All Forum Posts by: Michael Zagorsky

In general, every time I look into Infinite banking, the more I think it's a bad item:

First, there are plenty of tax advantage strategies to save/invest money:

1. Mega-Backdoor 401k's

2. Opportunity Zone investing

3. 1031 exchanges

4.  Self directed solo-401k's

5. Self-Employed LLC taxed as a S Corp.

All of these can be explained in a couple of minutes and understood by most people.  That said, every time I read about 'infinite banking' the more confusing the subject becomes.  The answer seems to always funnel to a commission salesperson who can answer my questions.  Why is that?  Why it is that I can understand the tax advantages of moving a business to Puerto Rico but somehow I can't come to a complete understanding of 'infinite banking' and why it's a good idea?  

Of course 'infinite banking' violates my primary rule of buying anything:

Never buy any financial product advertised on AM talk radio.

What's funny is that that while those people talking about how wonderful it is, why is it that they are having to sell it?  If it really generated risk free returns, big money hedge fund investors would actually pay people to take out the policies in exchange for a cut of the action.  That does not happen.  No secondary market for channeling capital into these products.  There are markets for lending people money to buy discounted employee stock purchase plans, frequent flier miles, credit card authorized users, etc.  But somehow a product that is 'risk free' and much higher than bonds seem to have no one trying to round up people to take out policies for their money.  

worth a read:  https://www.whitecoatinvestor....

I had a wholesaler I have not heard from before send me a deal, not much in the way of details, for a shutdown self-storage unit in a rural southern area.  Looks like it needs a lot of work to get it up and running so I'm thinking it's a pass for me.  But then, I was looking at the google maps photos and it appears there is a large cell tower within the property lines.  I was wondering how these lease agreements are usually structured as to how I can pencil it into the math I'm running on looking at the buildings.   

We converted a personal residence into a rental seven years ago, our last tenant trashed it, we rehabbed it (repairs, paint, carpet) for about $8k but failed to sell it at an acceptable price.  At the time we did the rehab we had every intention of selling it, but a low appraisal killed the sale.  We are seriously thinking of moving into the property as our primary residence but I was unsure how we would treat the expenses that we incurred after the tenant moved and we tried to sell it but before we considered making it our primary residence.   Anyone know how these expenses would be treated?  

So like any good post that speaks in absolutes, the right answer is of course ‘it depends’. Anyone who says that there is only one way is looking for eyeballs and post engagement above all else.

It depends!

So let’s go with a simple example. Let’s say you built new construction in a class A neighborhood and put in a working professional.. Explain to me what exact value a property management company is bringing to the party?

Let’s put it a different way, property management directly lowers the return you get on a property. The question is whether you really have a ton of opportunities to maximize your return in other ways. But let’s do a quick and dirty example:

With Property Management:  

Self-Manage:

So there you go. If you have other ways that increase your CAP rate by 21% or your cash-on-cash by 81%, go ahead. I assumed 12% management fee to account for new tenant placement fees.

But let’s go down the list of why you should consider property management and what property management brings to the party:

• Tenant placement: We’ve had a real estate agent list and show our property in the past for one month of rent. BP also has a good book on how to do tenant showing and picking the right tenant. A weekend of work for saving one month of rent: Sounds like a fair trade off.
• Maintenance: Put these words in your lease “Tenant is responsible for all maintenance items less than $50”. You also know, if you have a handy man you like, you can offer to put them on retainer (Maybe $20/month per property) and have the tenant call them direct. I know another investor that does this and self manages a few out of state rentals.

All that to say, in our time owning an investment property (we are in the process of selling and getting out of real estate for the time being) we never had a stupid simple maintenance item—they were always BIG items. AC broken, water leaks, floor rotting. Each of these costing thousands of dollars to repair--- In each case our property management company was not on our side. They gave us the first bid they got and didn’t bother to try and save us money.

Want to save a ton of money with property management--Learn this question: “How many bids did you get?”

I've been thinking of buying a personal residence in the Show Low area and was just wondering if anyone was an REI in the area. Not really looking to invest yet but wanted to know what the market was like from an investment standpoint if we decide to buy a personal residence there.

I am about to list my property for sale in Gardendale after a tenant moves out at the end of the month.  I already setup the power to transfer at the end of the month for showings.  I was wondering, I heard that water service right now is not being shut off.  Do I need to bother switching over the water or will it not matter?  Just want to make sure the toilets flush and sinks run during showings.  

A little background.

I am a W-2 earner. My employer also provides a high deductible (HSA) eligible health insurance plan for my wife and me.
My wife had a side business and a W-2 job but this year she decided to go full time with her business at the beginning of the year (Resume writing and career coaching). To date she has made about $11,000. Expenses are minimal (Maybe $3-5k for the year is our estimate).

We are residents of Florida but are digital nomads traveling full time across the country. I am unsure of when we will stop or our final state of residency.
So that brings us to should we S-Corp or Not.

In the last we just did the schedule C and moved on. Our taxes were not support complex and we did them ourselves (Just Schedule C and E) so I think that this is going to vastly complicate our taxes and likely require actually hiring a CPA.

So here is why I’m thinking this is a good idea:
1) We get to reduce the SE tax by drawing a wage.
2) We would like to max a Solo-401k for my wife, my understanding is that the 25% employer match would also not be subject to FICA or SE tax.
3) The company could potentially contribute to an HSA account, again not subject to FICA or SE tax (I’ve heard mixed things on this).

So now what I’m wondering:
1. In this case, is there a difference between an S-Corp and an LLC taxed as an S-Corp?
2. I assume I want to do this in Florida? Any downsides?
3. What are my expected costs to setup this and my ongoing expenses? What about payroll processing or unemployment insurance?
4. What sort of a time commitment is required to administer something like this?
5. Are my assumptions about the Solo-401k and HSA correct?

The main thing I’m trying to pencil out is if the tax savings on this is going to be worth the hassle of administration, especially with QBI diminishing the relative savings.

To ask the question a different way.  I get that there are rental properties that don't cashflow, especially in markets where the investor is looking for long term appreciation due to changing trends.  

BUT short term rentals are not long term rentals and usually the expectation is that a short term rental cash flow and generate a nice margin. That is true of mountain cabins, city STR's, etc. People are making a profit from those.

There are a ton of beachfront short term rentals on the market, so lots of investors are doing this.  I would get the
appreciation play, but they don't seem to be better than other appreciation plays and have a ton more maintenance and risk than other locations for STR. So what do investors see in them?

Do you mind me asking how did you choose these as investments?  What made you choose investing in beachfront instead of other markets from an asset appreciation standpoint?