All Forum Posts by: Michael Porche

Whats up @Ryan Schwartz! Were you able to get this figured out??? That will definitely be very steep because people are only willing to pay so much for a place on a nightly rate. You would want to be marketing your property to specific events, corporate parties, family reunions, maybe even small weddings. That would probably be highest and best use for the property. Whether or not if you can surpass $250k per year is a tight chance.

Quote from @Chris Look:

Quote from @Michael Porche:

Quote from @Chris Look:

Hey everyone, we are looking for some clarification or advice on maximizing the tax benefits on a short term rental. We are in the process of purchasing our first property, just narrowing it down right now. We both have full time jobs but plan to manage it ourselves to meet the requirements for material participation for it to be a non-passive property. We would also plan to run a cost segregation study to maximize bonus depreciation in the first year. How does this work to offset both the income of the property and then our W2 income? Are there other options or tax benefits we should look at? Does it make a difference on what we are able to deduct based off of a down payment, furnishing the property, and/or any maintenance/updating to the property?

Here is an example of some numbers I have looked at. If we purchase a property for $400,000 that has a gross income the first year (4 or 5 months before year end) of $25,000, operating expenses of $10,000, mortgage and taxes of $15,000, with a W2 income of $175,000, what might that look like for taxes? Do you take all of it in year one or does/can some of it carry over to the next year if unused? How does a down payment or other costs to get it going play into all of this? I have not been able to find a good example that actually shows how to offset both the income of the property and W2 income. I plan to talk to our CPA as well but want to have a better understanding of it beforehand.

Thanks in advance for the advice!

Thanks,

Chris

@Chris Look This is definitely a question you want to get on the phone with a few different people in that world to get the best perspective. Here is a video that might help clear up some questions:
https://www.youtube.com/watch?v=NEpBed2-9HA

 Thanks for sending the link, it helped clear some of my questions up!

 Glad it helped! 

Quote from @Chris Look:

Hey everyone, we are looking for some clarification or advice on maximizing the tax benefits on a short term rental. We are in the process of purchasing our first property, just narrowing it down right now. We both have full time jobs but plan to manage it ourselves to meet the requirements for material participation for it to be a non-passive property. We would also plan to run a cost segregation study to maximize bonus depreciation in the first year. How does this work to offset both the income of the property and then our W2 income? Are there other options or tax benefits we should look at? Does it make a difference on what we are able to deduct based off of a down payment, furnishing the property, and/or any maintenance/updating to the property?

Here is an example of some numbers I have looked at. If we purchase a property for $400,000 that has a gross income the first year (4 or 5 months before year end) of $25,000, operating expenses of $10,000, mortgage and taxes of $15,000, with a W2 income of $175,000, what might that look like for taxes? Do you take all of it in year one or does/can some of it carry over to the next year if unused? How does a down payment or other costs to get it going play into all of this? I have not been able to find a good example that actually shows how to offset both the income of the property and W2 income. I plan to talk to our CPA as well but want to have a better understanding of it beforehand.

Thanks in advance for the advice!

Thanks,

Chris

@Chris Look This is definitely a question you want to get on the phone with a few different people in that world to get the best perspective. Here is a video that might help clear up some questions:
https://www.youtube.com/watch?v=NEpBed2-9HA

Quote from @Nicholas Chan:

Hi all,

I currently own 2 STRs properties (1 in Seattle, WA, and 1 in Big Bear City, CA), Both companies have a separate LLC, and on top of that, I have another LLC that I use as a holding company for the two LLCs above. My question is, should the income go to the two STR companies or should it go to the holding company instead? And how do you pay yourself?

Thank you all! 

Nick 

Hey @Nicholas Chan! 

This is a big CPA & Attorney question. And it really depends on your situation and what you are trying to accomplish. I know if you flow the funds through the holding company, it makes bookkeeping and end-of-year taxes easier and less expensive. 

In regards to how you pay yourself, this is depending on how the LLC's are taxed. Are they taxed as a pass through entity like an S corp or are they taxed differently. Depending on your tax election will dictate how you will pay yourself. If it is a pass through entity then you can give yourself a pay roll either way.

The other is just "owner draws". Now take my advice with a grain of salt for I am not a CPA or an attorney. However if you need a connection I can connect you with someone who can answer these questions more thoroughly who is licensed and versed in the real estate investment space

Hey @Yosef Sod!

The metrics you want to pay attention to will vary depending on what type of asset class you are going into. Short term rentals vary differently from long term rentals. Flipping varies from holding properties, multifamily varies a bit from holding long term SFH and so on.I believe a great place to start is to ask yourself what is your goal? How much time do you have to execute such goal and can you realistically make it happen. Then you can choose a market based on the vehicle you are going to use to accomplish such goal.

Hey there, fellow investors!

I wanted to throw an idea out there and get your thoughts on it. Lately, I've noticed that many people are facing challenges when it comes to raising capital for their investment endeavors. It's a common stumbling block that can leave aspiring investors feeling stuck and unsure of where to begin.

So here's what I was thinking: What if we held a training focused specifically on raising capital? I was thinking of sharing my experiences, insights, and strategies that truly helped me to get people to partner with me. Then hold an open Q&A and encourage participation.

Now, I'm not entirely sure if this kind of thing is allowed or permitted to talk about here, but the idea just struck me as a fantastic way to support one another and foster a strong sense of community. By doing this, I can provide practical guidance and have others weigh in on the conversation as well.

We can solve a couple of items like acquiring new knowledge, and help us form valuable connections and friendships along the way. But before we dive headfirst into planning this, I wanted to hear what you guys think. Do you believe a free training on raising capital would be helpful? Would you be interested in participating? Let's have an open discussion and see if we can make this idea come to life! 

Looking forward to hearing your thoughts!

Hey @Jay Dotson! Depending on what you can do with your 160k of equity. If you buy another investment that makes a considerably higher return than it currently does, then that would be the move I would make. If holding it makes a stronger return until you can find something that makes a larger one, then make that move.
I think the most important thing to consider is that if your goal is financial freedom, like most of us, then you need to measure the current return on a cashflow basis and appreciation basis and see how it compares. If you can do considerably better elsewhere with the same amount of effort, then I would sell to move it.

Haha whats up @Andrew Angell! Definitely a lot to think about. Now, I am not a CPA, however, it is my understanding that it is a lot more difficult to prove you are active if you own an STR. Normally people have to prove that they are active rather than prove you are passive. There is certain qualification that you have to meet in order for you to be active. 1. of those is that you have to work more in your STR business than anyone else, that includes work more than people you hire like the cleaner etc. You also have to meet a minimum qualification of hours. Overall, it's easier to report the income made from a STR rental property as passive than it is to report it as active income.Now I was a little confused. What is your overall goal with what you are trying to do with this?

Quote from @Paige Harrison:

@Michael Porche the one thing I like about Umbrella is that the premium is so low. I have a 2 million policy now, and it is $400 for the year. Can't beat it. 

Can someone explain how LLC protects beyond a 5 million umbrella policy? Maybe with a specific example?

Oh wow, yeah thats pretty awesome! Now I am not an attorney but I believe there is a few cases that aren't protected with the insurance policy that an LLC can guard against. I know I've seen a few out there but I think, enviromental claims like 'toxic mold', breach of context within the claims, aren't covered by insurance

Quote from @Shmuel Gertel:

I bought an STR late last summer with a partner and have been running it successfully through AirBnB and VRBO since mid-Oct. We bring in about 10k a month. Lending markets have been all over the place, I put a short term loan on it when we bought it for 658k (purchase was 700k, appraisal was 940k - 70% LTV). We did some work on it, etc. Looking for something to get us through the next year to 18 months. Once we have 2 years of financials, we can access more traditional funding sources. Any lender suggestions?

Congrats man! what type of lenders are you looking for?