All Forum Posts by: Michael McDevitt

I am a partner in a CPA firm.

Hi @Molly Jacobsen!  

I am a CPA who specializes in real estate clients. A single member LLC (owned 100% by you), is disregarded for income tax purposes. So, the IRS ignores the LLC and treats it as you. Therefore, you can't sell the home to yourself to increase the tax basis. You would have to transfer the home into your LLC, but the IRS will treat the home as continuing to be owned by you. So, the basis would still be your adjusted basis, no step up to FMV.

In general, the IRS doesn't respect "self-dealing", which is selling assets to yourself, a family member, or a company you control.

These issues get complicated, which I love because I get to charge my time helping clients through these issues!  I strongly advise you find a competent CPA or tax preparer, who is experienced in real estate.

@David Bell, that is a good question! There are ways to do it, and plenty has been written about it on this website and in many books on REI. The answer, at least from my experience, is that it is possible to acquire your second (and third, fourth, etc) properties. But, it isn't always easy or obvious.

One example, is to acquire your second property by buying a distressed property using a hard money lender, rehab the property to increase the value, get it rented and later refinancing with a conventional mortgage.  The increase in value by rehabbing it becomes your down payment when you refinance.  Of course, this is more complicated then my summary - my paragraph summarized a whole chapter or even book on the subject.

It may take time and effort (and nerve!) to learn about and utilize the ways to accomplish scaling up, but it can be done.

By the way - I am originally from Woodbridge, NJ, so I know East Brunswick very well.  I moved to Colorado several years ago.  

@Cam Jimmy, I would be okay with these renters and this process.  They passed their checks and are willing to sign a lease (and I assume pay their deposit and first month's rent?).  I can definitely see why someone would want to secure their housing before they arrived in a new area.  Are they military?  We get that a lot here, as we are a big military city.

Is there something particular that you are unsure of, or it is just new to you?

I agree with @Mike Dymski.  You would be negative by quite a bit if you rented it.  Take the cash from selling it and look for a better property for rental.  

Me too, George! I am a full time CPA and part time REI and am new to this site. I was so impressed with the information and community here, that the fee wasn't even an issue. Money well spent, IMO.

Michael

Hey, Fred! I was born and raised in Woodbridge, NJ and did my first REI deals there. I moved here to Colorado in 2003 for my full time job and am investing in RE here now.

I am sure you will get different answers to your question, but in my opinion, it is worth the realtor's 6% fee. Being listed on the MLS will get it sold faster, and at FMV. A private seller will have a hard time attracting enough buyers, so you may get one who low-balls you. Do the deal through a realtor and if you continue with REI, you can get your own license, so you can keep some of the 6%.

Why can't you get in the occupied side?  Just ask for an appointment to do so.  I have bought occupied properties, and as long as you give enough notice, I haven't had a problem getting in.  i would never buy a property I had not inspected.

Congratulations on closing!  Have you run your numbers through the calculator on this website?

I am a CPA with 30 years of practice.

It looks like the previous posts pretty much covered the tax benefits of home ownership:

1. Deduct mortgage interest, assuming you itemize.

2. Deduct RE taxes, assuming you itemize.

3. If you live in in long enough and then sell, any gain (up to $500k) is tax free.

4. When you convert it to rental, you still get #1 & #2, plus you can depreciate the home over 27.5 years.

This stuff gets a bit complicated, so see a CPA or find one for when you start renting the home.