All Forum Posts by: Account Closed

Hi LaDonna, 

The project turned out great and I am very happy with it. I was able to rent the basement to a phenomenal tenant for more than I was initially projecting. I can't provide an update on the cost/benefit though. This is a buy and hold investment and so I haven't sold it. Also, the renovations I did on the house were so extensive that any attempt to segregate the appreciation and costs, solely related to the underpinning and 8' basement ceiling height, would be speculation. But I think the long-term value that I created made it totally worth it. 

The project also took a long time due to permitting delays and the extensive scope. In the 4 years that I have owned the house the neighborhood has seen about 50% appreciation. It would be pretty speculative to try and bifurcate that from any cost/benefit analysis as well. 

Hi James, 

That is correct if you want to keep your accounting books compliant with U.S. Generally Accepted Accounting Principles ("GAAP"). Under U.S. GAAP you initially record the asset at cost and then periodically reduce that cost for accumulated depreciation, if allowed. You do not record appreciation. But the thing to remember is that this is all for U.S. GAAP reporting. Plenty of companies will report a Net Asset Value ("NAV") separately from their GAAP compliant financials since it is a material disclosure. And to your point, if you hold something for 15 years the value on the Balance Sheet can differ from the true value if you were to sell. I would suggest keeping track of the portfolio NAV separately on a spreadsheet. 

I think Anacostia and Congress Heights are going to improve significantly. If you can get in now and if you have the patience to wait as new development slowly changes things. I think you will be rewarded. I am currently investing in Anacostia with this long-term strategy. 

Thanks everyone. Time to look at different options. Appreciate the feedback. 

Are there any ways to structure a self-directed IRA loan from my father to avoid the disqualified person rules? If the loan went from his SDIRA to my LLC is that still disqualified because I own and control 100% of the LLC? What are some potential work-arounds people have used?

Definitely find a CPA who is well-versed in the internal revenue code to help you out. But out of curiosity, why start a VA S Corp when you live in a different state and work overseas?

Thanks @Adam Drummond. I know that conventional financing needs the building to be "habitable" in order to lend. My questions really boils down to whether or not all the units need to meet this requirement or if only one unit being habitable is enough. Assuming that everything else, like appraisal, checks the boxes and meets requirements. 

This is a question for some of the BP'ers who are experts in conventional financing requirements. I am currently working on converting a DC rowhouse into a two unit duplex. One strategy I am exploring right now is to do the rough-in of the entire project (i.e. get the electrical, plumbing, framing, etc done). But then only finish one of the units. I would move into the finished unit after it is done. 

My question is; down the road if I were to want to refinance, could I get conventional financing on a duplex where one of the units is not "habitable"? Any insights would be greatly appreciated. 

Thanks,

Eric

As @Russell Brazil says, there is a form to file if you wish to ask for an exemption. But you can also either have an MD LLC or register your foreign (non-MD) LLC in MD with the State Department of Assessments and Taxation ("SDAT"). Both of those methods will enable you to avoid the withholding. I would recommend registering your LLC with the MD SDAT because cash-flow is a major concern for being in the flipping business. Here is some great information on the withholding requirements in MD.

http://forms.marylandtaxes.com/current_forms/Withh...

You are not the only one. For your CPA's purposes you don't pay tax on appreciation until sale. So your tax accountant doesn't care about the changes in Net Asset Value ("NAV") over time. Just the final sales price and the adjusted basis in the property at time of sale. 

This is also reality for the largest corporations. Real Estate and fixed assets are recorded on the Balance Sheet at historical cost (less accumulated depreciation but let's not split hairs here). You are doing just the same as everyone else. If you like tracking the NAV of your real estate investments just keep a spreadsheet on the side that you can update the NAV on.