All Forum Posts by: Logan Allec

Welcome, @Daniel Rosado.  I actually used to live in Valley Village (Magnolia and Laurel Canyon).

Anyway, SoCal can be a tough nut to crack for newbies.

A couple years ago I mailed out lots of letters to homeowners across LA County with no luck.

Then I tried rural Kern County and got a deal from a distressed homeowner in California City.

The margins were not as large as they would've been in LA or OC, but I was able to rent it out for 2 years before fixing it up and selling it for a decent gain.

Also, have you considered an owner-occupied small multifamily for your first deal?

You only need to put 3.5% down, so cashwise it won't get in the way of other real estate goals you may have.

My first deal was a 4-unit up I bought withFHA3.5% in Santa Clarita.

I lived for free (as opposed to paying rent) + enjoyed cash flow + built equity. It was a great investment (and still is).

Good luck!

Welcome, @Cedric Alexander.  Good to see other young SoCal investors.

@Tyler Wittwer You buy toilet properties that look great on paper but for some reason can't be sold to local investors.

I kid.

But seriously, be careful out there.

@Eddie Knoell It sounds like you are already in the business of renting real property, so I would say yes, this is a valid business expense, but please consult with your actual accountant about your particular situation.

I assume you give him or her some record at the end of the year of your real estate income and expenses.  Just indicate that you purchased the book on what date at what price.

Welcome, @Rodolfo Marquez.  Good to see other people making it work in LA!

Welcome, @Julie Baek

Yes, SoCal can be a tough nut to crack for newbies.

A couple years ago I mailed out lots of letters to homeowners across LA County with no luck.

Then I tried rural Kern County and got a deal from a distressed homeowner in California City.

The margins were not as large as they would've been in LA or OC, but I was able to rent it out for 2 years before fixing it up and selling it for a decent gain.

Also, have you considered an owner-occupied small multifamily for your first deal?

You only need to put 3.5% down, so cashwise it won't get in the way of other real estate goals you may have.

My first deal was a 4-unit up I bought withFHA3.5% in Santa Clarita.

I lived for free (as opposed to paying rent) + enjoyed cash flow + built equity. It was a great investment (and still is).

Good luck!

@Jim T. You only include the 1099-G amount into income to the extent you received a tax benefit for it.  This has always been the rule.

Where it came into play most often was for taxpayers subject to the AMT.  Many taxpayers subject to the AMT did not receive any benefit for state taxes paid, or only a partial benefit, in the year paid, and so their 1099-G amount would not be included in income, or only partially included in income, in the year the refund was received.

It will be a similar story for those in the situation that you describe.

Tax preparers, if they're not lazy, should not blindly pick up the 1099-G amount as income but should go back to determine exactly how much benefit the taxpayer received for state taxes paid.  Problem is that many tax preparers are lazy and miss this, and many DIY'ers miss this as well and end up paying tax on something they don't have to, i.e., the portion of their refund that they never received a tax benefit on to begin with.

@Alexander Quan Generally, a Solo 401(k) can accept tax-free rollovers from your former employer's 401(k), even a Roth 401(k). (But not a Roth IRA.) It sounds to me like unless there are some missing facts here, or I'm misinterpreting your statement, your "tax person" who suggested that rolling your former employer's 401(k) into a Solo 401(k) would be a taxable event isn't aware of the rules.

It sounds like you are eligible for a Solo 401(k) since you have self-employment income from being a real estate agent and flipping from which you can make contributions into your Solo 401(k)

And you can certainly buy properties in your Solo 401(k), so your goal of using your 401(k) funds ASAP to start acquiring properties is very doable assuming you qualify.

Do you really need these funds before retirement?  It sounds like you have a good career in pharmacy and other streams of income on top of that, so why take the net worth hit of taxes and penalties if you don't have to and can reach your real estate goals within the Solo 401(k) while enjoying tax-deferred wealth building?

The cumulative effects of paying tax on your profits every year is underestimated by most — we're talking tens if not hundreds of thousands of dollars for even a modest investor over 30 years or so — and being able to defer those taxes for decades so as to reinvest all profits will be a boon to your net worth and financial position.

Also, be wary of "flipping," per se, in your Solo 401(k) as you could come under the purview of the UBTI rules, with the result that you would have to pay tax, and the whole point of investing through a 401(k) is to defer tax.  Buy and hold is generally safer in the Solo 401(k), or possibly fixing up a property, renting it for a time, and then selling it so it's not "flipping," per se.

And of course you always have to watch out for the prohibited transactions and make sure you keep good records for your accounts and work with a banker who knows what they're doing.

@Dmitriy Fomichenko is an expert in this space.  He happens to be in Orange County and could probably talk you through your options.

Welcome, @Roli Prasad!  Sounds like you have a great strategy.  Always good to see others making it work in the Greater LA market!

Alex, congratulations on your purchase.

Typically people work with CPAs in their home state.

Obviously you will have to report your rental income on your federal return and California return, and you may have to file an Ohio return as well, depending on your income from your rental.

Now, Ohio's cities also has tend to have these "wonderful" municipal taxes.  So you will also have to file a Cincinnati Individual Tax Return.  Since this one is a little quirky, allow me to elaborate.

Here are the basic steps.

1. Make sure that your property is in fact in Cincinnati.  Many properties are listed as "Cincinnati" but are actually in a neighboring township that has its own tax filing.  You can  to confirm that your property is in fact in Cincinnati.
2. Open a new account with the City of Cincinnati Income Tax Division.  You can fill out the application here.  I recommend faxing it to the city to Tammy's attention.  You generally want to have your account number set up before filing your Cincinnati Income Tax Return.  You can call back within a couple weeks of completing this application to obtain your account number.
3. File your Cincinnati Income Tax Return.   once it's released, attaching your federal Schedule E and supporting schedules for the Cincinnati properties.