All Forum Posts by: Scott P.

Hi,

I am trying to fully understand taxation of rental properties before I make my first purchase. The scenario I'm looking at is a buy-and-hold strategy (100% cash) that would generate a moderate amount of income (with no other sources of income). My tax situation varies a lot, but that's the scenario I'm looking at right now.

My understanding is that the highly touted tax benefits of owning rental property boils down to [1] you can write off expenses (but I don't see that as a benefit; I don't think people should pay taxes on money they didn't make), and [2] you can depreciate the property.

In the case I describe, it seems to me that not depreciating might be more beneficial. In 2012, marginal tax rates for <$70K income were 15% (married filing jointly). Using depreciation, you would pay a lot less in taxes today, but would owe capital gains on the depreciated amount in the future if/when selling. So buying a property for $100K today and selling for $150K in the future could potentially cause as much as $150K capital gain (rather than the actual $50K gain).

It's impossible to predict what taxes will be like in the future, but [1] am I right than in the situation described, not depreciating the property might be beneficial (I.E. am I overlooking something obvious?), and [2] is there a way not to depreciate (the IRS says that the basis in the property needs to be adjusted my the allowable amount of depreciation, even if not deducted)?

Thanks in advance for any assistance.
-Scott

Thanks Nikko, the syndication idea is one I hadn't encountered before, and looks quite intriguing.

Thanks, guys, for the advice; I appreciate it!

Thanks for the suggestions. I like the idea of buying one now, getting reliable income out of it, and then doing a cash-out refinance. That also helps ensure that I won't get into too much trouble, if for some reason I just can't get the numbers to work (I doubt that would happen, but I'm sure few people buy thinking it will happen to them).

Hi,

I am planning on buying one or more multifamilies, to buy and hold. I do not currently own any real estate, aside from my own home.

I could pay all cash for a multifamily, but would prefer to finance, if I can get a rate to make it worthwhile (I figure that it would need to be less than my expected cap rate). I would be looking at about a 50% LTV ratio. My credit score is good (720ish).

The problem is that my income isn't typical; the biggest problem (and why I cannot refinance my personal mortgage) is that I have no "guaranteed" income (stable income that is expected to continue). Some years, my income is great; other years, there is nearly no income. It works great for me, but not for banks.

Is it possible that I could get traditional financing (e.g. based partially on the expected income from the property)? Is there alternative financing that might come into play (realizing that in my case it would not make sense for me to pay too high an interest rate)?

I'm guessing that seller financing might be an option. Are there any other alternatives that might work (e.g. assumable mortgages, although I expect I would have to qualify for those)?

Thanks in advance for any responses.
-Scott

Hi all,

I first looked into commercial real estate (multifamilies, specifically) in the late 1990s when I saw triple deckers selling for a song. I didn't have money to spend back then, but do now.

One hurdle I will face is with getting financing; I run my own businesses, which I tend to sell after a few years, so I have usually have no "reliable" income (e.g. income that I have for a couple years that is expected to continue for at least a few more). But I could purchase some smaller properties without financing.

I'm looking into multifamilies to buy and hold to generate income; I'm hoping to end up averaging 8+% cap rates, for properties preferably near me (but, using professional management). I'm also thinking about inflation, with rents over time keeping up with inflation (and therefore likely the value of the building(s), as well).

I have an open mind (e.g. I have looked a bit at non-performing notes, which seem to be a bit esoteric), and have learned a lot lurking here already, and hope to learn more.
-Scott