All Forum Posts by: Susan Wang

@Susan Wang

I believe this is the same as an option period.

Wow. Got it, thanks!

I think the due diligence fee falls squarely in the category of "stuff buyers do in a HOT market when they desperately want a deal and simply don't know any better!"

There's absolutely no way I would pay a significant fee that was not contingent on performance of my due diligence.

What would stop an unscrupulous seller with a property having a known major defect from dangling that stinker out in the market, attracting some unsuspecting and hapless would-be buyer, and then collecting easy, non-refundable money from them?

Hi @Susan Wang and welcome to BiggerPockets!

For those of us unfamiliar with the concept, can you please explain what a due diligence fee is?

Hi Mitch!

Sure thing, this concept was also new for me. It’s basically a fee that is negotiable that you place with your offer, instead of contingencies, and is non refundable if your offer is accepted. It allows you as a buyer to do an inspection, appraisal, etc. You can walk away from the deal before end of the due diligence period regardless of the reason, but you will lose the money.   If you go ahead with the offer, the fee is applied as credit towards purchase of the home.  In other markets you can lock up an offer and then during inspection you can walk away using a contingency without losing any money. A higher due diligence fee can make your offer more attractive, but obviously this is risky and also takes away some of your power during inspection for negotiation (the seller knows you have more to lose and may be less willing to negotiate).  

Yes, he might be able to do that. It's not that easy, however, to satisfy the material participation requirement with STRs for someone with a full-time W2 job. Possible in the right situations.

Important to notice, however, that STRs do not normally generate substantial losses (if any) except for the first year when you can take major depreciation with furnishings and cost seg.

@Jay Pillalamarri

First, I cannot support your goal of paying zero taxes. I much prefer the primary goal being either generating cash flow or, better yet, building long-term equity in assets. Whatever lets me accomplish this is what I would pursue. Reducing taxes is secondary. Dropping them to zero is a poor goal either way, because at some point the effort is no longer worth the small savings. 

Don't get me wrong, I'd love to pay zero taxes if it's possible. I just would not be choosing my business strategies based on this goal. Once I chose a strategy, then I'll do my best to reduce taxes. If I manage to drop them to zero - great. If not - still no problem if I'm accomplishing my cash flow or asset accumulation goals.

Next. If you're single and have a full-time $250k job, you cannot offset this W2 income with rental losses. Not allowed by law. No matter how much real estate you buy and what strategies you apply. If you make $250k from your business, such as being a consultant - same problem basically, with some twists.

To be able to offset your $250k income with rentals, either your $250k needs to be self-employment income from real estate, like being a realtor, or you need to be married to someone who is involved in real estate basically full-time and qualify as a Real Estate Professional.

In short, you're asking the wrong questions and getting suggestions that are probably not helpful.