All Forum Posts by: Mary White

If you can send me the info, we’ll go look at it. I invest in Klamath.

Rural areas have not seen nearly the rent increases that places like Portland, Bend and Eugene have. In Klamath Falls the effect of this law is to force me to increase rents yearly in order to maintain consistent with a market that I believe is overpriced for my area. I feel punished by the new laws when I treat my tenants with fairness and have never jacked rents up at all. 

I second that you need to just sell it. The market is strong right now and you can still just take the profits and walk away. That's really what you should do. I had a forced move in 2007 a had to hold the home for 10 years because of the dropped prices. When I sold it in 2017, I had to 1031 the money to avoid taxes. It was fine at first holding it, but as capital expenses started to arise and I went through a couple of renters, it was proved to be a bad idea. We had no choice, but you do. Ask yourself what the opportunity cost of holding the property is. 

It sounds like you skirted around the rules and and are now caught with your hand in the cookie jar. I know that sounds harsh, but they have every right to start enforcing the rules. You should try talking to them and seeing what you can do to get your property on the approved 10% list. 

In 2006, I put my primary residence into the rental pool for our HOA knowing that they were only going to allow 15% rentals in the neighborhood. When my family moved in 2007, we rented it out while others in our neighborhood had to short sale or foreclose on their homes because they couldn't rent them out. The rules are typically signed by the home purchaser and are binding.

My best advice is to have an honest conversation. Somebody gets to be in the 10% and maybe that can be you.

I was in your shoes in 2017 with a lot of equity in a home in the Willamette Valley of Oregon. I decided to sell and roll the money into a 4-plex on the east side of the state. My cash flow went from $250 per month (after all expenses) to $2000 per month. I now also have the peace of mind of knowing that one tenant out has very little impact on my life since I have four doors. I'd ask yourself, "what are you giving up by keeping the property?" Opportunity cost is a major factor! 

For me, the cash flow alone is a game changer, but I also used the BRRRR method on the 4-plex and pulled my money back out. I had just the one rental for eight years and now have 11 doors (shooting for 20 by year end). Don't leave your money in a non-cash flowing single family with this market. My advice is to sell!

Thanks for the replies. I do a lot of research on taxes and do use a CPA (I don't try to fix my own car). It sounds like we just need to divide things up and take a percentage of the deduction. I do have clean records and that's why I can support the credit cards as a business expense. I have submitted everything to another CPA in a larger metropolitan area and will be assessing the work of both. Records are kept separate and going forwards all bank accounts will be fully separate. 

On my current refinance, all cash out will be held in a savings account until it's ready to be deployed for another purchase.

Thanks for the advice. 

I really appreciate the feedback. I'm going to open a new/separate account for the single family home and have all funds from the financing go straight into savings for another purchase. I won't pay off a single thing with the money just to keep it clean. I'm meeting with my accountant in the morning and am searching for somebody else to speak with in case they aren't willing to break this down and help me through it.

As for the 2018 taxes, we have done nothing personal on credit in the past 18 months, but I am going to sort back through all of my account statements and double check everything. 

I'm also going in tomorrow to my bank to open up individual bank accounts for each property. Right now two of my properties are under one master property account. It seems that this will simplify my life a bit. 

The taxes came from withdrawing a State Employee Retirement account. Not only were we hit with taxes for the withdrawal (no penalties because my husband no longer had that job), but it kicked us into a higher tax bracket and made a lot of deductions ineligible for 2017 taxes. I do have pass through deductions to use this year so those will help out. I think Oregon has a minimum tax amount on retirement withdrawals even when they're allowed by a government employer (10%, I think). We had a limited amount of time to withdraw or roll that money over or it wouldn't basically been stuck there until retirement age. Taking that tax hit allowed us to purchase a the foreclosed 4-plex at 25% of its value.

Here's the break-down of the situation:

2017 - 4-Plex Purchase with 1031, retirement and cash (cost $116,500)

2018 - Loan taken out on 4-plex ($180,000 cash out)

- $60,000 in credit cards paid off

- $40,000 paid in owed taxes

- $50,000 towards single family rental cash purchase

- $30,000 towards renovations on that single family

I have detailed expenses from the credit cards and receipts for my purchases. I spoke with the accountant today and he said that the credit card must be a business card (officially) and not a personal card that is used for business. I clearly need to define the lines between business and personal better, but I can swear under oath and prove with documentation that we used the cards for the business. Is that good enough or does it need to be a card under a business name.

The problem with characterizing the income as management fees or something like that is that I'm talking about a $180,000 cash out refinance with $60,000 in credit cards that were paid off. The credit cards were used for a new roof, permits, landscaping, paint, complete interior remodels, etc.