLC to count time on all of them for the 750 hrs. But who knows. I never saw any written rule on this.

That said, I wonder how many are monitoring what it said about them on Bigger Pockets??

@Pier Di Giorgio

I am not an expert, but can relate to this question. As a retired RE investor with about 5-8 SFR''s I was audited by the IRS.

I had clearly no W2 therefore all hours were in the RE side. So I could easily claim more than 50% in RE. I had a remote new construction STR going on and had documented the hours spent working the cleaning, continuing to add to the furnishing and landscaping of the STR.

It was 1:45 drive each way so there was a lot of miles, hours and expenses. 

The Auditor didn't buy it and disallowed the claim as RE professional. She claimed that the hours had to be spent on ONE property not the sum of all my SFR's and the STR! She also claimed that since I did not have a W2 job and did not commute to "work," the hours and miles to my STR was commuting to my job and not tax deductible.

Now you can easily say here o\in the blogs that she was not right and ...  

However in an Audit the Auditor is always Correct until your appeal.  I had great help through the Turbo Tax firm doing their  work for the added fee for the service when I did my returns. We took my case all the way to the Tax Court. 

They audited 3 years of returns 2014,15 and 16 and it took from 2017-2020 to answer the many request for more and more proof of expenses.   After a while they have impressed on you how bad it could be and that they hold all the cards.  

 If you want to try to use that claim, fine. I am quite sure that once audited, you will choose to pick your battles where you have a very strong defense!  In this case of the IRS, you have the right to remain guilty until you can prove yourself innocent!

God forbid  they get the money to hire 80,000 more IRS agents!

@Ashish Acharya; @Dave Foster

Thanks. I think that I now I understand the concept. The webinar spokesman did not present it as clear. Perhaps he was throwing in the TIC entry option for new investors. However like you say these are most likely limited to only a few openings for high dollar investors.

I have done SFR 1031 and DST 1031 exchanges and have a current LLC and LP syndication that says they will offer a 1031 from current to a new property. Yes they select when and to what, but with their higher L/V's and higher returns they seem to offer a better deal than the DST deals in today's market.

Thoughts?

@Bill B.

Thanks Bill. I didn't give the full context of my question. I am specifically talking about when the syndication sells and does the 1031 itself and maintains the LP or LLC of the exchanged and exchange.