All Forum Posts by: LEONID ORLOV

I agree with Jeff,
Solo 401K is a great mechanism for investor.
I opened one and rolled over IRAs and 401k from previous employers. My plan assigned me as an administrator and treasurer.

I pay no fees to any 3rd party company and is not nickeled and dimed on every transaction.
I have landed money to unrelated parties, with payments going to Solo 401k.

I am not sure though, if one can use these finds to buy income property that is deeded to one's name (seems like self-dealing, which is no,no)

Steven,
Thanks for the word of caution, one definitely have to do cost/benefits analysis.

I think that either LLC or a sole proprietor entity can manage properties.
The question is how one allocates all income? to Managing entity on Sch C? and than allocate individual property expenses to each property on Sch E? and what is reasonable compensation one can write for prop mgmt on 1090.
I am planning to move max allowable income from this activity to Solo 401 as differed compensation. This part of the income will qualify one as self employed and will allow participation to the degree of self-employment part of income..

Any thoughts on this from the people in the know?

First of All,
Thank you Sir for your service.

With regards to RE, I started out in 2009 and currently own 6 multi-unit properties that cash-flow. I must say, that I was tempted to get in RE for the last 30 years, but was reluctant to get into multi-year negative cash situation.

I recommend you explore areas within 30 min drive from your locale and explore if you can make positive csh-flow purchases in your area.
Use redfin.com and homeseekers.com to see what is available in the desirable zipcodes.

Analysis are simple: rule of the thumb is at GRM (Gross Rent Multiplier) this is a fancy term for a just a quick simplistic evaluation were property price is divided by gross yearly rent.

Usually, 6-7 will produce positive cash-flow, 8-9 break-even, 10 or more is negative cash flow.

There are other calculations, but this one is quick and dirty.

I can tell you that you will find out that property located in not s good areas (mine are in South LA) will be more profitable, but you have to explore your market .. RE is very local.

If you have questions, you are welcome to contact me through forum or directly.

I own 6 multi-family properties (3-4 units each) all are positive cash flow, I am wondering what is the better approach ?
1. To allocate income/expense to each property on Sch E (as I have done so far) or
2. To declare a property management business on Sch C and deduct common for all properties expenses such as car, management etc and to allocate individual property expenses/income to sch E for each property?

Another I idea I was toying with, is to pay property management fees to one-self (I manage properties myself) which can be (to a large degree) allocated to a solo 401k (because this is the part of business that qualify you as Solo proprietor)

Let me know if I am dreaming here .. or being terminally confused

Steven,
Thanks for the quick reply.
So, if I understand you correctly, you recommend to take common expenses like Home Office, car lease, gas, car maint etc, divide them by the number of properties and include each portion in indiv properties Sch E under "General Expenses"?

Steven,
Thanks for your thoughtful, well articulated feedback.
I am wondering though, why you have an adverse opinion on having Sch C that can take care of expenses common to multiple properties, like car lease expense, some business lunches, home office use, etc that is not easy to attribute to a particular property.

The intent is to allocate proportional fraction of income from each property property as income on schedule C and than offset this income with legit expenses common for all properties.

This would leave expenses relevant to individual properties to be expensed on Sch E

Jeff,
The reason I turned to fellow investors is to test my accountant answer .. as I believe others asked the same question and got different answers.

According to a CPA I asked, everything has to be capitalized .. as everything has useful life..

Hi fellow RE investors,
I am trying to finish my taxes for 2011 .. The same question that hunts me every year raised its ugly head once again.

Issue #1:

I have two times of expenses, routine maintenance that sometimes is quite costly .. like labor and materials to repair main sewer .. or upgrading the unit after its vacated.

Second category is rehabbing trashed new acquisition.

IRS rule is relatively simple: If the item has short life span .. like a gasket or so .. labor and materials can be expensed in the same year. But, if the item of the lasting lifespan, one need to capitalize it and expense over the item lifespan.

Thus, if one replaced a faucet (lifespan is 5 years or so) .. than I need to capitalize the repair labor and material over 5 years?

If one reads IRS rules literally, than almost nothing can be expensed and have to be capitalized.

Let me ask you, possibly rhetorical question, Am I crazy, interpreting the rules that way?

Issue #2

I have 1.2 a dozen rental properties, do I report all income and all expenses on schedule E? or should I have a RE Management business with its Schedule C, were all or partial income and schlepping around expenses can be shown?

I am asking because I have a leased car, that I primarily use for RE business and I want to deduct lease pmts as well as other actual expenses, instead of taking mileage based deductions.

I apologize, if these questions already were answered at some other forum and I repeat the question.
Please refer me to such forum, if this is the case.

Thanks for your help.
Leonid

Thanks to all for your input.
From your questions I discovered that I did not provide necessary details. Here it is:
1. I am in CA.
2. I am an administrator and trustee of my Solo 401k. The plan was created by the pro Bruce Fox from Sacramento( at very reasonable cost I might say). I have opened non-prototype account with Fidelity in the name of the plan and rolled over 401ks funds from various previous employers and contributed to the plan while I was self-employed for 3 years.

3. I have checkbook rights for the account and don't have to deal with custodians, etc.
Its good and bad. Its good, because I can act quickly. Its bad because I have no idea what I am doing and am afraid to make a step that will disqualify funds from tax protected status.

I am mostly in cash and Fidelity pays me 0.01% on the funds.
Financing the loan on income property at the max legal interest rate (which I was told should be within reason Prime+1% will pay provide steady return with low risk. Borrower will post 25-30% down and property generates 3 times more income, than the mortgage pmt will be.

I would buy the property myself, but this would be self-dealing.
I presume that lending to unrelated party will let me stay within the rules.

I hope I provided more details on transaction and would appreciate any additional info refferal or a pointer to the sample documents that I will need.
Thanks again for all your help.
Leonid