All Forum Posts by: Erik W.

I wouldn't try anything like that, but don't we think this will become more common as endless Govt moratoriums threaten to deprive a land lord of their property and income?  At some point, Ma and Pa land lord's who rely on rentals for income will have to ask themselves, "Do I take a chance at jail and a fine, or do I starve at the hands of the legal system?"

If you feel the property is overpriced, then go buy something else that you think is fairly priced.  Simple.  People don't go up to the counter at the department store and argue that the $100 pair of designer jeans should only cost $50.  At least...I hope they don't.  

Inventory is tight right now in all desirable markets.  It is common for a Seller to list a property and have multiple offers over list price within a few days.  Land lords are in the business to make a profit, unlike regular Sellers who just want to dump their current residence and move to a new residence.  He has all the time in the world to wait and may see further appreciation of prices coming down the road.  The Govt is giving money out now like candy and interest rates are crazy low, so there's no reason for the land lord to sell for less than market value right now when the price may go up another 10% in 2-3 months.

It's a Seller's market.

@William C., The deduction against W-2 income starts to fall off above $100,000 and is completely eliminated at $150,000.  You can still use it to reduce taxes on your rental income, and anything you can't use "this" year gets carried forward indefinitely into future years.  So you can "bank" the loss to help shield rental income once your property is 100% depreciated.

That's my understanding anyway.  I recommend hiring a CPA who has experience working with REIs.

I looked at MFs last year and it was basically the same.  You could tour unoccupied units, but not occupied units until we had an executed contract.  There are at least two good reasons.  First, it's a disturbance to tenants, and the last thing owners want is every looky-loo "buyer" who read a book or listened to a podcast traipsing through units and asking personal questions and throwing tenants into confusion about what might be happening to their homes if/when someone new takes over.  Second, it's very time consuming to coordinate someone walking thru 100 units when they don't know if you're going to make a reasonable offer and be able to deliver on it.  

Also, think about it: what if you are a competitor from a neighboring complex trying to scope out the competition and aren't a legit Buyer?

@William C., I don't know how you file your taxes, but if you do them anything like mine you have at least two sections.  One is the standard 1040 form for W-2 wages.  Line 1 is wages, salaries, and tips. Line 3b is qualified dividends. Line 8 is Other Income, which includes your rentals.  The other section is the Schedule E for rentals that show rents less expenses less depreciation = gain or loss.  This carries over onto your 1040 and is used to raise or lower your total income, and the result of that calculation plus whatever other credits or perks you qualify for via the tax code is your AGI.

Let's pretend you have a job making $100K a year.  Normally, you would owe taxes on that amount.  But....

Let's also pretend you have a rental that shows a paper loss of $10,000.  

Line 1 ($100,000) + Line 8 (-$10,000) = $90,000 AGI.  You would owe taxes on that amount.  $10,000 from your W-2 job effectively becomes ineligible for taxation.

The same is true if you take a loss on other types of incomes.  Let's say you bought stock for $100,000 and sold it during the Covid-19 slump for a $10,000 loss.  You can use that investment loss to reduce your W-2 wages from $100,000 to $90,000, but only if you actually sold the stock for less than what you paid for it.  If you hang onto the stock, that is only a paper loss and doesn't count.

Again, real estate is beautiful: we get to take paper losses caused by depreciation without selling the asset, while ironically the value of the asset is probably going up each year instead of down.

Point of clarification: you are under contract with an "all cash" offer, and you don't have the funds in place to close this deal, nor any prospects of finding the funds?

If that is the case, my friend, you have put the cart in front of the horse.  That's the polite way of saying it.  The non-polite way to say it is you lied to the Seller.  I'm amazed they signed a contract without proof of funds.  Someone's agent dropped the ball, or this is a private sale without agents.

Regardless....

Private money usually comes from relationships: people who know you.  My first three deals with private money went like this: 1) uncle and aunt 2) same 3) same + added my parents.  All three deals paid off, as promised, and they got their investment back plus good interest rates.

Since then I have looked again to private money in the form of equity partnerships.  Not just borrowing, but getting fellow investors to bring in cash and get a slice of equity and quarterly profit sharing from rents in excess of operating costs.  This is a great technique that I believe has many advantages over traditional debt mortgages which I won't go into here.  But ultimately, it's a more advanced strategy that may not work for you yet.

I'd be calling everyone I know and talking about what I was doing and asking if they know anyone who'd be interested, attending local REIA meet-ups, posting ads on FB, and passing out business cards at trade shows. If you default on this contract and the word gets around, no one will want to do business with someone who fails to close the deal. Real Estate is a reputation-based business. Once you establish a track record of performance, it will become much easier to find money via references.

Don't let this deal crash and burn, even if all you lose out is a pittance of earnest money.  You're new full-time job is dialing for dollars.

@William C., in short, yes.  That is one of the beauties of real estate investing: the loss helps offset other income.

But...be clear on this...it is dumb to operate rentals at a loss purely to lower taxes.  That is like paying someone $1 to avoid sending Uncle Sam a quarter.  The only way this really works as a deliberate strategy is if your PAPER loss (i.e. depreciation) cancels out income in other areas.

Several of my properties show a loss after depreciation, which carries over to my AGI (Adjusted Gross Income) and reduces my overall tax liability on those earnings.  But in fact, they are putting cash into my pocket each month.

You can still recoup a benefit from taking actual, cash losses on Real Estate if you have a bad year or a lot of repairs, or if it's the first or second year of ownership and the project hasn't become profitable yet due to expenditures on upgrades that increase the value of the property, but ultimately your goal with investing should be to make money, not lose it.  However, if you take a loss, deducting that against other income helps soften the blow.

Yes, provided I receive a signed release authorizing me.  I appreciate it when others give me candid feedback when I request references.  I see this as a professional courtesy and treating others as I would like them to treat me.  No, it's not a hassle.  It takes 5 minutes most times.

@Account Closed,

You said you've made numerous financial mistakes in the past.  What were they?  Did you learn from them?  Are you still making them or have you got the ship steered in the correct direction?

Real estate is often seen by folks as the solution to their financial woes, but that is incorrect.  They will simply amplify what you're already doing.  If you're currently making wise financial moves, real estate can be an excellent way to super charge what you are already doing in terms of investing for long-term (appreciation) and short term (cash flow).  But if you're spending too much buying unnecessary junk, it doesn't matter what you do or where: odds are you'll keep doing the same thing and end up with a mess.

Let's get back to basics:

1) Are you doing a written monthly budget and living on less income than you earn?

2) Do you have a lot of consumer debt (credit cards, car loans, student loans, personal loans, etc)?

3) Are you setting aside no less than 10% of your monthly income into retirement savings/investing?

4) Do you have at least 3 months of living expenses saved up in case of emergencies?

If this sounds a lot like Dave Ramsey, it's because it is Dave Ramsey.  I know a lot of folks on BP don't like his anti-debt stance, but I think most everyone agrees on his foundational principles of budgeting, saving, getting out of consumer debt, and having emergency funds set aside before you start getting into investing.

Let's hear about what your current non-real estate situation looks like before we start diving into beach front STR plans.

Based on what you've told us so far I would say this is a solid reject.

1) Uber income is variable and not garnisheeable if she fails to pay.

2) Current land lords will lie to get rid of a bad resident.  You need the land lord from before the current LL, and it can't be a friend or family member.

3) Collections are a sign of severe financial problems.

4) About the only thing we don't know so far is criminal background. 

I screen on 4 major areas: income, credit, land lord history, and background.  So far, she's a NO-GO in 3 of 4 areas.

P.S. Section 8 won't pay if you have to evict her, so even if she keeps it you will mostly likely end up being another of her unpaid creditors when it's time to stiff you.