All Forum Posts by: Dave Toelkes

The best approach in your situation is to ask the other co-owners to buy you out for the value of your share of the land.

1. 1031 exchange into 3 or 4 $100K properties and rent them for $800 - $1000 each. Assuming all cash purchase of 3 properties at $100K each, and assuming an NOI of $400 - $500 per month per property (50% rule), you should get a 4.8% to 6.0% return on equity. This would equate to $14.4K to $18K annual cash flow. use leverage to purchase 6 or 7 rentals with financing, your cash on cash return will be even higher.

2.  Sell the property and use the after tax proceeds to purchase AAA rated, insured municipal bonds issued by your state of residence that pay about 4.0% interest.  The bond income will be tax-free on your federal income tax return

3.  Use the after tax sale proceeds to purchase a diversified basket of dividend paying stocks.  If you choose 5 - 10 companies that are the leaders in their respective markets, you should see a healthy dividend and price appreciation over time.  Accelerate your portfolio growth by reinvesting the dividends.

4.  Do nothing.  If your current income adequately supports your current lifestyle, there is no compelling reason to sell.

@Geoff Husa

You say you are saving to buy a house.  Does this mean you are renting now?  

If so, then consider the BRRR for your own primary residence. Get a house you would not mind living in for at least two years. Investigate FHA financing (3.5% down payment) and 203k rehab loans for the purchase and rehab financing. Move in then do the rehab. After two years of ownership and occupancy, sell the rehabbed property and repeat the process with your tax-free sale profits.  After a couple of these serial primary residence rehabs you should have enough working capital on hand to make a downpayment on your first positive cash flow rental property for your investment portfolio.

If done carefully, you should not need to liquidate your IRAs or touch much of your savings. I suggest this strategy for two reasons. You get into a house you would not mind living in should unforseen circumstances adversely affect your financial posture. Secondly, you get first hand experience at rehabbing after which you may decide that this investment strategy is not a good fit for you. The bonus is that because the BRRRR house is your primary residence, up to $500K in sale profit is tax free after two years of ownership and occupancy.

@Joshua T.

Is your rental property activity generating a net taxable gain or loss without the QBI?

@Christine Smith

Your investment property purchase will most likely use a conventional loan. FHA is only for owner occupants, not for investment properties. You finance the house the way you financed your primary residence. You find a lender (probably your local bank) to write a loan for 80% of the purchase price. At the settlement table you bring your downpayment funds and whatever extra is needed for closing costss.

The lender will most likely not use projected rental income to qualify you for the loan. All of your current debt obligations (mortgage payement, credit card payments, car loan payments, HOA dues, and other monthly expenses) plus the PITI for the investment property will probably need to be no more than 36% of your gross income though some lenders may allow a higher percentage determined by the investor who will purchase your loan from the bank.

Rental property that you already own under annual lease but not yet reported on two years tax returns, can contribute 75% of gross rent toward your income when computing your debt service to income (DTI) ratio. If the rental property has been reported on your tax returns, the net rental income from your recent tax return (or the average rental income from the two previous tax returns) will be used instead of the 75% estimate.

Just out of curiosity, what is a "back" house.  When I was growning up, in some rural areas, the house out back was called the outhouse. Not familiar with a back house. 

@Bryant To

I don't understand the issue.  Your parents are already living in a free and clear home.  Why do you want to move them into another home?  Do they want to move?  I admit that I did not read the entire thread because I don't understand why you are trying to fix something that is not broken.

If your parents need cash to support their lifestyle, have they considered a reverse mortgage?

If you want to buy them a house out of the goodness of your heart, why not buy the one they already own, and let them continue to live in their present home rent free?  Let them stay in their neighborhood with their friends and near their church.  Why uproot them?

You might look into commercial bonds and dividend paying stocks, or municipal bonds.  All have yields higher than bank CDs.  While not much better than 0.05%, my credit union CDs do beat that rate.

Don't overlook the return on equity you are getting from your rental holdings.  If each of your $300K free and clear properties is generating $3K monthly cashflow, that is a 12% return on equity.  Why do you want to trade all that in on something that gives a lower yield?  You may find that you get the best return on your investment by buying more rental properties with your idle cash.

@Carmen Pellegrino

Is your CPA firm just doing your tax returns, or, are they filing your returns as well and your bill includes tax due with the return?  

How is your LLC treated for federal income tax purposes? Is your LLC a corporation, partnership, disregarded entity?

You don't tell us the state where your LLC is registered. Does your state have an LLC filing requirement even if there is none required at the federal level? Perhaps there are franchise fees to be paid when your return is filed?

Is your LLC just for a residential rental property activity, or something else that goes on Schedule C?

Does your wife have a full time job and receive a W-2?  How did your wife qualify as a real estate professional?  Did she keep logs of her hours spent on the real estate acitivity to prove she met the 750 hour requirement?  

I agree with the others that your bill seems quite high but we don't know how many returns were prepared, whether your returns were e-filed and if you had taxes due with the returns.  A little more detail might give us a clearer picture.

If QB seems too daunting, Quicken Home and Business gives you the much of the same functionality as QB, exports to Excel and to TurboTax, but may not have all the extra bells and whistles as QB.  I find that it does everything I need for my rental property activity.  I have tried QB and find the user interface a bit easier in Quicken.

@Christopher Smith

An LLC treated for tax purposes as a pass-through entity or a disregarded entity is tax neutral. You will have the same tax liability on your rental income whether you are operating as an LLC or in your own name.