All Forum Posts by: Steven Gomez

@Steven Gomez

Have you considered using a 1031 exchange to buy a rental? The nice thing about Tampa, is that you have two hold strategies, LTR or STR. STR restrictions are extremely limited in City of Tampa limits. Although home prices are softening, LTR rents are increasing in Tampa. I personally have a multifamily property in Tampa proper and did two renewals this quarter and raised them both by $100 even after it was already market rent last year. Good luck and reach out if you have any questions.

Quote from @Steven Gomez:

Hello guys, I am new here and I am very excited to have a community since I have never been in one.  A bit about myself, so you can understand my question. My wife and I live in LA, we have good jobs, we are in the highest TAX bracket. I wanted to use real estate to offset income, but instead I did a flip and I added more income to my household. I am not complaining, but is not what I am looking for. I need guidance on how to offset this income. All day, every day, I am looking for properties with positive cash flow and I can't find any. Yes, I am looking in other markets as well. I will appreciate some guidance from someone who already walked this path and can help me succeed at it.  THANK YOU. Can't wait to hear the strategies.

Steven, it is true it is difficult to find a traditional multifamily property right now that cash flows. Often times, the CAP rate right now is lower than the interest rates and thus the property does not cash flow. Have you considered short-term rentals? I do STRs in the Tampa bay area and there is absolutely opportunities here to get high cash flow. Considering your situation, it would be wise to acquire more buy & hold real estate to offset the taxable income for you as well as build net worth and capture both appreciation and cash flow through REI. For example, it isn't unreasonable to purchase a property here for $270k-$450k that will cost you around $2300-$3000/mo and generate $4500-$7000/mo in revenue through an STR. Most cases I'm seeing a 30-50% cash on cash return with my clients and most are out-of-state.

There's likely several expenses you can capture on your schedule C, such as a home office and mileage. I see a common misconception that you can just begin investing in real estate and have less taxable income. You can minimize taxable income on your real estate investments by depreciating the property over 27.5 years and capturing all your expenses. You can only offset you're other income if you have losses from your real estate investing, but this is more of a "backup" in my opinion incase you make bad investment decisions and lose money. But what investor plans to lose money?

Also, the IRS doesn't really view house flips as an investment, they view it as a business. They view the houses as inventory, and therefore profits get taxed in your income bracket rather than the capital gains rate. If you live in CA, you better hope bill AB1771 doesn't get passed, which will add a 25% tax on house flips.

Make sure you set aside federal income tax, self employment tax, and state income tax for your recent flip.

Cash is going to be king as interest rates are going up. If you're taking out loans for rental properties, cash flow is going to become much more difficult, but not impossible.

Hey Steven, congrats on your flip brother. To offset high income (can capital gains on your flip), you need either: 1) Real estate rentals or 2) Business expenses.

Since we're already in the back half of 2022, any rental you buy now will only be depreciated for the remaining months you owned it in 2022. But don't let this dissuade you from acquiring a big rental.

Some suggestions:

1) Connect with a real estate-friendly tax professional. Doing this has saved me so much money in recent years. Literally hundreds of thousands of dollars. They know what you want to do and will do what they can to reduce your tax liability.

2) Cali is very difficult (damn-near impossible) to acquire cash-flowing properties. Go out of state to look at rentals. Personally, I live in Las Vegas and hold rentals in Chicago. More bang for your buck, larger brick buildings, steady tenants. Get clear on what you are able to afford (perhaps a $1 million property with $200K down) and use that criteria to start your search in markets you are comfortable with. Throughout the years, owning rentals is a fantastic depreciation against income.

3) Something I did in 2018 to offset a large tax bill was to acquire a business before the end of the year. I was able to depreciate all of the assets of the business in year 1. That's how depreciation for business works. Real estate depreciation is different.

Hope this helps, wish you the best bro.

Hi @Steven Gomez, 

My advice is to work with a CPA/tax planner who is real estate savvy and build a real estate team that can help fulfill all your needs. 

@Steven Gomez

Where have you been looking? There are plenty of markets that still cash flow. You just have to be willing to invest there. If you've only been looking in CA, then your odds of cash flowing without a significant down payment are low. 

There are other opportunities in the South and Midwest where others here have had success.