All Forum Posts by: Kyle Scholnick

What is the general criteria people are using to define a type of neighborhood? I get the idea that A properties are in nice areas and D properties are in not nice areas.....but is anything else determined just by the neighborhood classification?

If you have a really old house, but if its in a nice area, is it still an A?

Does the condition of the home matter or is it just the actual neighborhood?

How do you even determine what is a nice area and what isn't and therefore assign a classification to it if you are looking outside your local market and are unsure?

I think people lose track of what the ultimate goal is...Yes you can make a killing with real estate, but why do you feel you have to optimize your returns to the highest level or you are doing it wrong? When did it become so foolish to get a solid 10-12% return? Its amazing because many properties will net that, yet people call you an idiot because you aren't getting 14-20%.  You are making money. You are doing well. When I invest in stocks, I don't kick myself because I only got a 13% return when I could have sold an option or took on leverage to get 18%....yes you always want more, but as long as you are making gains you will be fine and reach all the goals you want.

Its like in blackjack, if you have 19, you would never take another hit right? Even though you still have a 10% chance of losing with that hand, your wouldn't hit...why? Because its good enough! its a great hand, you don't have to try to optimize it with a 20 or 21, it won't make a difference in the long run.

@Dave Toelkes

So as long as you aren't filing for any loss over $25k, the whole real estate participation thing doesn't really matter?

Like most things in life, you need to find a balance. I am not comfortable at either end of the spectrum. I don't want a $40k house that doesn't appreciate and has crappy tenants and high repairs nor do I want a $500k property that only rents for $2300 and never cash flow.

Call me crazy, but I like doing things right in the middle. Buying properties $80-150k in A and B neighborhoods. You get the best of both worlds that way. I guess I am just not as adventurous as other real estate investors, I just like predictable, consistent and steady returns.

@Dave Toelkes

Thanks Dave, that's helpful, so then what is the 750 hour do? What is the benefit or downfall of qualifying as a real estate professional or not? What does that effect?

Regarding passive loss and the MAGI requirements, how do you calculate how much losses you can use if you are within that income range?

For example, if someone makes 130k, how do you figure out how much passive loss you are allowed to take?

These are 2 extremes that people argue about all the time. Buying expensive property in a desirable area that usually won't cash flow unless there is no mortgage vs. a cheap house that appears to cash flow well.

You get what you pay for...if the house is cheap, its not in a great or highly desirable/populated area. You will have a lot more vacancy, more repairs, more maintenance...and frankly the cheaper the house is, it just attracts cheaper and more destructive tenants. And yes that is absolutely true that those cheap houses don't appreciate well at all

Leverage doesn't have to do with your analysis. Leverage can improve your returns, but can kill your cash flow if you have an expensive property and once you factor in the maintenance, cap ex, vacancy, insurance etc and now PLUS the mortgage, you may not cash flow at all...You might make money in the long run if the expensive house appreciates, but there is no guarantee....and remember most houses over the long run just appreciate with the rate of inflation of about 2-3% per year

@Brandon Hall

To make sure I am clear on what you're saying:

The 750 hour rule is just related to passive losses and NOT depreciation? I can still deduct for depreciation even though I am not covering the 750 hour rule?

If that is the case, are you saying that once my depreciation is factored in and I come out to a paper loss, I can't deduct that loss?

Are there any restrictions on filing for depreciation? Do I need to meet certain income requirements or anything else?

I am looking to buy a rental property turnkey. I understand some tax benefits should be money I used on maintenance and the mortgage, but the biggest one depreciation seems to be out of reach.

Do most people still use depreciation as a tax deduction? Are you satisfying the requirements which I believe are actively working in real estate for 750 hours? Can you argue that even though you hired a property manager, you are still delegating responsibility and monitoring activity and therefore you are actively involved?

What about the 25k write off in passive losses?

What about deducting for a "home office" even though you have a property manager?

@Russell Brazil

 Where do you get the information or the charts you may be looking at that show appreciation rates over time? 

 I want to believe that Maryland and Virginia real estate appreciate the well due to its proximity to DC, but I haven't actually seen any proof, can you recommend some good sources to find this information? 

@Account Closed

I was using those numbers just because they are conservative and provide a margin of safety. I also like including with those numbers a general "oh s***" fund of around 5-10% just for those least expected incidences.

That brings me to another question for you both, is it possible to find good rentals in the area paying retail value or in order to have any chance of return, do you have to buy foreclosed or distressed properties?

I ask because I have very limited time and right now not interested in buying foreclosed houses and repairing them. Just looking for plain old boring buy and hold properties that cash flow