All Forum Posts by: Chris Waugaman

Given your situation and interest in potentially expanding your investment portfolio, you might consider the BRRRR method as a strategic approach. The BRRRR method stands for Buy, Rehab, Rent, Refinance, Repeat. It's a real estate investment strategy that allows investors to build a portfolio of rental properties over time by recycling the capital invested in one property into multiple deals. Here's how it could apply to your case:

Buy: Use the equity from your current property to purchase one or more additional properties. Given you have $200k-$225k in equity in your townhouse in Clayton, NC, this could serve as a substantial down payment for one or more new properties.

Rehab: If the properties you purchase need updates or repairs, invest in making those improvements. This increases the property's value and can allow you to charge higher rent, improving your cash flow and the property's appraisal value for refinancing.

Rent: Lease out the newly acquired and rehabbed properties, preferably to reliable tenants similar to the family you currently have in your townhouse. This step is about generating income from your investment.

Refinance: Once the new properties are stabilized (occupied by tenants and generating income), look into refinancing them based on their new, improved value. This step is critical as it allows you to pull out much of the original capital invested, which you can then use to repeat the process.

Repeat: Use the funds from refinancing to invest in additional properties, repeating the BRRRR process.

This method could potentially allow you to expand your real estate portfolio more aggressively than simply selling your current property and buying a couple more. It leverages the concept of using "other people's money" (in this case, bank financing) to grow your investments. However, it's important to consider the risks involved, including over-leveraging, the costs associated with rehab, potential vacancies, and the complexities of managing multiple rental properties.

Given your conservative investment approach, it's essential to carefully assess these factors and perhaps start with one additional property to get a feel for the process before scaling up. Consulting with a real estate investment advisor or a financial planner who understands the BRRRR method and your local market conditions can also provide personalized insights and help you make an informed decision.

@Chris Waugaman, Yep.  Time for a new accountant.  You're going to recapture depreciation even if you don't actually use it unless... The solution so you can get both the write off now and still not have to pay it back when you sell will be to do a 1031 exchange.  That will let you indefinitely defer paying tax on all gain and the depreciation write off.  So you get the write off now and don't have to pay it back later.  

@Chris Waugaman

Fire your accountant. You will get nailed with the depreciation recapture (25%) when you sell whether you take the depreciation now or not. Find a new accountant or just do it on turbo tax. It’s super easy to do and turbo tax walks you through everything.

@Chris Waugaman your accountant is not very competent. Let’s put accounting rules aside, he simply does not understand the Time Value of Money concept. I would absolutely take tax savings today over tax savings tomorrow.

Beyond step up basis, 1031 exchanges or other tax defrayment strategies, you can gain compounded annual benefit by saving taxes today. I’ll pose a question to you…. would you rather avoid paying $100k depreciation recapture taxes 15 years from now or avoid making $1M opportunity cost over that same period?

Your accountant is correct from his perspective, but I am taking the deduction now. If you follow your accountant's advice you might be dead by the time doing it his way.

 That is 100% incorrect. It is not an option to take deprecation (you have to take it). You will have to file form 3115 when you have to correct the depreciation you have taken, and it will be very expensive to do that.