All Forum Posts by: Ryan Moyer

Quote from @Michael Baum:

Hey @Rosston Smith, have you called the state, county or city to find out? One call should get you an answer.

 The state often has no idea.  May be different in Georgia, but when I called in Florida originally they basically told me "the laws are available, and you and a lawyer need to interpret them, we can't do that for you".  Of course they were extremely confusing to interpret and I think a lot of people interpret them incorrectly.

Worth noting that once I did consult a lawyer, most of the people giving answers on the question online were wrong.

This is just something that is going to require combing through the state law and trying to interpret it, and consulting a lawyer if it's not obvious.  Even in cases where it seems obvious, it's often not.  For instance in Florida a lot of people think a broker's license is required since the law is clear that property management requires a broker's license, and most people quit there.  But if you dig down deeper you find that Florida only considers it "property management" if the average stay is over 30 days.  And stays under that (STRs) are actually not defined as property management or real estate activities, but rather hotel lodging dictated by hotel licensing and laws.

Quote from @Scott E.:

I could be wrong on this but this isn't all it was, right?  People keep quoting the shower thing but the shower was the lessor of the two issues.  If I'm interpreting the article right the dwelling wasn't permitted for occupancy at all, even before the shower remodel.

Quote from @Kaiden Foster:

It seems the general consensus is that it is nearly impossible to get liability insurance as a STR manager? What are STR management companies using then? 

 I talked to a lot of management companies to try and figure this out, and get contacts from them.  I found two repeat things.

1) Insurers that used to offer on STR, but no longer do

2) Insurers that offer on "property management" which does not include STR, but the people buying the policy didn't notice.

#2 is the scary one. I had probably 10 people refer me to Hiscox. The first 2 agents at Hiscox were happy to sell me "property management" insurance even after I explained to them explicitly what I did (short term rentals only). It wasn't until the 3rd agent finalizing things that they said the policy does not cover STR, and that they do have a policy that covers STR.

Ultimately your best bet is going to be to find a local company.  Most of the national ones won't do it.  Someone in the same zip code as your property.  Those still exist.  Obviously this will be a pain if you operate in multiple markets, but it is what it is.

There are quite a few of those $1.2M - $1.5M 9br lakeview properties for sale in STR for sale groups with empty calendars and investors trying to get out because they're not hitting anywhere near the 150k-200k they were promised.

Quote from @Nancy Bachety:

Amelia Island - amazing returns for our one BR condo ocean view, ocean front, on the ocean. It's a STR -driven condo.

 When did you buy it?

Quote from @Lisa Marie:

Bonus depreciation may sound good -- "oh, I can offset it against my W2 income and not have to pay tax", but in reality, it is just another way for the tax professionals to get more business by charging you for doing the cost seg as well as preparing an ever-increasingly complicated tax return.  If you are a corporation or a real estate developer, it may be different, but for the vast majority of the mom and pop investors, it has no value.

First of all, I always find it laughable that any high income professional, doctor or lawyer or corporate executive, would want to trade their most valuable resource (time) for something they already have plenty (money). Second of all, any depreciation, regular or bonus, is a delayed tax.  You still have to pay it eventually, possibly at a higher rate.  If you are close to retirement age, and think your W2 income will decrease significantly in a couple of years, then cost seg and bonus depreciation can be useful.  But I don't think that's the case for most people.

I am just a housewife, but my husband is an engineer and has an MBA. We have a STR beach house and he looked into the bonus depreciation scheme. He even went so far as creating an Excel file (as an engineer would do), and concluded that (1) if you are not already a real estate investor, you are actually better off by taking the money and investing in the stock market; (2) if you already own a STR, cost seg has a small benefit, but the benefit decreases the longer you own the property, also there is the cost of the cost seg itself. To be clear, he is not saying that you should not invest in real estate or STR. He is saying that if you want to invest in STR, do it because you think it's a good way to make money or because you want to diversify your assets, but don't do it just for the cost seg tax savings.

The key point to remember is that yes you can get the bonus depreciation right away, and depending on your W2 income amount, you can skip paying tax for the first 3 or 4 years. But then what? Once the bonus depreciation is over, your tax goes back up. Another key point: how much is your time worth? If you make $200k a year, that's $100/hr your employer is paying you. To use this "tax loophole", you need to spend at least 100 hrs AND more than anybody else. 100 hrs is 8 hrs a month -- if you have 3 or 4 rentals per month, your cleaner will spend more than that. I think realistically, 150 hrs or even 200 hrs is more likely, especially for a new STR owner.

Here is the Excel table my husband did, with some very simplistic assumptions. Assuming you have $1.2M cash, which can be invested in the stock market and reasonably get a 7% return. Or you can buy a $1.2M STR with the building valued at $1M, which is your max bonus depreciation amount. Assuming your W2 income is $250k, and you get a gross income of $100k from your STR. Roughly it translates to about $50k Net after deducting all expenses.

Conclusion: you save some money in the first 3 years, but at a cost of spending a lot of time to manage the STR, not to mention any start-up time to buy and furnish and launch the STR. But over a span of 10 years, you actually make less money.

Again, I want to emphasize, I am not saying it's a bad idea to invest in an STR. I am saying it's a bad idea to invest in an STR purely for the benefit of cost seg to lower your tax bill.

	Option 1: invest money	Option 2: STR with Cost Seg
	Investment income on $1.2 M	W2 income	25% tax on Income	Money in the bank	Value of my time	Net Income on $1.2M STR	$1M Bonus Depreciation	W2 income	25% tax on income	Money in the bank	Value of my time ($100*200 hrs)	REAL NET PROFIT
Year 1	$90,000	$250,000	$85,000	$255,000	0	$50,000	-$300,000	$250,000	$0	$300,000	($20,000)	$280,000
Year 2	$90,000	$250,000	$85,000	$255,000	0	$50,000	-$300,000	$250,000	$0	$300,000	($20,000)	$280,000
Year 3	$90,000	$250,000	$85,000	$255,000	0	$50,000	-$300,000	$250,000	$0	$300,000	($20,000)	$280,000
Year 4	$90,000	$250,000	$85,000	$255,000	0	$50,000	-$100,000	$250,000	$50,000	$250,000	($20,000)	$230,000
Year 5	$90,000	$250,000	$85,000	$255,000	0	$50,000	$0	$250,000	$75,000	$225,000		$225,000
Year 6	$90,000	$250,000	$85,000	$255,000	0	$50,000	$0	$250,000	$75,000	$225,000		$225,000
Year 7	$90,000	$250,000	$85,000	$255,000	0	$50,000	$0	$250,000	$75,000	$225,000		$225,000
Year 8	$90,000	$250,000	$85,000	$255,000	0	$50,000	$0	$250,000	$75,000	$225,000		$225,000
Year 9	$90,000	$250,000	$85,000	$255,000	0	$50,000	$0	$250,000	$75,000	$225,000		$225,000
Year 10	$90,000	$250,000	$85,000	$255,000	0	$50,000	$0	$250,000	$75,000	$225,000		$225,000
TOTAL				$2,550,000								$2,420,000

 In the immortal words of Tom Hardy in Inception, "you mustn't be afraid to dream a little bigger, darling".

You have a good understanding of things, but you're missing the ways it can be leveraged.

Bonus depreciation works best when you have one high earning spouse and one non-working spouse.  That way the non-working spouse can commit the time, all while creating cash/assets that reduce the amount the working spouse needs to work in the future (this is extremely common for physicians in general right now, as many of them are burnt out and looking to reduce hours in the coming years).

You're right that the tax advantage is only a 1-year thing.  But if you have a working W2 spouse and a non-working spouse materially participating, your tax savings are going to come in the form of a giant tax refund.  If the working spouse has a salary of 500k with the employer taking taxes out of their paycheck, and they purchase a $1M house that their spouse materially participates on, after cost seg/bonus depreciation that would net them around $100k in cash via a tax refund after their $350k tax deduction from the bonus depreciation.

And what better to spend that refund on than the down payment on another house to use for bonus depreciation next year, which generates a big refund next year, which you can use for another down payment the year after, which generates another big refund the year after, and now we're scaling baby.

And now a decade or two later you've got 10+ properties. Money has inflated, rents have gone up, but your mortgage is fixed. All those people that have houses from 15 years ago that we're all saying "well of course you're making tons of money in STR, you have a mortgage from 2010!". That's you, and the guests have been paying that mortgage the whole time.

You're right that the tax "savings" are actually just deferment.  In addition to the time value of money (you now have 10 cash flowing properties with tons of equity that you couldn't have afforded otherwise), you also have to consider that those taxes only have to be paid back when you sell.  Most people that use bonus depreciation don't ever plan on selling.  If they need a cash infusion, they'll just borrow against the home.  And if they do sell, they 1031 and roll the deferment over to the new property.  Then eventually one day they die, the deferred tax is not inherited, and it disappears into the air.

So 20 years from now you retire (or sooner, if you'd like) and you've got 10+ cash flowing properties that were purchased way back at 2023 prices (those lucky people that got real estate when it was that cheap!) with tons of equity via appreciation and 20 years of mortgage paydown, that pay you more in your retirement than you ever dreamed of.  You've spent no money out of pocket for this since your tax refunds covered it all (meaning you could continue dumping your savings into the stock market, so it's not like you're missing those returns).  You travel in luxury for 20 years, then you die, and your heir inherits those 10+ cash flowing properties that are now completely paid off, with insane amounts of equity, and all those tax deferments fly away into the sky.

Oh yea, and that $2000 per cost segregation?  Barely a rounding error in all of this.

Obviously, not everyone is comfortable with that kind of leverage, and you're right that someone making 70k a year just doing it once for an extra 12k on their tax return it may not make as much sense for.  But for some circumstances, it can be unimaginably lucrative.

EDIT: Usual disclaimers here.  I'm not a CPA, just a guy on the internet!

Personally I think this is in your head, but I don't have any data.  Management companies have been doing this for decades (for other reasons).

Cleaning fees have legitimately gone up a lot in most markets over the last few years.  Just normal supply/demand as well as raised expectations in cleanliness.  The number of STRs has grown rapidly, while the number of cleaners not nearly as much.  So a lot more competition for cleaners, and with this new class of hotel traveler coming to STRs, guests have a much higher standard for what constitutes a vacation clean than they did in the past.  So cleaners are being asked to do more, and they are in higher demand.  A rate increase happens naturally there.

As to other bogus fees, that's not really anything new, especially in large management companies like the one in your example.  Here's a thread Collin made about it years ago.  Most commonly used in rent shifting where the intent is to dupe the owners, not the guest.  In fact the whole premise is that it doesn't really matter to the guest.

The reality is that there's no real benefit to shifting rate into fees in terms of acquiring guest bookings because both Airbnb/VRBO feature total price heavily now, and actually default to not even showing the nightly rate on new accounts or when not logged in.  The only people that see the nightly rate in the search are those that had old accounts before this change and haven't hit the toggle to show nightly price instead.  But even for those accounts it is total price inclusive of fees that is featured on the property page.  It's not like resort fees on hotels where they actually show you a lower total price and then tell you in the fine print that resort fees will be added on top of that later, and don't actually show you what your real world price will be at any time during the booking.

Quote from @Dave Stokley:

Come to Ohio. I don't charge a "host fee," whatever that is...

On expedia all fees are rolled together into "host fee".  That includes cleaning fee.  So if you have a cleaning fee, you have a "host fee".

Haven't used them myself, but I've heard plenty of good things about Safely and Waivo.

Some PMS's will offer damage insurance when booked through the PMS widget as well.  I know Ownerrez and Hospitable both offer this, for an upcharge.

I live 45 minutes from Park City and vacation there 3+ times per year and I don't invest there. If I were to make a list of "Markets to have the highest likelihood of negative cashflow in 2023" or "Markets where you're most likely to have your STR banned due to regulation in 2023" Park City would probably be near the top of those lists. So for it to end up on a "best markets for STR in 2023" list to me shows either an extreme lack of knowledge of STR in the area or someone pushing an agenda (like a Park City realtor trying to convince people to buy with them there). While this forum is LITTERED with the latter, it doesn't appear to be the case here.

What it does appear to be is simple reputation management, putting a bunch of big posts out there to appear as a general subject matter expert so when someone is looking for a lender they see them as reputable. Which is totally fine.....IF YOU'RE ACTUALLY PROVIDING HELPFUL INFO.

In this case, the info just appears to be a hodgepodge of random markets with random tourism website quotes alongside some quick broad AirDNA metrics pasted in that don't really mean much in a vacuum. Again, that wouldn't so bad except that, at least given the market that I'm familiar with on the list, it's not only not helpful, it can actually be harmful. And directing people to Park City as a "top market" is harmful to the people who listen to it. Because it's only a very specific kind of buyer (particularly someone who likes to vacation there and doesn't really care too much about returns) that the area makes sense for.

We see all these posts on this forum about whether the STR market has taken a big downturn or not, and the prevailing theme we see in the answers to those threads is that the only people struggling are the ones who were stupid enough to buy a bad deal in a bad market at the peak. The thing that grinds my gears about those replies is that, while the buyer certainly deserves some of the blame for putting too much trust in people, it's posts like these and many of the people that post on these forums that pushed people into those deals in the first place. This forum has a bad habit of preying on people that don't know any better and then blaming them for listening to them in the first place.

I dunno, I've had this post sitting here for like 24 hours not sure if I want to even post it or not, and if it's too brash. But I think that is needed at this point. I'm just tired of people being fake helpful on this forum to try and drive business. If you want to be REAL helpful to drive business then great, I'm all for that.