All Forum Posts by: Kyle Luman

Thank you, appreciate the wisdom.

@Arn Cenedella

@John Morgan

@Marcus Auerbach

What you've said makes a ton of sense. Seems like a really balanced and prudent approach. Love to hear about how you've been patient and wise. Good examples to try to follow.

From the above discussion, I now have some simple, beginner questions about taxes and bookkeeping.

Example property:

Rent: $2000

PITI: $1200, CapEx: 5%, Maintenance 5%: Vacancy 8%: Prop Manag 8% ($520)

Cash flow: $280

In the bank, you keep the $280 along with the $360 from CapEx, Maint, Vacancy while the Prop Manag is paid to the PM. To make it simple, let's say you use up all of the maintenance in 2024, but have no vacancies and no CapEx expenses. At the end of the year, you have $3360 from cash flow, $1920 from vacancy and $1200 from CapEx. So, $6480 in the bank attached to this property.

1. If you don't "pay" yourself anything from rental work in 2024, what do you pay taxes on?

2. Can you avoid paying taxes by using some of the cash flow by prepaying/accelerating loan repayment?

3. Can you use the vacancy and cash flow funds to make CapEx improvements like adding a room/bathroom, a second unit, etc and thus not pay taxes on that money for the time being?

4. Can you ever use these funds as they accumulate to go purchase another property or does that trigger taxes? I.e, you used them for non CapEx/vacancy reasons. (If you did this, obviously, you would have to cover those needs, when they arise with money from other sources.)

I imagine my beginner perspective is probably inaccurate in several ways. (I have the BP tax book by Han and MacFarland that I'll make my way through soon.)

Got it, thank you.

1. If you carry a balance month to month (only paying the minimum or minimum plus), paying twice monthly can save you some money in interest charges.

2. If you don't carry a balance month to month, you can get interest free loans (money saved) for several weeks.  (But, I don't think the twice monthly payment in this situation does anything.  I've researched the 15/3 rule a bit and it doesn't look like it actually helps you if you are already paying the balance to zero each month.)

Thank you both, I appreciate the insights.

Have you reached out to some 1031 qualified intermediaries?  I haven't done a 1031 exchange, but may in the near future and the small amount of research I have done on it seems to indicate that some qualified intermediaries only do the intermediary task (hold your money while you close on the new deal) and some try to do other tasks as well, like facilitate you finding the next deal, etc.  Thus, I might contact some 1031 QIs if you are looking for someone targeting you as a 1031 exchange partner.

 It was the podcast with Dr Ben Aaker, he said he would fund the other real estate needs/expenses from his physician pay.  He was trying to avoid increasing his annual income which was already high from his W2 job.

 I haven't heard of the bi-weekly credit card payment idea. I see how that would keep your utilization percentage down (and thus help your credit score a small amount), but I don't see how it saves you actual money.  Can you educate me?  Thank you.

I just listened to the recent BP podcast with Dr Benjamin Aaker and Dave Meyer from a couple of weeks ago.

https://www.biggerpockets.com/blog/real-estate-1045

There was a section where Dr Aaker talks about focusing on equity and trying to avoid cash flow since he didn't want more income presently while earning money as a physician.  They didn't dig into specifics on how to do that.  I've been analyzing deals looking more at cash flow, but like Dr Aaker, I don't need cash now and I can't become a real estate professional for a while since I'm working more than 40 hours weekly in my W2 job.

I had hoped Dave Meyer might have asked more specifics on how you design for equity instead of cash flow.

I can think of these ways, but I feel that I am probably missing some of the best ideas:

1. Buy in appreciating areas. Obvious, but maybe the least reliable as it is somewhat by chance. Past performance doesn't guarantee the same future performance.  For instance, a starter home on the wrong side of town in central California is ~$400k now.  Is it really going to be $500k in 10 years?

2. If it looks like it will cash flow too much, take a larger loan (put less down) and use the remaining capital for other properties.  Not sure I want to end up paying higher interest rates due to smaller down payments.

3. Get a 15 or 20 year loan (higher monthly). The cash that would flow in a 30 yr loan underwriting scenario is sent back to the bank so that builds equity faster.

Forced appreciation, while excellent overall, I am not sure it helps in this situation to avoid income from cash flow as that will probably both provide equity, but also increase cash flow right away.  Are there other ways to focus on equity and minimize cash flow?