All Forum Posts by: Daniel Murphy

I like your idea of paying down enough to get to your 30% ratio.  Partially this depends on what interest rate your bad debt is.  If it's 6-8% or higher, it may make sense to pay off the debt. 

However, one thing you could consider is a "sinking fund".  IE, if your bad debt is 170k & your interest rate is reasonable, you could invest the money and (hopefully) get a higher rate of return than your interest rate. Once your investments reach the $170k you could sell it & pay off the debt.  
Another thought is that the market is quite low right now so it makes a good opportunity to invest & make money.  Buy low... 

Just don't forget that if you do invest the money in the stock market, you'll owe taxes on the gains whenever you do sell.  I would want to know a lot more details before I gave any real firm recommendations though.  

 No, we originally based our pricing off of what our realtor recommended to us.  In Jan, we drove down with a fully loaded trailer & setup the house. MN to FL with a toddler.  It was crazy busy.  We put more thought into setting up the house than we did into pricing & the mechanics of the business.  We just listed Feb, March & April for the numbers our realtor offhandedly said we could probably get.  

Our property went live while we were driving home.  We were literally at a gas station in Florida when our phones started dinging left & right with booking requests.  I immediately told my wife to go in and shut down April because we were pricing too low! 
As soon as we got home, we signed up for Pricelabs & have been using them for our pricing ever since. 

When we originally looked at Airdna for our numbers in Cape Coral, they were low.  They were projecting $299-350 / night during our peak season.  We opened for business during peak season and (regrettably) didn't have pricing software setup yet.  Within a week we signed up for Pricelabs & increased our peak season rates to the $350-475 range.  

So pricelabs was definitely helpful, but low which I prefer.  Like most others on here, I took the time to look at & analyze a lot of other properties in my area to do an independent study.  My rates always ended up being higher than Airdna's projections. 

we deliver everything to our cleaners house.  They bring it to the property.  

If it is something small or something that can go directly to the house, we have no problem asking our guests to grab it & bring it inside. 

I have a STR down there & drove down the day after Ian to clean up the property. I freaked out a bit as neighbors told me that it would take years for the area to get back to normal & trying to get me to shift my house to LTR (so their friend could rent it). After coming back & getting more bookings for contractors, insurance adjusters etc, we decided to keep it a STR.
We're not worried about the long term health of the area.  

Thanks @Jesse Goswick, that helps to clarify.  That means that you'd be doing a qualified to non-qualified transfer.  

In this case, you've never been taxed on the qualified plan contributions. There will be no cost basis, the entire account will be taxable at ordinary income to you plus a 10% penalty if you are younger than 59.5 years old.  

No matter how you move the money, you'll be taxed & penalized (depending on your age). Normally, I would not advise this however every situation is unique. For reference, we cashed out my wife's small IRA's earlier this year (<$10k) to help fund our first STR purchase. So while there are "generally not advisable" rules, that doesn't mean it wouldn't make sense.

If you were a client or prospect of mine, I would want to first talk through your overall financial situation to see if there are any other options. Or at least I'd want to run the numbers for you so you can go into this decision knowing all of your options & financial costs. 

A few things to talk through. In my head, when I hear someone "got $100k" or another large chunk, I assume it to be in a non qualified account. IE, not a 401k or IRA. Meaning it has different tax rules.

If your dad is retired and your mom is still working, it's possible that they are in a fairly low tax bracket. When I have clients in a low tax bracket and a decent chunk of money available outside of a 401k or IRA, I talk them through potential partial roth conversions.

The theory is that any money your parents saved into their 401k's while working was probably done pre-tax & saved them potentially around 22% in taxes (most common joint tax rate). If they are retired & now in the 12% bracket, they could convert funds from their IRA/401k over to a Roth. Use the $100k in taxable money to help pay the taxes & anything they need to live. Doing this locks in the 10% tax arbitrage gain (they saved 22% initially & paid 12% upon conversion).

This is obviously frought with assumptions... I echo with everyone else here though, there is a lot of info missing to make an accurate recommendation.  I'm just throwing out another idea that is not commonly discussed. 

There are a few things in your post to clarify first but... 

"Annuity from an old job" typically means a pre-tax 401k. More likely a 403b from a school, or hospital if it's in an annuity. What type of employer was this from?  IE- this is likely a "qualified" account. 

Most people's definition of a brokerage account is a taxable investment account.  IE- non qualified. 

You "can" roll your old qualified account to a non-qualified account, but you will be taxed on the entire amount at ordinary income rates. Plus 10% if you're younger than 59.5.  

Most common situation is you would roll your old 401k/403b "qualified" plan into a "qualified" traditional IRA. This would avoid taxes. You could potentially withdraw $10k for a first time home purchase and avoid the 10% penalty.

Look at the account statement from your old plan. If it says "Jesse Goswick, (401k, 403b, 457 etc.)", it's a qualified plan. 

Look at the account statement from your brokerage account. If it says "Jesse Goswick, tod, jnt or jtwros", it's a non qualified plan. 

There's a lot more to this, hard to put all in a response. Reach out to me if you have questions. I'm always willing to help out a CC resident :) 

I've used a CPA in the past, but I've learned that I can handle most of my personal returns by myself.  With the IRS adding tons of money to audit enforcement, will a self employed tax return with various real estate schedules raise any audit red flags if I filed my taxes on my own, vs if I have a PTIN? 

For context, I'm a financial planner by profession & have gone pretty deep into tax planning. I only have one short term rental property but I plan to do a cost segregation study this year.  

I'll get a professional cost segregation study done. I've tracked all of my expenses & material participation hours religiously... What are your thoughts on doing your own taxes in a situation like this? 

I've been to FinCon before & have planned to go since but can't make it this year. It's more geared towards financial content creators. If you're in that space at all, it's THE event.  There are a lot of people in the real estate subgroup also so it would be a good place to connect with other RE investors.