All Forum Posts by: Paul Novak

I have been running into issues with the neighbors at one of my long term rental properties.  The property is great, the tenants are great, but unfortunately the property next door sucks.  We didn't have issues when we purchased the house last year or during renovations but since then the tenants have had constant issues.  The neighbors have constant traffic coming and going all hours of the night, it's believed to be drug traffic.  There are people constantly outside in the middle of the night.  The property is also becoming more run down with garbage left in the yard.

We did some digging ourselves and found out that this property is a rental property.  We found out who the landlord was and started by working with him directly.  I know if my tenants were causing issues I would want the opportunity to address these issues as a first step.  I believe the landlord's son lives in the property and is the problem.  The landlord is an older gentleman that doesn't seem to be taking any action.

We have moved on to the next steps of working with the Police and having the tenants work with the police to file formal complaints.  Up to this point the issues are continuing.  I think over the winter months there was less traffic but with the nicer weather coming back around the complaints have started again.  The tenants reached out to us today and copied us on the email they sent to the police.

Who else has delt with this and what actions did you take to remedy the situation?

I know it's not best practice but we do the same thing and we have 5 properties. We do all transactions and manage all money under the EIN number of our LLC. Business bank accounts, credit card accounts, etc.... Having said that our properties have traditional mortgages out in my wife and my name with our socials. Our bank told us they would struggle to give our business a mortgage when we purchased our first property. Now they have told us we just wouldn't be getting the best rates. We don't comingle funds between the two accounts. I haven't looked at transitioning the properties from us to our LLC for fear of the loan's getting called due. My bank assured me that they wouldn't do that. We have a great relationship with our local bank but we still haven't seen a point to make that change at this point.

Welcome to BP Jose.  I am an investor in Sheboygan about an hour north of you.  You will find a ton of great people in here with valuable advice.  If have any questions on how to get started feel free to reach out.  I love helping beginners get started.  Good luck!

I thought some others might be interested in reading this article.  It popped up on my Fidelity page today so I thought I would share it with the group.

We sound somewhat similar. While it pained me to do it once we started our rental business I switched from my wife doing TurboTax to hiring a CPA for the same reasons you have referenced. Honestly for us making the change was a great experience for us.

I still do my own book keeping and if you only have one rental I would think it should be easy to manage. To do our book keeping we now use a software program called Stessa which is sponsored through BiggerPockets. It’s free and for us with 5 properties 7 doors it works perfect. It would also work fine for just one property. Prior I was using Google Sheets.

While you will never become a tax professional and I do recommend getting a CPA I also think it’s good to learn more about tax strategy. A book that I read which was a really good read for a beginner was “The Book on Tax Strategies” this book is geared towards beginners and is on BiggerPockets for $7.99 here is the link. https://store.biggerpockets.com/products/the-book-on-tax-strategies-for-the-savvy-real-estate-investor

I have now had my CPA for the last 5 years and he has been great. He works for himself at his personal firm but knows real estate and answers questions for me all year free of charge. He charged me $560 to do my taxes last year which I think is a steal compared to what he helps me save in taxes. I think he does a good job based on my needs and I am not judging him based on price but rather the value he has added to my business. His name is Nick Reach based out of Mequon, WI. Maybe give him a call to see if he could help you? Hopefully this helps.

Welcome to BP, you will find a ton of great people with information to help. I will start by saying that I am not a tax professional, but I am sure one will answer this post that is more qualified that I on this topic. I will just cover some of the basics that I have learned. My wife and my income is close to yours but the breakdown is a bit different. I would say that we are $250K from our W2 and $100K from our rental business. The first bit of advice I could recommend is to hire a CPA that knows real estate to ensure you are not missing the easy things. Then get good at learning what you can and can’t deduct. When we got our CPA we followed up with a few different friends that also had rentals and funny enough they recommended us to the same CPA. To get to where we are financially, we hadn’t outsourced much because we didn’t want to spend the money. Taking the leap to hire someone felt a bit awkward but it’s been a great investment and was much cheaper than I thought it would be. We paid $560 last year to get our taxes done. I think $150 for our personal taxes and $410 for the business. In addition, he answers all sorts of questions for me throughout the year and doesn’t charge us for that.

I see many of my friends leaving way too many expenses on the table. We aren’t very big, we only have 5 properties 7 doors, but the tax deductions as part of our business are a huge way to retain our income to reinvest and grow. The easy ones are depreciating the property, deducting mortgage interest, and deducting property taxes. Where I see people falling short is not tracking all the little expenses that add up for the business. I also see people not tracking mileage or all their mileage. Mileage comes into account not just going to the property but also going to the bank or the store. I’ll give an example on possible deductions that people overlook. We purchase most of our cleaning supplies for our rentals from Costco. Our membership for Costco is the business membership which is a deduction and my mileage to go to Costco to purchase rental supplies is a deduction. Those things while it may seem small add up. My cell phone is for the business, so we deduct it as a monthly expense. We have a home office which our CPA lets us deduct up to $1,500 per year. When we go to look at prospective rentals we deduct the mileage. I always work with my CPA first before logging a new type of expense on my books because somethings are okay and some are not. He has educated me on multiple things since we started. Just to provide one example: I took a business meeting with someone who was looking for funding for a new subdivision development. A friend of mine and I went to meet him at a local golf course and then we talked more about the opportunity over lunch. I asked my CPA if I could deduct the expenses for the meeting. He told me I could deduct the meal and mileage but not the golf because that was considered entertainment. Just having the CPA allows me to ask these types of questions to make sure I am maximizing my deductions but following the law.

I have more examples to share and discuss if interested just DM me. Hopefully this helps.

As far as I know the answer to that question is yes.  I know there are limits on how much you can deduct for each year but my guess is that you would be fine with only one rental.

This all makes sense and I knew there had to be an explanation.  I am glad you all provided a detailed explanation to help me understand.  Thank you for the info.

BP Community, I apologize if this is a foolish questions but I was hoping someone from a tax perspective could help me answer. 

Why can't I sell my primary residence to my LLC and become a tenant of my business? My business could then pay the utilities, property taxes, mortgage interest, insurance policy, and home repairs. They would be expenses for the business vs. personal expenses which would be tax deductions. I'm assuming if this was an option everyone would already be doing it but I am just curious from a professional to understand why this isn't an option.

I received a question from a friend that was somewhat similar to mine above which got me thinking.  He asked me the following:

"I have a paid off rental house that I earn a good chunk of profit on in 2024. With our new house, we have a large mortgage. I wanted to "sell" the rental house to a new LLC of mine in an effort to create an expense for the rental, and drastically reduce my tax owed. My goal is to generate more expenses on paper with the rental to reduce the taxable income for future years. How can I do that"

Again rather than give advice when I am not a tax professional I figured I would pose his question on the forums to see what response the community would give. 

 James, Thanks for sharing the 55 year old 401K exemption.  I will have to check that out as that isn't something I know much about.  As for our current expenses we are comfortable at $8,000 per month.  The one wild card is what healthcare will cost us in retirement, especially if we retire early.  For that reason I keep maxing out my HSA.  If we can get our rental portfolio to cash flow $11K a month I feel like that is a good enough buffer even if we account for inflation.  One thing I plan to offset my healthcare costs with is paying off my primary residence.  That accounts for $940 per month of my $8,000 expenses.