All Forum Posts by: Tom C.

Who was suggesting documenting anything different than your actual intent? I certainly was not. Don't take offense by manufacturing some dishonest undertone.

Stephen, I am not sure you intended to paint with such a broad stroke. You are correct for this gentleman pursuing this full time, but your response could be misconstrued to suggest that all flips lose capital gains treatment. This answer could be different on other "flips." A flip (as we call it) is not inherently self employment income, although following this standard rule of thumb is generally the least subject to IRS scrutiny (as it is the most punitive) as everyone sees a rule of thumb as "the law," even when it is far from. A full-blown construction operation where you are flipping houses as the core business is clearly not an investment, it is a business. For the rest of us trying to build wealth, there are situations where a quick sale of a property you just renovated was very much an investment. For this sort of investor, it is a good practice before/at acquisition to document your investment intent (and do so in good faith). This intent does not mandate a "holding period" similarly as I have had many-a-short-term gains/(losses) in the stock market and no one argues that I was running a moderately unsuccessful trading business. The holding period really only impacts whether the gain is short term or long term, but neither get taxed as self employment. The IRS has a hard time (never succeeding as I understand) challenging your investment intent when you clearly documented this at inception (date it and get it notorized). If you periodically, even regularly, monetize these investments to raise capital for other similar investments, that is completely legitimate. It is not entirely dissimilar to swapping out of one stock that has just popped (leaving little remaining upside in you view) and into another that has a better risk-reward profile. Why would you hold it if you had a better alternative. This is the case on most (not all) flips as you create the most value after rehab, a great investment. The rationale at that time is whether the future value generated by holding the investment warrants keeping it or whether you have other investment opportunities that require you to liquidate the investment. Your choice to liquidate the investment is to generate capital needed for another investment and that is where the cash should go. This approach will impact your flexibility as you should really be committed to these investment decisions, as I would formalize each of these decisions and have them notorized.

For those of you who don't flip to live, but rather to build wealth, this is something to consider and talk to a knowledgeable tax attorney who specialize in real estate (these are rare and sadly rarely hang out in forums).

Just some food for thought.

Loan underwriters are also pretty good at spotting undisclosed debts by looking at your banking records to understand what large outflows relate to.

You can not use IRA money as collateral. As I understand it, you can use the IRA money as the down payment if your loan is only secured by the asset (no personal guarentee). Clearly the asset would also be "owned" by the IRA. Typically you would need a pretty large downn payment to make that work.

I have invested in several Reg D offerings, and each of those paid a percentage of taxable income, generally ~75%. But I agree with J Scott that the business model drives much of the structure. A buy and hold real estate one would likely not pay off reported income as depreciation would greatly reduce the return to the investor...

I don't own a MFP, but it seems odd to have an appartment with so many vacancies earn a GOI of $95K, and a NOI of $37K in a complex like you are discribing. That means expenses only 62% of rents, which actually seems low with so many non-performing units that likely can't cover some of the fixed costs (PTAX, yard-care, etc.). Your projection looks like it has higher expenses too. With a vacancy that high, I would wonder if the market can bare the current rent levels. Even still, it seems like an interesting deal. Curious if you have validated the NOI? Are you financing this?

Al, Loved the podcast. I would just remind everyone to review their property tax assessed value. Periodically challenging your assessment, if needed, can save you considerably.

It will depend on the age of the house and the quality of your tenant. If you are picky picky for both, I am told the amount of time is pretty inconsequential. If your property is fling apart, or you have tenants who don't honor commitments, you could spend some time dealing with both of them. Some owners choose to do, or not to do certain things, so this can become what you want it to be. You can do the yard, require the tenant to, or outsource to a yard care crew. It's a little about the path you choose to follow. There is nothing you have to do that you didn't commit to up front.

Romney had about 1 million in tax exempt interest. There are some publicly traded funds out there that are muni bonds and will lower your effective rate.

James, you must have missed my parenthetical. :-) I never said you can't be in a hurry and get "in bed" with the wrong party. I just think you have discretion with good properties that you don't have with the bad ones.