All Forum Posts by: Mohamed Youssef

If you spend $100K on real estate property work, it’s tempting to think the whole thing is deductible this year. But that’s not how the IRS sees it.

If you patch a roof leak, repaint a unit, or replace a broken window, those are typically repairs. They keep the property in operating condition and can usually be deducted in the current year.

But if you replace the entire roof, install central HVAC where there was none, or upgrade all kitchen appliances across units, that’s considered an improvement. Improvements extend the life of the property or add value, so they need to be capitalized and depreciated over several years.

Here’s a quick breakdown:

- Repairs (deduct now): Fixing plumbing leaks, repainting walls, replacing a broken door lock, and resealing parking lots.

- Improvements (capitalize): New roof, structural foundation work, building additions, upgrading electrical to code, replacing all flooring.

This distinction matters. Classify it right, and you get the deduction you’re entitled to and stay in compliance.

Good point, Philip, about the separate LLC for the real estate. Thanks!

The classic Buy-Rehab-Rent-Refinance-Repeat strategy needs rethinking in our current financing environment. I've been tracking how successful investors are adapting their approach.

The traditional BRRRR relied on loan-to-value refinances of 75-80% after forcing appreciation through renovations. With today's higher rates and more conservative appraisals, the math often breaks.

Smart adaptations I'm seeing:

• Extending the holding period before refinancing (from 6 months to 12-18 months) to allow rent growth to catch up with investment
• Focusing on properties requiring less intensive rehab to minimize the gap between purchase and stabilized value
• Negotiating seller financing for the initial purchase with terms allowing early payoff without penalty
• Partnering with private capital for the initial purchase and rehab, then refinancing to return only a portion of their investment

One investor modified his approach by purchasing properties with in-place cash flow, even with deferred maintenance, rather than vacant properties needing complete renovations. This modification allowed him to immediately service debt while executing the value-add components gradually.

Has anyone found creative workarounds to the refinancing challenges?

I will be at the Empowered Investor Live in Irvine, CA, next week.
Let me know if you plan to be there. I would love to connect with as many CA folks as possible.

 No problem! Yes, you will need to go by the square footage, i.e, number of square feet rented to total square feet, etc.

I don't have a recommended list to interview an accountant, but like hiring any professional or technician: Read reviews, ask about years of experience,e and if they specialize in real estate, ask about what the typical process of working with a client looks like, methods of communication (email, phone, zoom, etc.) and how often you get to meet with the CPA, fees, fixed or variable, etc.

There is a book published on BP called Long Distance Real Estate Investing, which got great reviews from people who were starting out in long-distance investing. You can buy it on Amazon, too.

When conventional financing isn't available, creative investors find alternative paths.

Master lease options have regained popularity. One investor secured control of a 12-unit building through a 3-year master lease with a purchase option, allowing time to improve operations before obtaining traditional financing. The structure gave the seller current income while granting the buyer control without conventional financing.

Another approach gaining traction: hybrid seller financing, where the seller carries a second position while the buyer secures a smaller conventional first mortgage. This reduces the lender's exposure while giving the seller priority over completely unsecured financing.

For construction projects, I've heard of successful implementations of "construction-to-perm" private financing where a single investor provides both construction capital and takeout financing, eliminating the uncertainty of securing permanent financing after completion.

The common thread: successful creative financing typically offers clear alignment of interests rather than just favorable terms.

What creative financing structures have you successfully implemented? Anyone willing to share details of terms that worked for both parties?

 Hello @Jaycee Greene and @Anastasia Kiryushkina

Yes, you will be able to depreciate 2/3 of your cost (price paid for the property + any renovation made) over a period, usually 27.5 years.

 Great points here, Don. I also like the solo 401 (k), as you can potentially contribute up to $70K per year pre-taxes.

 Glad to hear more investors are using this strategy to finance more transactions.