All Forum Posts by: Theodore Ehlert

 
@Jackie Mann : for #5 you may want to check out Stessa as well. It's a free online financial management tool to which you can link your business bank accounts (via Plaid) and assign transactions to properties and categories. You can upload leases and other documents, including scanned and digital receipts. It includes multiple report templates to evaluate the performance of your properties -- and eventually portfolio as you scale. 

I log in twice a month to audit the trailing two weeks of transactions, and run monthly P&L reports on each property. At the end of the year, I download a .csv report for each property to assign total category (maintenance, travel, etc.) expenses to each property for tax purposes.

 @Doug Wilkes you'll need to file a Form 3115 Application for Change in Accounting Method with the IRS if you change from a 27.5 MACRS to an different depreciation method/schedule. That should not be a red flag, but I've been advised (I'm not an advisor, so not advising, just sharing) that these things can/may trigger IRS AI algorithms for further scrutiny. I have no idea what that means in terms of attention or likelihood.

You may find better answers on that if you ask a CPA directly: I recommend tagging @Nicholas Aiola in his thread "Ask me (a CPA) anything about taxes relating to real estate" thread here: https://www.biggerpockets.com/...

 Thank you, @Nicholas Aiola -- I've followed the thread back through IRS code and forms and found my unique answer! Part of that DD included getting estimates from Cost Segregation service providers, and here are a couple observations that may help others on this thread:

1. After comparing the NPV on the regular MACRS and either 100% Bonus or 1-6 methods, the next step in your evaluation is to apply the additional deductions to your projected MAGI and ESTIMATE YOUR INCOME TAX SAVINGS. Compare the reduction in TAXES PAID to the fee charged by the Cost Seg firm -- don't get rolled over by the big shiny NPV value of what you can deduct

(Example) You have a single-family STR and commission a study for $3,000 that shows you can use 100% Bonus depreciation to write down $50,000 in 5- and 15-year property. Your ROI on the study is not 1,567%! Rather you next estimate your taxes and see the $50k deduction will zero-out your $20k in NOI from the STR and then write down $30k of your W2 income. If you are in the 12% marginal tax bracket, this will roughly save you $3,600 in taxes, so now maybe you assess your ROI is 20% using a 1-year payback (remember you'll deduct less in future years, however). 

2. A DIY Cost Seg requires you to provide all the paperwork on cost basis, land basis, in-service date, etc., as well as detailed inventories of all your 5-, 15-, and 27.5-/39-year property, AND photo and video walkthrough evidence of the existence/condition of the property. This is why DIY Cost Seg is relatively inexpensive. HOWEVER, a lot of "Full Service" firms have gone to this process as well and will no longer send an engineer to do an in-person site survey, but rather require you still provide the walkthrough, inventories, paperwork, etc. So be wary of "full-service" studies that are still just desktop studies and require you or your property manager to still do all the groundwork!

@Nicholas Aiola --

Awesome thread, and thank you for so many responses. I haven't read all 79 pages of them, so . . . maybe repeating, sorry! Also I'm a bit impatient waiting to discuss with the CPA, so thought I'd ask here!

1. Considering a cost seg/agg survey this year, which is an NPV>0 when considering fees, W2 taxes returned, etc. Properties are a mix of long-term and short-term rentals, and we pass material participation test to classify rentals as non-passive activities.

2. The Bonus Depreciation NPV is greater than the 1-6 year NPV -- and also greater than all net income (W2, 1099, K1, pass-through from LLC).

3. We are looking at a Roth conversion within a Solo 401k that is tied to SE income. Does the Bonus Depreciation loss count against all forms of taxable income? If yes, then we could use all the Bonus Depreciation loss AND do the conversion almost tax-free . . . 

Thanks!

Hi, everyone — just jumping in on this thread in the hopes that one of you may be able to help: looking for a private lender or HML to invest with my friend Chardae, owner of Gelor House in the Belair area. Her landlord is trying to sell her building to an investor who has already stated his intention to move her out. She opened her doors pre-pandemic, survived, and is growing both in the brick-and-mortar and online space; she manufactures all her beauty products in-house, and just launched her first marketing campaign this month.

She has met with a commercial lender who has pre-qualified her for a 75% LTV loan — but she doesn't have the $35k for the rest — it would wipe out her operating/cash account. She understands collateral and is open to either a junior lien position or equity stake. Thanks in advance if you can help connect me with anyone in Charm City who is ready to discuss the investment!

Investment Info:

Condo buy & hold investment.

Purchase price: $470,000
Cash invested: $42,500

Capital appreciation. Long-term rentals preferred, but potential for branching into short- or medium-term rental options to serve the market. No one moves to Montana to buy a condo (who can afford a ranch anyway!?), but a condo is a great gateway for your move to Montana!

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

We are Montanans and want to return home, but also we hate cutting the grass.

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

We found the most amazing agent, Susan Kowalczik, who brought us in on the deal and helped us close. Everyone looking at the Bozeman market should work with Suz!

What was the outcome?

Solid capital appreciation of approximately 19% year-on-year.

Lessons learned? Challenges?

We locked in long-term tenants the month before COVID hit, and we’ve resisted raising rent proportional to the market rate increases because they’re tremendous tenants. As a result, while the market rents have risen 17% year-on-year, we’ve only raised rent for our tenants 5%. We have not necessarily learned from this, but it certainly will be a challenge to catch up to the market.

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

Susan Kowalczik, seven days a week. And Sara Koelzer for the money.