All Forum Posts by: Chad L.

Real estate investing has started to pique my interest lately, and it seems like it could be a very appealing "career" if you invest wisely. Being a 9-5 slave my whole life isn't appealing to me, which makes real estate investing look even better. Now, I realize when you first start you'll probably need to work at a 9-5 to build a bankroll, and even if you have enough startup money you'll spend a lot of time managing the properties. However, as you continue to buy more (or bigger) properties, eventually you should be able to hire-out management which results in more free time for you. Anyway, I've come up with a very rough plan and was wondering if other investors could share their opinions on it.

First a little background:
I turned 19 at the end of last year, but I'm not currently attending college because I opted to take a year off to "restructure" my life. My father is a higher-up in an interior restoration company. He said I'd be able to get a job in delivery, while doing some after-hours demos on new projects. While delivering, I'd be making decent money while simply driving around the area and dropping off supplies (aka, easy stuff for the money I'd be making). During the demo projects I'd be able to learn more about the repairing aspect which would obviously help when managing properties. For the short-term future (3-4 yrs) I'd be able to live at home. Even though some may consider it lame, it'd be very beneficial long term as I'd be saving a lot on monthly expenses.

Rough plan:
2010: Work full-time while honing my repair skills and reading real estate books/forums.
2011: Join local RE clubs to network, learn about the area, and possibly find properties. Purchase two properties (SFHs or duplexes).
2012: Purchase 3-5 properties depending on financial situation/available deals.
2013: Purchase 3-5 properties
2014: Do a cash-out refinance on a couple of the high-equity properties and use that money to facilitate a bigger purchase if able to(~8 unit, hopefully).

I want to be a buy and hold investor (or buy, fix, rent, refi, & hold). Eventually I hope to sell off the <4 unit properties and plateau at 8-25 unit properties (of course that won't happen for another 7-10 years at minimum). If the 8-25 unit properties are bought wisely, once I have a couple I should be able to take more of a hands-off approach to management and have more free time (and more wealth).

My plan may be a bit aggressive, but with hard work, smart buying, and smart spending I think it'll be possible. So...any thoughts?

1 Vote

Originally posted by Jon Holdman:

The whole "using passive losses to offset other income" thing is overrated, IMHO. As you're finding, you're limited by the AGI limits. If you have a full time job producing that other income, it will be extremely difficult to prove you're a RE professional.

Good rentals don't produce a lot of losses. Between the actual expenses and depreciation you should, as Kevin points out, be able to bring the taxable income from the rentals nearly to zero.

When you sell, depreciation has to be repaid in the form of depreciation recapture tax.

All too often, it seems the depreciation and passive losses are used to make a crummy deal look better.

Do you have to use deprecation as a deduction? For example, if your NOI was 45k, and you paid 39k in interest (500k loan at 8% for 30yrs) and your expenses (prop tax, management fees, etc) were 6k, you'd have zero in taxable income. Is that correct?

Getting your taxable income down to zero without deducting deprecation seems like it'd be better in the long run because you'd pay less deprecation recapture tax when selling. Or am I missing something?

0 Votes

All Forum Posts by: Chad L.

Chad L. has started 1 posts and replied 2 times.

Post: Beginner's plan - good or bad?

Post: Rental Property Tax Question ...