All Forum Posts by: Oleg Kio

The questions are rather generic and there are lots of articles and posts giving generic answers, so I'll just post a short reply.

1. I invest in Charlotte area, properties for good CoC and appreciation have been hard to find (if you're a conservative investor.)

2. Do you have the time and the skills to do it on your own? If so, that's probably a good way to start, if no, you'll be in over your head.

Do you know a good, trustworthy contractor? If so, use them. If no, you'll likely lose money if they do a shoddy job or charge you way more than quoted at first.

If the answer to the last 2 questions was "no", then buying a turn key property (or partnering with someone who has more experience} is probably your best bet. Still make sure it's not overpriced and the neighborhood is at least decent. Buying in a bad neighborhood usually leads to regrets.

3. There are probably as many answers to that question as there are BP members :) There are lots of posts discussing this.

I expect house prices to come down but probably not nearly as much as during the last recession. How long it takes will depend on government policies & economy in general.

​Andrey, as @Natalie Kolodij & @Eamonn McElroy  mentioned above, your refi costs (which include appraisal fees) have to be amortized over the life of the loan. If you loan is for 30 years, and loan costs were $3,000 total, you would amortize it over 30 years, writing off $100 per year.

Amortization is not the same as depreciation but they work in similar ways, spreading the cost over multiple years. Depreciation is for tangible items, amortization is for intangible.

If you're using tax software, you just add a new intangible asset, it will ask you what it is, how many years the loan is for, etc., and it should take care of the rest, writing off correct amount each year. If you refinance again in the future, you tell the software that you "sold" this intangible asset (using the date of the new refi) and it should write off the remaining amount.

Looks like there is another post about it on BP - https://www.biggerpockets.com/member-blogs/237/1104-amortizing-loan-costs

This does start "getting into the weeds" so it's probably worth getting a tax pro involved (or at least get a consultation/review.)

As for your other question, why the tax that you owe goes up when you add more expenses in your tax software... It's hard to say without looking at the actual tax form. It could be that with lower expenses you qualified for some tax deduction or credit but with higher expenses you no longer qualify. You can print out (or save as PDF) the actual forms before and after you make the changes and compare them side by side. Compare your 1040, your Schedule E, etc..

If I understand loan underwriting correctly, taking 100% bonus depreciation is a better idea. If you apply for a loan in the future, depreciation will be added back in, showing that you have more income from the property and allowing you to qualify for a bigger loan; if you take DMSH it will not be added back.

Kevin C., if you're using TurboTax, you can add it as an asset and then mark it as eligible for bonus depreciation (I don't remember the exact line and box to check on the paper form.)

Thankfully it's been a while since I had to evict someone but if I remember correctly, you don't need 10 day notice if you use the standard lease. Lease states that the rent is due and expected without any notice, so you can file on day 6 without 10 day notice. Any notice that is required by court should be done by sheriff

Do you have a lease? It's easiest and best to have a signed lease which will spell everything out. There is a standard lease agreement in NC that is used often, search for Form 410-T, Residential Rental Contract, it covers late fees (5% max) late date (due on 1st, late on 6th I believe) at which point you can file for eviction.

I haven't dealt with wholesalers but I hear good things about Harry Marsh Law (harrymarshlaw.com). We've used them for a couple of "regular" closings and we were happy with them. They also gave a presentation or 2 at local REIA meetings.

@Eric Peterson I haven't been able to find a concrete definition of what "ready for rent" means either. If you listed it for sale, it's OK to live in, ready to be shown and you can even sign the lease, it sounds to me like it's ready for rent.

If you want to be sure, I'd check with a CPA.

@Eric Peterson there are multiple safe harbors and they aren't interconnected. Brandon is talking about De Minimis Safe Harbor (DMSH), that one does not have a 2% limitation.

2% rule applies to Safe Harbor for Small Taxpayers (SHST)

I'm a little unclear about using DMSH before property is ready for rent but if it was ready for rent, you could use DMSH for each of those that are less than $2,500 (basically everything except for the floor, unless you can get it under that limit.)

@Brandon Hall can they still apply DMSH to these improvements/repairs if they are made prior to the property being ready for rent? (On an unrelated note, The Real Estate CPA is a nice podcast by the way, glad to have you back!)

Erik, I believe your LLC will still have to pay self-employment tax, only the Fed tax (and likely state tax) will be deferred when you contribute to IRA.

So you have to consider whether it's worth losing 15% to SE tax for the chance to contribute to 401k.

The way I read the regs, SHST and DMSH are unrelated and have separate requirements. The 10k and 2% rule does not apply to DMSH, only to SHST.

Since both harbors are meant as exceptions to capitalization/depreciation rules, I don't think it matters that it's an improvement as long as you meet the rest of the requirements - property is rented (or ready for rent already), you file the election and each item on the invoice is less than $2,500.

I would expense toner as supplies.

Printer should certainty qualify for DMSH (and maybe even as supplies since it's under $200.)