All Forum Posts by: JD Barrera

Also by "house hacking" I do mean renting a room in my personal residence to a friend. 

@Larry Stone Thanks so much for the input. I'l assuming you mean "Depreciation is allowed as a deduction" is that correct? 

Hi everyone, I have a question about taxes. I know I need to talk to a CPA about this really, and I will, just wanted to hear form the community also..  so here is the deal: 

I am under contract right now on a 3/2 townhouse in San Jose, CA hoping to close soon (fingers crossed!). I will be living there with my wife as our personal residence to finally get out of this insane rental market in Silicon Valley. I know that as a personal residence we will be able to deduct mortgage interest and property taxes to lower our overall housing cost (since we would not be able to deduct this otherwise by renting.. so I am including this as a way to lower housing expenses). In a couple months of living there, we plan to have a good friend of ours move in to one of the bedrooms to take advantage of the house hacking strategy. So my first line of questions is this: 1) How will this change my tax situation... Will we still be able to deduct mortgage interest and property taxes? Will we also be able to take advantage of depreciation?  

Down the line, after we have built up enough equity, we plan to refi and make this thing potentially cash flow as a rental. So my second line of questions, similar to the first, is: 2) How will this change my tax situation... Are mortgage interest and property taxes still deductible as a full rental? I'm pretty sure depreciation will certainly be an option here as will and just want to confirm. 

Let me know what you think and if I am missing anything big! 

@Chris Mason Thanks also for your advice. I have been asking as many questions as I can regarding the HOA. I am definently not counting on appreciation, but it would certainly be a nice touch. I ran some numbers and with a 10% down payment on a ~ $600k home, I would be a 40% equity right around 15 years (no appreciation assumed here.. you were spot on). I'm hoping to get there faster by putting more towards the principle every chance I get. I'm 29 years old so I can definitely see myself in this home for at least 7-8 years. At this point I'll have to see where I am at and balance that with market conditions to see if selling or renting it out is the best options. Ideally I want to rent it out.

I wanted to get some opinions on this. I am tired throwing money away in rent out here in the bay area (~$2400/month for 1b/1b). I realized its all money lost and even if I found a good cash flow property out-of-state, it would no where near enough to cover my rent check (I'm new to real estate so I don't have any rental income under my belt yet). I know that SFR are better investment than a townhouse, but realistically a townhouse is what I can afford at the moment. Even though it would have an HOA fee, I feel that paying an HOA fee is better then throwing away money in rent. Here is my very high level plan on this:

1 - buy a townhouse now as my personal residence.

2 - live in it until I'm at a point where I have a 40-60% equity position, either through loan pay down, appreciation, or both. 

3 - at this point I can choose to refi and lower my P&I payment to something more reasonable and potentially make this a cash flow positive property if I move out and keep the unit as a rental. I guess the way I'm thinking about this is at a 40-60% equity position, refinancing would lower my P&I payment enough to make this thing cash flow. 

Not sure if this sounds like a good plan. Feel free to poke as many holes in it as possible. Open to all feedback. 

Just wanted to introduce myself to everyone. Being listening to the podcast and chatting a bunch with my family members also in real estate. Getting really excited about the potential for financial freedom! I'm originally from TX and currently working out of the bay area for one of the tech giants. Still trying to establish my real estate goals/plan. Looking forward to meeting some of you face-to-face at local meet ups in the area!