All Forum Posts by: Richard Patrie

Wondering if any CPAs out here can chime in.

I'm in the midst of selling a few of my SF houses to my tenants on a land contract.

For the past couple years I have been taking depreciation while they were rented.

After the contract is signed, I will still hold the title. Can I continue to depreciate the property until the final payment is made and the deed is transferred? If so, I would think that I'd be taxed on the total sale price less the cost basis, less depreciation taken. 

So in this example, I buy a house for 100K. Rent it for 2 years and sell it on a 10 yr land contract for 140K. 12 years of depreciation would be $43,632. Once the deed is transferred, the net proceeds would be 140K - (100K-$43,632) = $83,632. Of this, 43,632 would be taxed as recaptured depreciation, and the remaining $40,000 would be taxed as long-term capital gain. (I would count any interest received as normal income)

Or is this completely wrong and the IRS considers this an installment sale, regardless if I retain title, and tax me each year and not allow depreciation. 140K - $100K = 40K/12 yrs = $3,333 per yr in taxable income over 12 yrs.

I figured that this is something that has been seen before on BP. 

Thanks!

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $37,000
Cash invested: $11,685

2 bedroom, 1 bath

What made you interested in investing in this type of deal?

There are very few SFHs for rent.

How did you find this deal and how did you negotiate it?

Found on MLS. Ran the numbers and worked with my agent (who is also my property manager)

How did you finance this deal?

HELOC on personal residence, then cash out refi.

How did you add value to the deal?

Updated electrical service form 60 amp.

What was the outcome?

Currently rented to long term tenant. Cash on cash ROI of 11.5%. The plan is to sell the property on a land contract.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes. My agent also manages all my rentals.

@Jamie Piecora Just sent you a message.

@Jamie Piecora I live in Plattsburgh, and I have yet to find anything that yields a decent return. Well, if you don't make any repairs or have any reserves for vacancies or capital expenses, you may do alright. All of my rentals are 50 miles away in Malone, NY.

Their both good avenues. I use a HELOC on my personal residence for cash offers. I don't foresee banks recalling credit lines if you use them and pay on time. If you start missing payments, that's a different story. I like credit lines because you can reuse them.

Investment Info:

Single-family residence buy & hold investment in Malone.

Purchase price: $36,000
Cash invested: $12,396

3 bdr single family.

Price: $36,000
Repairs: $6,856
Terms: Cash
Rent: $775

All in price with closing costs was $44,493. CoC ROI - 10.23%

Refinanced. Received $32,096. New all-in cost is $12,396. CoC ROI after refi is 19.75%

How did you finance this deal?

Cash deal using a HELOC, then re-financed

How did you add value to the deal?

Rented the property back to the owner. She got cash, and didn't have to move.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

My realtor is also my PM. We've done 9 deals.

Investment Info:

Single-family residence buy & hold investment in Detroit.

Purchase price: $49,900
Cash invested: $49,900

This was my first property. I bought it through a turnkey outfit (notorious Clayton Morris) which proved to be less than optimal.

What made you interested in investing in this type of deal?

Turnkey opportunity

How did you find this deal and how did you negotiate it?

Through MorrisInvest

How did you finance this deal?

Cash from HELOC

What was the outcome?

The place is cash flowing now, but was very rocky for 2 years. Failed city inspections, presence of lead in the garage, repairs not made. It was a learning experience, and encourage any would-be out of state investors to go an see the property. Meet the seller and management staff. The price of the trip would have been cheaper than the headaches I had to endure. I've turned to investing in my local area. Currently yielding 10.49% CoC ROI after putting aside reserves for repairs and vacancies.

Lessons learned? Challenges?

Would be leery of additional out of state investing without doing due diligence.

Investment Info:

Single-family residence buy & hold investment in Detroit.

Purchase price: $49,900
Cash invested: $49,900

This was my first property. I bought it through a turnkey outfit (notorious Clayton Morris) which proved to be less than optimal. The place is cash flowing now, but was very rocky for 2 years. Failed city inspections, presence of lead in the garage, repairs not made. It was a learning experience, and encourage any would-be out of state investors to go an see the property. Meet the seller and management staff. The price of the trip would have been cheaper than the headaches I had to endure. I've turned to investing in my local area. Currently yielding 10.49% CoC ROI after putting aside reserves for repairs and vacancies.

What made you interested in investing in this type of deal?

Turnkey opportunity

How did you find this deal and how did you negotiate it?

Through MorrisInvest

How did you finance this deal?

Cash from HELOC

What was the outcome?

Lots of issues with repairs not being made and failing city inspections.

Lessons learned? Challenges?

Would be leery of additional out of state investing without doing due diligence.

Investment Info:

Single-family residence buy & hold investment in Malone.

Purchase price: $36,000
Cash invested: $12,396

3 bdr single family.

Price: $36,000
Repairs: $6,856
Terms: Cash
Rent: $775

All in price with closing costs was $44,493. CoC ROI - 10.23%

Refinanced. Received $32,096. New all-in cost is $12,396. CoC ROI after refi is 19.75%

How did you finance this deal?

Cash

How did you add value to the deal?

I let the seller stay in the house and pay rent. She got the cash she needed and didn't have to move.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

My realtor is my property manager. We've done 9 deals together.