All Forum Posts by: Roman Rytov

@Guifre Mora

Hold at the end. Fix or not.

We've got over a dozen of properties loaned with conventional mortgages and at this point it's getting more difficult to get advantageous rates for additional properties. Many banks have either individually-owned or household-owned limits. Can you suggest a couple of GA brokers that work with investors like us?

I checked both sources and while a lot of information can be found in FMLS here are some key differences that I found:

- ListSource brings additional data from other open sources. Such as demography, credit card payment history, maturity of the loan. Although very few properties have demographic data associated with them FMLS simply doesn't have it at all.

- FMLS shows only searches historic deals in the state where you have license. 

- FMLS shows only the deals that have ever been recorded there. ListSource seems to use the court data so definitely it's bigger and wider.

Now, depending on the criteria that one wants to use FMLS may be an option if the person already has access to it. But it seems that this type of saving is not very prudent.

@May, thanks. I didn't ask the question correctly. I meant that being a licensed agent and having access to the FMLS site (not via Zillow or similar) does it make sense in addition to use ListSource? What information do you find there that FMLS lacks?

For a licensed sales person with access to FMLS does alternative sources such as ListSource bring value? I heard a lot of good words about it but wonder if (and how) it can bring more data than FMLS.

Gents, thanks. It does help!

I've ran also some math on my own houses. The land is about 20% of the purchased price (based on the prop. tax assessment) leaving 160K of the improvements to depreciate over 27.5 years in our example. The annual write off then is 5818. This is pretty close to the gross income, if there are additional expenses then it makes it truly zero tax from cash flow. 

Once it's fully appreciated it's time to exchange.

Got it!

@Jaysen Medhurst, can you elaborate on #4? What makes rental income better than regular by so much? 

My whole question stemmed from a claim that the RE investors pay zero taxes. I don't see how it's possible.

Jasan, thanks! That helps to clarify some points. I didn't explain my situation in details that I run a business anyway and don't need additional options to write off small things. Let me relate to each item of your response:

1.  A typical SHF looks like this:

- purchase price (including closing and fixes) 155K 

- 25% down with 5%/30Y mortgage - 45K

- rented for 1350

- taxes/insurance - 1100

- PM fees - 8%

- gross income (without fixes, vacancy , acquisition cost) - 400/month or 11% CoC.

I have a few duplex buildings which carry 18% and few houses where taxes jumped so high that income is 5%. Overall it's 8-10%. They're also appreciating not bad. I'm kinda happy with where I am for now and definitely planning to see how to optimize and grow it more efficiently.

2. MFR is a different animal. It has its pros and cons. My original question was about the taxation strategy and the unique place for (large) real-estate investment optimization. MFR or SFR is not important for this question.

3. Not sure exactly either. An example that I heard for the currrent tax code is that if you buy a property worth 1M, put down 200K and borrow 800K you can depreciate 300K first year. My question is even though it's very cool what do you do next year?

4. What do you do after the house is depreciated? Start paying taxes on the rental cash-flow or exchange the house?

7. In 1031 can I exchange 4 SFH to other 5 SFH properties? I need to educate myself on the restrictions there. It's a technical aspect.

My big question is still for the taxes.  I understand the appreciation/exchange/heirs approach. What about rental income?Is the strategy to write off rental net income via depreciation and when it's over exchange and repeat? If so it means that the annual net profit should be comparable to 1/27.5 of the house cost which is less 4% of the house book value. With the growing rent it's impossible. What am I missing?

I'm hearing that nothing is more advantageous from the tax standpoint than real-estate also one never wants to part with good properties but use it as a cash cow. Help me connect the dots.

Let's use a portfolio of 10 SFH purchased on average at $200,000 and rented at 2000/month. Let's say each house is leveraged with a 20% downpayment for 5% for 30 years and a property management company charges 8%. Roughly the gross income is about 15% which is extremely good. Without getting in small details and trying to factor in vacancy rates, new tenant acquisition cost, and capex let me get to the questions:

1. Gross income from the house is abtou 18% cash on cash (principal payment is not an expense so only interest, taxes and PM fees are). With the current tax code you can write off via depreciation (if I'm not mistaken in this case) 150% of your downpayment in the first year. So assuming that you didn't buy the entire porftolio at once each new house drives your P&L down 50% of what you've factually invested. That's a lot of money and I realize that in the year when you purchased the house you're negative. First year.

2. The second year assuming the numbers stay the same you can depreciate only a portion of the house original value. 1/30th if I'm not mistaken which is 3.3% of the total cost or  about 15% of your gross income. What do you do with the rest of the income? Bring receipts from Home Depot? What do you do if you have 10 houses?

3. After 30 years the house is fully depreciated. What is the "tax advantage of the real estate" at that point with the same house? Or you're switching on the way by deferring taxes?

4. With 1031 exchange assuming that you need to buy a more expensive house will you have to change your portfolio from SFH to commercial one day? Nobody will rent a $5000 house.

I'm reading a lot of sources claiming that the real estate is unique specifically in tax implications and can't figure out a complete play. What am I missing?

Any references will be appreciated.

Lance, of course having all the houses paid reduces the risk but I wouldn't call it an optimized situation. A moderate leverage (or an ability to cover for vacant units) significantly improves ROI.

My question was more about how to keep rentability high. Are the SFH more likely to stay occupied than condos or duplexes? Areas with higher appreciation rather than lower? When you expand your portfolio do you keep the same type of properties or trying to diversify? What parameters to take into account?