All Forum Posts by: J. Martin

 Calvin, 

Talk to the city about it. I've heard different things through the grapevine regarding what constitutes one unit vs 2, especially regarding having 2 kitchens. However, in the only instance I directly know of dealing with the city in Oakland, having access between both of the spaces (through a door, for example), is adequate for it to be one unit. If you remove the door and put a wall in, and there is no direct access between the two units (like having to walk outside), then they will consider it 2 units, and you'll run into issues. 

Although I have heard about inspectors getting finicky about a second kitchen, as long as its permitted, you shouldn't have an issue. I am not aware of any laws against having 2 kitchens in one dwelling unit (in fact, many very high end houses have a second kitchen for the staff to cook for social events). Again, as long as the original work is permitted... This has been confirmed in at least one case that I have seen in Oakland. If you get an inspector that hassles you, have the printout of prior permits that shows the 2nd kitchen is lawful, and that there is only 1 unit, with continuous access to the entire unit. It looks weird and they might question it, but just remind them what's legal.. 

Airbnb always pulls in the most here in the Bay for me. It seems like Airbnb is the most popular in urban areas and biz travelers. And homeaway/vrbo in more vacation areas, larger homes, and an older crowd that's less tech savvy. I got a subscription for Corporate Housing By Owner (CHBO), but didn't think we've booked anything from them yet.. There are about a million other sites that you can try, but these are the big dogs, and it takes a lot more effort to sync and respond to too many sites that don't produce a lot.. 

Good luck Calvin!

@Calvin Kwan,

#3 is definitely feasible, and sounds like you could still do it in a legal manner, and still maximize your income. Airbnb guests would be fine with renting an apartment with a locked door to another space. You can install 2 doors with locks on each side, just like a conjoined hotel room with the double doors in between. That way, neither tenant can access the other side without both of doing it. (However, it would then not be an egress, so take that into consideration with other egresses..)

Another idea would be to put something over the doors, to make it look more natural. I heard @Arlen Chou is getting into the custom mirror manufacturing business. You should probably shoot him a quick email and ask about his experience. 

@Ori Skloot,

The only thing that sometimes pops up with the split model is if the long-term tenants don't like the idea of the short-term tenants, or try to stir up issues with the city. Depending on the minimum number of days' stay (longer would be less of a problem), things could pop up. But have had many that are fine.. Just my 2 cents/word of caution on splitting it. 

Another difference is that you'll keep the unit churning with STR. If a long-term tenant stays, they're going to be under rent control for who knows how long unless the unlikely case that your building is exempt from rent control.

 Arlen, these are vacation rentals for under 30 days, so there's more margin. If you want to allow that, let me know and let's talk ;) hehe Also, it's a baller 6-bedroom house in downtown. Get me one and let's do it!! :)

Leslie, you are telling the OP to invest in DST's on the forum, and according to your BP profile have written a book on investing in DST's and you currently sell DST's: "..I outline 1031 Exchange and reinvestment for accredited investors into Delaware Statutory Trusts (DSTs)..." [Leslie Pappas BP profile]

And you say you are not pitching? 

Neither @Arlen Chou nor @Account Closed make their living by selling things to others, so don't have a pony in the race. Also I would add that they both have given a lot of great advice on the forums, and their stats reflect it. 

Arlen 429 posts. 626 votes. 

Saj 246 posts. 245 votes. 

Leslie 545 posts. 130 votes. 

It's sad that you attribute this disagreement to you being a woman, as there are MANY MANY fantastic women on Bigger Pockets with great advice, many of which have come out to the Bay to share in non-pitching way, that both myself and Arlen admire. 

@Eric Moeller,

Yes, quite a few people are using this model. 
If you haven't checked it out yet, Scott Shattford, CEO of AirDNA.com, literally wrote the book on exactly how to do this. You can get the book free on their site my signing up for a free subscription to their newsletter. Some people tell the landlords. Some do not. I always do. You will hear from most people on BP (who are not doing it) that it cannot be done - landlords won't let you. regulatory environment too difficult. guests will light your house on fire. etc. etc. etc. Most people probably said these same things about UBER when they first started. Owners won't want strangers riding in their cars. It might not be legal. Riders can trash your car. etc etc. etc. Know the laws and the consequences.

Major issues you may run into include:
- Short-term rental regulations from local municipalities [hint: read the regs right at the top of the law and see what activities the regulations apply to. It won't be applicable to all furnished rentals or any particular website.. ;)
- HOA restrictions (or future restrictions) as @Kim Bayless pointed out. 
- Yes, as others stated, you are responsible for collecting any TOT (transient occupancy tax) and submitting appropriately. (Airbnb already does this for you in some areas.)
- More vacancy than you expected maybe
- This is a business that increases and decreases with the economic/business cycle. Things are about as good as they get. So watch your *** on the next downturn... 

I recommend the Guesty short term property management software if you scale up. Will save you a lot of time and errors. And can add your cleaners to get texts or emails at certain times relative to check out or check in dates/times, without giving them access to your Airbnb account (3% of revenue)

@Mike Hanneman , @Thomas S. yes, owners are doing it. Focus on the value proposition to the landlord.. why does it make sense for them? Sometimes owners just want guaranteed rent, a low-headache tenant that doesn't call them, want to pre-lease multiple units undergoing construction, etc. etc.

@Bruno 

@Bruno C., preach it! I'm just about there in the Bay Area..

@Brian Lacey, you bring up a good point. Do you know what rentals are exempt from short term rental regulations? 

@Andy Whitcomb, good for you :)  Am I reading correctly? $15K/mo in profit? Even during high season, this is very good. Are you renting for $600-$1,000/night. I would think that after you subtract paying market rent, utilities, vacancy, etc, it would be tough to clear $15K in NET profit in one month, unless it's a big, baller house, or running it like a hostel with 10+ beds in the house.. Any tips for us getting less than $15K/mo in net profit on a single property? I know one guy doing about $25k/mo gross on a big hacker house in SF Bay Area, but still only nets about $10k/mo in high season after paying market rents for the use of the property, and everything else.. 

@Syed Lateef, if you're already making good money on regular long-term rentals, your risk should be pretty well covered. It's always there if you need it, but you can pump out the extra money while the going is good.. 

Hey Investors,

I'm going to be taking a train trip to Portland, Seattle, and Vancouver in early May 2017 (next week), and was wondering if there are going to be any meetups or REIA meetings.

@Troy Fisher, what's going on in Seattle? 
I'll be staying in Kirkland while I'm there. How far is that from you?

Looking forward to meeting some new folks and seeing some old ones! :)

@Brian Garrett,

The main advantage of the S Corp is to only pay a portion of the total profits from an ACTIVE business as salary income. So you only have to pay the self-employment tax (Social Security and Medicare) on a fair and reasonable salary, and don't need to pay self-employment tax on the profit portion above and beyond your reasonable salary. If you had an ACTIVE business in a pass-through LLC, you would have to pay self-employment taxes on the entire profit of the LLC.

https://turbotax.intuit.com/tax-tools/tax-tips/Sma...

"The tax rate for self-employed individuals is a combination of the social security tax rate (12.4) and the Medicare tax rate (2.9), which equals 15.3%."
https://www.paycor.com/resource-center/2016-social...

If you have passive income in a pass-through LLC (like Schedule E income from passive real estate investment), you don't have to pay any self-employment taxes anyway, because it's passive - not active. LLC's are a bit cheaper and easier to run. So most use pass-through LLC's if it is not an active business.

Brian, you said, "The part I don't understand is how rentals are not considered self employed income when I'm the sole owner of the properties and that income is paid directly to my LLC and ultimately me."

Read this article from BP below on passive vs active income. If you do not materially participate in the operation of a business and are just an investor, it is considered passive income. Passive income from real estate is what schedule E is for - and that's not taxed as self-employed income. It is Uncle Sam's gift to you for buying dirt in the good 'ol US of A, along with depreciation :)

https://www.biggerpockets.com/renewsblog/2013/11/0...

Hopefully these links help clear things up!

@Alex Shaughnessy, is this your understanding? @Linda Weygant? 

I am not a lawyer, but did some research and will be incorporating my active real estate business as an S-corp (furnished rental business).  Also makes it easier to sell shares later in some ways. The properties will continue to stay out of the S-corp and remain passive income on Schedule E. 

@Lynn Currie, 

So happy you're spending more time on the lake out in Austin :) We're here for a good time! Not for a long time! ;)
Save on Oct 7 & 8 2017 on your calendar to come back out to Oakland! :)

@Alnie F.,
Thanks for the shout out. I worked hard for those pictures!! hahahaha

@Account Closed,

There are plenty of flip flops for all of us!!! hheheheehe

Thanks for the shout out Peter.

Jose, there are a few meetup groups down in Monterey area (check BP events or meetup). And @Shane Pearlman  has a meetup in Santa Cruz about each month that's great.

We'll be having the big Summit on Oct 7 & 8 this year, so mark your calendar, and get ready for more info!

@Calvin Kwan,

Thanks for the shout out. My furnished rental business is a bunch of furnished apartments in Oakland, Richmond, San Francisco, Redwood City, Mountain View, and San Jose. Yes, we rent to professionals like traveling nurses, interns, and business folks 

@Arlen Chou,

Some sh*t don't change! Still beard and flip flops! hehe See you tomorrow w/ Shannon & Isara. Get that pass!

@Chris Mason,

Thanks. I'll give you a call soon to ask a few questions about qualifying. Thinking Im going to form an S-Corp. 

@Jerry W.,

I was curious how things were going out in oil country. I remember quite a while back the two of us and others were speculating what the fall-out might be. Hopefully there are some good opportunities to pick up. Just don't grab the falling knife! And keep those reserves! :) 

@Andrey Y.,

Sure, send me a colleague request and you'll have all my contact info. Glad you enjoyed the pics from SouthEast Asia and Mexico. Would be happy to share some travel advice. I didn't go to Chiang Mai this time. But will be going back later this year to check it out I'm pretty sure.. 

@David Zheng,

Thanks for the shout out from St Louis! Sounds like we were twins in our w2 life! lol You don't need any more money - just to gain momentum to exit! The trips were great. And so much less expensive in SE Asia.. Highly recommended!