All Forum Posts by: Michael Win

Makes sense.  Your 90 dys is what likely caused the issues

Hector,

I have 4 doors all 2/2 near you.  Smaller, less parking, worse quality interiors and I can't figure out why your place doesnt rent.  2 have had 95% and 2 85% occupancy since I opened them up a yr ago.  My rate is 90 for 2 and 105 for the other 2 so about your price range.

Good luck and I think it will rent.  MTR is great.  I get 2x typical rent and renters keep the place so clean when they leave.

Thanks, I will get a CPA that specialize in this but I just wanted to get an idea if this was possible.

Hi Bigger Pocket

https://semiretiredmd.com/primer-real-estate-professional/

I just read this site and it appears to something very beneficial to me.

Background - I am a doctor who makes over 500K(1099) clinically and over 500K( K1) as part owner of the business for the past 3 years. Income taxes are a heavy burden. My wife (homemaker) and I have 8 rental properties. 3 STR and 3 LTR with property manager and 2 MTR that she manages. All major renovations, looking for deals, meetings with contractors, setting up the furnished MTRs, Advertising/answering questions for MTRs are done by my wife.

Real estate professional Status (REPS) requirements are all met by my wife for the past 2 yrs. 

1. 1. Perform more than 50% of services in real property trades or businesses (“50% test”), and
2. 2. Perform more than 750 hours of service in real property trades or businesses (“750 hours test”), and
3. 3. Materially participate in each rental activity (“material participation test”).

I would say we have about 4-5M in asset depreciation that we typically take over 27 yrs per our CPA thus we do not pay tax on rental income/profit.

Could We

1. Use her REPs status and real estate depreciation/loss to offset my 1M/yr income for the next 4-5 yrs thus paying no income tax on my business/clinical income?

2. Can I offset my business K1 and Clinical 1099 income?

3. Do I need to have a professional calculate my segregation cost to set my depreciation basis

4. What else do I need to do to justify this for the IRS? Do I need to form an LLC with her name on it? Would keeping a google calendar with dates/hours/time worked to satisfy the 750 hrs be adequate? Do I need to set her up with a Business Credit card under her/business entity to satisfy the IRC? Currently we just run everything through our personal email and personal credit card.

If we are able to do this, and offset all of my work/business income, this would free up 4-500K/yr to buy more properties rather than paying income tax.  Does anyone have a cost segregator (if needed) or CPA that specializes in this from Austin TX to walk me through the process?

Thanks Mike

If you are tight on money, have 1 M in equity the last thing you want to do is leverage that into a potential money pit especially if you are a newbie.

Whatever you do, DO NOT move forward.  That is my advice.  Imagine a worse case  scenario, and see if you can stomach it.

Currently you have a close to paid off home with 1M equity.  Even if you get into financially dire straights, you could sell and live off the 1M for probably 10 years giving you plenty of time to rent then decide what to do.

If you turn that 1M equity into an apt complex, what happens if you have a large unexpected repair/life hurdle and can't pay the mortgage?   

You are in no position to take on such a large risk esp as a newbie.  Be warned and don't let anyone tell you its a good idea.  

It is almost impossible to get a STR permit in Austin and truthfully, not worth the time. I have STRs near that I rent but have a property manager b/c ST renters need alot and expect hand holding. For me, it is only worth it b/c in Peak summer, my places rent upwards of $1k/night. In Austin, unless you have something near the lake or hot spot, I would guess you may get at most 2x MTR rates but once you factor in vacancies, increased expenses, and increased time vs 30% to STR manager it doesnt make sense for me for potentially small gain.

I started my 1st MTR earlier this year and both are booked through next April with less than 5% vacancy which I artificially set to give me 2-3 dys between guests to turn it over/check for need any repair needs.  I have turned many people away including someone who wanted it for work x 8 month which was somewhat painful.   I have a job so it doesn't allow me to go anytime there is a need so same day or next day turn over is out of the question.  I am projecting a 10-12% Cap rate which is fantastic in austin.  my LTRs were close to breaking even.

I will be doing another reno then furnished MTR next month.  If this continues, I will do another two next year.

Quote from @Yuuki Smith:

Hi Michael, 

Happy to see you being successful in the MTR market. Can I ask what kind of tenants are booking? and also what part of Austin are your duplexes located in?

 I have had travel nurses, people renovating homes, people looking to buy a home, people visiting their family for long periods of time, people coming for long work stints.  I actually had to painfully reject an 8 month work booking b/c I am full.  I  have 3 units I do MTR and no issues with interests.   I will be converting another in a diff part of town which if it does as well, I will be converting all of my duplexes.  If I get too busy, I will just get someone to manage it but its not very time consuming yet.  

I do not think that area matters b/c there is a need all over Austin plus hospitals everywhere.  More importantly, I think close to the highway would be good and the place presents well.  I am experienced with high end STRs ($1000/nt), so I know how to do a nice presentation on the cheap.  I would guess it costs me about 3K to fully furnish  each side of my 2/2 duplex.

@Conner Olsen I can turn a place over in less than 1 hr now.  I have 2 sets of all sheets/towels/bedding.  I bring a new set in, remove all the old ones, cleaners come and make it ready.  I wash the old set at my leisure.  Put dishes back as renters runs the dishwasher.  Throw out anything they left.   Check to make sure everything works.  Change door lock codes.

Takes about 1 hr in the place.  Renters have been renting between 2 months and 8 months.  So this year for my duplex, I will be doing a total of 4 turn overs this year and next year probably 4 turn overs.  So I am guessing about 12 hrs total for 2 yrs.  Add 12 hrs for minor maintenance so about 24 hrs total for 2 yrs.  

I would consider letting them clean the sheets but I rather just wash them and throw out anything that looks old/missing.  Otherwise, I will get calls that sheets are missing which creates a turnover headache.  

Quote from @Rodney Sums:

Quote from @Michael Win:

I echo Ops Pros vs cons with the exception of LTRs taking care of the place.

After a LTR leaves in 2-4 yrs, the place is always trashed with more people living in the place than stated.  Typically families with bunch of kids who rarely cleans the place.

MTR guests keeps the place pristine b/c they typically are professionals without many kids.

 Respectfully, saying LTR after 2-4 years always trash the place is generalizing. It has more to do with screening, selection, how well the landlord monitors/inspects the property, and chance than length of stay. 

I only generalized for my duplex with rent they is on the lower end. 

i will be converting #2/5 soon and I will say that after 2-3 yrs, I spend a good amount on continued maintenance, and wear/test regardless of how well I screen bc the price point is lower. 

mtr takes care of the house exceptionally well bc they are paying 3k/mo vs 1200/mo which is essentially professionals that being 1-2 people per booking vs 4-8 with multiple weekend parties.  

the weat/tear diff is night and day. Plus mtr allows me to do regular professional cleaning, yard upkeep, and regular pest control that does not happen we LTR.   

if 2/4 works, I’m going to do #3/4.  

I have done the work where turnovers between guest takes me about 2hrs. 

Quote from @David Orr:

I think doubling the rent is probably overstating it, and you also have to account for increased vacancy and other costs.  We have one studio that we rent this way on Airbnb, and another that we considered doing but decided not to.  For a studio that we can rent long term for $1100, we can get about $1650 renting it monthly on Airbnb.  Another one that rents long term for $950, we can get about $1350 monthly on Airbnb.  Keep in mind the prices you see on Airbnb when browsing listings include a lot of fees that Airbnb takes, so the owner doesn't get all of that.  And there there is also cleaning and turn-over costs and added vacancy that you have when renting it this way.  

So, it's definitely worth considering doing, but it's not a slam dunk.  

 I have a N. Austin duplex that  rents 1500/mo each side.  I am getting right at $2850/mo each side, minus utilities ($300/mo) puts it right at $2500/mo.  Counting increased vacancy (10%) right at $2250/mo.  So Its more like 50% for me when everything is said and done but maintenance is much less and I think accounting for this/property management fees I am saving likely pushes my $1500/mo to about $1100/mo.  

So IMO, I thing I am about double when everything is said and done.