All Forum Posts by: Alan Brown

So I just have to always plan on doing a 1031 exchange... 

Hi I'm pretty sure I'm an idiot, but I'm getting slapped hard for it (again!)... I always thought that depreciating your property (and getting a tax write off for it) was permanent... So, a few years ago when I had a 1031 falling through, and my accountant said I'd owe $90k in taxes because of the recapture and the gain, of course we MADE the 1031 HAPPEN!  

So I just sold a property this last summer and I calculated that my sales cost, less sales costs, minus adjusted basis, was my taxable gain... about $35k in gain.  We needed the cash, so I decided to take the hit on $35k... not $113k!!!  

So now we owe $22k in taxes.... because of the recapture after 14 years of depreciation...aaagh!  

I could swear I'd heard it on some real estate podcast (of course not BP) or something, that one of the great things about real estate investing was that you could depreciate your property, and even if you had a gain on the property, you didn't have to pay that back.  I guess all the properties I've sold for myself, I've either done a 1031 or sold it after just a few years, thus not paying much attention to a minimal amount of recaaaaapture.

I wish someone would tell me, 'NO you're right!  depreciation just goes away'    anybody ok with lying to me?  might make me feel better for a little while till I get the checkbook out.

@Brian Degener  What do you have for taxes, insurance, vacancy (typically in troy?)?  

Who pays utilities?  If you pay some, what are they and how much yearly?

Do you have it managed?  How much is that?

thanks

Wow, @Account Closed,  excellent points!  I do have 25 years as real estate broker, and almost the same in construction management, so most of this is not new... but a great list nevertheless on a concept that I know is very litigious, thus the question.  Insurance of all kinds is something I have thanked the heavens for on numerous occasions, but still, I always feel like I haven't thought of all the possibilities that could happen... like when someone has flood insurance but discovers they are not covered for hurricane driven water!!  How does one cover all possibilites???

I like the point about paying in advance for closings!  I could sure see that one sneaking up on you...

thanks guys

Wow fantastic insight, thanks, @Dion DePaoli.  This is good.

Also, a little backstory:  the reason I mentioned insurance, was a developer I worked with in Colorado finished a condo complex in the early part of the 2000's, when there was a rogue lawyer whose business  model was buying a condo, tearing into the structure looking for any defects (as minimal as sheetrock screws might be spaced @ 12" instead of 8"), then going after the builder, which of course was actually the deep pockets of the builders insurance company.  He did this in multiple cases, which began to scare the insurance companies out of writing policies for condos.  I had thought it was a national issue, but found out last night that it was local to Colorado.

thanks

I think I've got a great deal in front of me but haven't done a Condo Conversion yet...  Still working out money details, so I don't have those totally clear yet, but the City seems very encouraging and I know thats a good thing.  Have heard nightmares about not being able to find insurance (dated anecdotal story!), and am looking for other things to watch out for.  Its an older building, so there are not dual walls between the units;  I imagine I may have to remedy that, as all the condos I've seen need to have an airspace between them.  

And will need an attorney to set up the HOA. Do you have to start out by funding the HOA yourself?

Any advice?

@Hai Loc, that's some good cold hard advice, in my opinion.  Don't do it, @James Markovski!  I've worked through some very hot markets as a realtor (not as wholesaler) but I can't even conceive how wholesaling would work when sellers hear that they'll have 5 cash offers over asking price within a few hours of listing, and they have realtors to hash it all out for them.

I'm probably wrong (my son tells me all the time) but licensed sales could be a better option especially if you're established in the area and have some leads

Yeah, it is your responsibility, but forget about getting them a hotel.  It's often the inhabitant's fault for not keeping a terribly tidy house, if crumbs are left around, or garbage is not well taken care of.

Problem with the poison is if they make their way outside (which is of course what you'd like), and hawks or other wildlife eat them the poison can hurt or even kill that critter.

Sealing up the perimeter is the best way to keep them out;  Great Stuff expanding foam can really help if you go around the whole perimiter of the house, and just keep them out.  Set a bunch of traps and task the tenant to re-set them and put more peanut butter in them.

Right now we're renting, as our house is in remodel, and the landlord is great, but it's an old house, pretty hard to seal up;  so he supplies us with traps and we work them.  If we stay on it, they go away and we're usually good for quite a while.  

Or you could get an exterminator, but it'll be $150-$200 depending on how big the house is.  

Even if the mice die in the walls, their bodies dessicate pretty quickly, so if there is a smell, it would go away reasonably fast.

IMPORTANT:  don't let them get bad enough to get into the insulation of the oven, or it WILL ruin the oven, and one day they'll turn the oven on and the STENCH will drive everyone out of the house.  I had some tenants that were so clueless, they didn't even notice the mice, which became an infestation, and had to get a new oven AS WELL as hiring an exterminator.

@Shawn Ackerman, excellent points!  Problem is, property management is a serious conundrum wherever you look I think... 

I've always managed my own properties, and then made enough windfall on a property in CO to buy a few 4 plexes in the midwest.  Hired a highly recommended PM company, and have been nothing but disgusted since:  seems like their main focus is milking me and the properties for every dime they can!  I've interviewed some other Property Managers, but the changeover will be a headache, and I have no guarantees they'll be any better!  

BTW there is a list of 83 questions to ask a potential PM company written by a PM in Phoenix, somewhere in BP's archives, in case anyone wants to look that up...pretty helpful;

 Listened to a different Podcast lately that interviewed a PM in Jacksonville, and he pointed out that he only leases for 2 years or more, because when he had hired a PM years before, he realized that their Leasing fees were as much as a year's worth of management, so his PM of course focused on new leasing every year.  AND of course they don't show properties until they're vacant, so I lose a month of rent every time there''s a turnover.

Sorry to rant and rave, but I'm looking for a success story with a PM involved!  

Also, as far as taxes in NY go, they ARE ridiculous, but typically, the pricing of properties reflects that as well I'm finding.

Hah! @Brett Pirie, there is a ton to learn, and that's a good thing, especially because BP's podcasts are like a PhD in Real Estate... seriously brilliant stuff.  Motivating too;  I've been driving back and forth between MT and NY a bit, and I've listened to every single podcast, sometimes twice!  I wish I'd had this resource 25 years ago!!

If you and your wife don't mind a little inconvenience, like sharing a building with renters, there's gold in them thar hills!  Buying a 4 plex with 5% down (or less) is pretty incredible, especially if the numbers show cash flow even with you in there, not paying any rent.  Either way, it will probably pay for all or most of your own rent, and if you live there for a year, you can move on to another one!  It's all about how long you can stand not living in a single family house... but it's certainly a way to amass fantastic cash flow.  Another twist to that, if the market is appreciating really well, (like Denver--which would be the strongest, and probably only, reason to hold on to your house there:  since you've been an  owner occupant for at least 2 years, you have three more years to hold it after you move out and then sell it tax free.  I don't know what the appreciation rate is in Denver, but if it's around 10% in this hot market, it may earn you another 30% passively by the time you sell it--just don't wait too long, where the market could drop) since you've lived in the 4 plex 2 out of 5 years, you can then sell it tax free as well.  In Troy's market, it may be better to just hold it-- your cash on cash return on your down payment will be ridiculouslly high, if you owner occupy a 4 plex or even a 2 or 3 plex for a year.  In 4 or 5 years doing it, you may have a passive income that covers your monthly needs, regardless of any other investing you may be doing in the meantime... and whenever you get tired of living in a multi family, you then house hack a single family home, live there for 2 years, and keep it or sell it tax free!  

Good luck and let me know when you get here, we'll have coffee!