All Forum Posts by: Costin I.

@Account Closed Yes, this all stems from a major hail storm that damaged a whole neighborhood back in Sept 2023. We opened insurance claims and received insurance checks in 2023, had the roof, fence, AC, windows replaced with partial payments done in Dec 2023 and the bulk of contractors paid in 2024. 

In terms of insurance checks & repairs payments, it was a wash, probably even a loss because we had high deductibles and the insurance didn't pay for everything we had to repair. So, from that perspective, I like the idea of "involuntary conversion provisions" to not have to deal with increased "income" in 2023 (because of the insurance payments) and huge "expenses" in 2024 (because of paying the contractors).

I thought that has nothing to do with CSS, partial dispositions, having to "retire" the old assets and start tracking the depreciation of the new assets (after all, the CSS allocated 5K to the old roof covering, and we paid 18K+ for the new roof). Especially, if 10-15 years down the road we need to change the roof again. 

So, my question is using "involuntary conversion provisions" prevents you from doing partial disposition, recognizing a loss for remaining depreciation on the old roof, and depreciating the new roof?

Is it better to use "involuntary conversion provisions to take a deferral of the gain on the loss of the previous roof assets and continuing depreciating the prior assets as is"?

And if we do that, "there is not an option to both do a partial disposition on the prior roof and not recognize income on the insurance proceeds"?

@Account Closed - please advise. Thank you!

@Melissa Odom - it's a pretty wild west territory with DSCRs, some allow LLC, some allow trusts, some require LLC, some not. The fees and conditions also can differ a lot, so you should try figure out first what kind of apple do you want (DP, LTV, rate) and then bring them to an apple-to-apple comparison to see which one gives you what you need for what cost (instead of accepting all the fruits that are on display from each different DSCR provider).

Resources used in education on DSCR:

https://www.biggerpockets.com/blog/dscr-loans-what-are-they

https://www.biggerpockets.com/blog/dscr-loans-terms-to-know

https://www.biggerpockets.com/blog/brrrr-loans-what-are-the-options-and-how-do-dscr-loans-stack-up

https://www.biggerpockets.com/blog/eight-questions-and-answers-to-dcsr-loans?

https://www.biggerpockets.com/blog/what-documents-do-you-need-for-a-dscr-loan?

https://www.biggerpockets.com/blog/dscr-loans-advanced-strategies

https://www.biggerpockets.com/blog/questions-and-answers-about-dscr-loans

https://www.biggerpockets.com/blog/eight-questions-and-answers-to-dcsr-loans

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https://www.biggerpockets.com/forums/49/topics/1163069-using-chat-gpt-for-lender-conversations?

https://www.biggerpockets.com/forums/49/topics/1179403-dscr-loan-prepayment-penalties

https://www.biggerpockets.com/forums/50/topics/1165246-dscr-loan-options

https://www.biggerpockets.com/forums/853/topics/1180832-dscr-cash-out-refi-options

https://www.biggerpockets.com/blog/2024-dscr-loan-rates-and-how-to-track

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https://lendingone.com/our-rental-loans/

https://www.visiolending.com/dscr

@Melanie Baldridge - Yes, we do file jointly + wife works part-time, 4hrs a day, roughly 1000 hours a year. I work FTE W2. She covers our LTR portfolio property management activities, and I assist during weekends (Saturdays are always busy with rental stuff for us).

1. So, does that mean that for her to qualify as REPS, she needs more than 1000 hours of material participation in our rental management or only 750 hours?

2. If she needs 750 or 1000 hours alone on her side, what's to combine? 1000 is more than 750 and more than 500 required for material participation. How do you combine spouses time?

@Ashish Acharya thank you for your response, but I feel I'm still missing/misunderstanding something - you said "the IRS allows spouses to combine their time for material participation purposes", followed by " only one of the spouse's hours counts for the REPS status, which means only one of your efforts can count" - which one it is? Combined or only one? 

I guess the part I'm not understanding is that it sounds you can combine their time for material participation (which is 500 hours), but not for the 750 hours required for REPS...but 750 > 500, if you meet the 750 hours, you already passed the 500 hours for material participation.
Or you can get 500 hours combined material participation, but then one spouse needs an additional 250 hours of "non-material participation" (??) to reach the 750 required??
Or one spouse needs a minimum 250 hours alone of participation, plus 500 combined?
Utterly confusing...


 

@Melanie Baldridge - can you elaborate on "When you are a material participating RE pro all of your and your spouses’ RE activity becomes active, allowing you to offset RE losses against other active income. One pitfall of a RE Pro spouse if you are full-time W-2." ?

Can the spouses participation be combined? 

If one spouse works part-time and is the main active participant, can you combine time with the other spouse (even if he has a FTE W2)?

Can you shed clarification when spouses participation can be combined?

@Ashish Acharya can you please elaborate on your statement "you can use REPS through your wife [to offset your 2024 W-2 income] by combining your time for material participation"?

If the wife is the one qualifying for REPS, but both spouses participate in rentals management, can you combine time and activities?

@David N. - there is more to the cost segregation question than on the surface. Here is a CSS Decision Diagram flowchart intended to bring together all the various questions when assessing the benefits of a Cost Segregation Study (via a professional or DIY).
FYI - You can do a CSS for ~$400, ask @Malik Javed how.

@Rama Mulpuri Here is another consideration/opinion: east of I-35 you will have to deal sooner or later with foundation problems. Here in TX the soil is mostly clay, and it shrinks and expands with humidity level (thus the need to "water the foundations" as a measure to avoid foundation cracking), so foundation problems are a common occurrence. But on the east of I-35 it's almost a question of WHEN, not IF you'll have foundation problems.

@Rama Mulpuri

@Rama Mulpuri

1. On a geographic simplistic approach, the closer you are to I-45 in RR and to I-35 in Pflugerville, the better you’ll be.
2. The better the schools, the better the opportunity. Schools rating drive many other factors and it’s an important criteria to consider. That being said, schools ratings also change (e.g. a couple excellent elementary schools feeding into one currently low rating middle/high school will raise the rating of the middle school in the coming years as the kids advance, and vice versa).
3. The property tax can differ majorly from one area/neighborhood/street to another. It’s by sections not necessarily tied to the city or zip code. You can lookup the tax rate on the county assessor website - Make sure you are looking at or calculating the property tax WITHOUT any exemptions (since you’ll not get any as an investor). 
4. Also make sure the property is not in a MUD district for which you’ll have to pay often very high MUD fees (and can’t get rid of those most of the time). HOAs also can change the cashflow of a property.
5. For flood zones you can check flood maps – e.g. https://maps.austintexas.gov/FloodPro/ - if you work with a realtor, they should be providing you all that info.