All Forum Posts by: Tom C.

That does suck! Having said that, I am not sure you have any duty to discount the rent. (I am no lawyer) Does your lease require that you procure any of those services? I would love to have a lawyer comment here... I don't think they could demand a reduction on the basis of the home no longer being inhabitable (as you are not able to remedy this), although I wonder if the lease has some sort of force majeure clause available to the tenant under the law. I would say that you can be a nice guy here, but I am not sure that you a liable for the non-performance of local utility companies.

Jeff S. You are correct, I should have used the "term marginal tax rate", rather than effective tax rate. I guess even CPAs use the wrong lingo at times when quickly dropping a post on a blog. :-)

If, as you suggest, you are at a 25% marginal rate with only passive rental income and without working or drawing on your retirement and are suggesting your marginal rate will go down in retirement after you begin to draw, I certainly would love to see how that works. Best of luck with it all this!

Make sure you know what to do if you invest the HELOC proceeds in an investment property that goes South on you (Market, Flood, SLAB, UNKNOWN). It is hard to pull equity back out if you don't have any... Especially now that your personal home is leveraged to the hilt...

Thanks. One question.... If you are pulling down only rental income for a year, and you get your money into a traditional IRA... You know that when you take the money out that it is ALL taxed at your effective tax rate at that time (basis and gains). So my question... Are you planning for your effective tax rate to be 15% at that time?

If you don't get a meaninful tax benefit for "deferring income" today... why not take the income and have the benefit of after tax dollars that grow tax deferred? Let the money grow outside of a retirement account in an index or mutual fund. If you don't sell the investment, the gains that accrue are also deferred until you sell. :-) ALSO your basis is has already been taxed. Only your investment gains are taxed as capital gains (which subject to political interference) will likely have some preferential aspects to them if not merely the ability to determine when you recognize them in your tax return.

Not that you are in this boat, but often people forget that capital gains in a traditional IRA become income (and no longer are treated like capital gains). So I see your question as "is the benefit of lowering my taxes today" worth more than the higher taxes I will pay tomorrow due to higher income and converting capital gains into income through an IRA*.

*Meaning your capital gains become income in an traditional IRA, yet would remain capital gains if you kept them unencumbered by the tax code and liquid.

They likely aren't avoiding it fully. And I beleive if you are in the business of flipping, you have revenue and costs of goods rather than capital gains. You kind of become a construction company, per se.

If your "second home" is a rental, it is an investment property. That is likely referring to your residence and a vacation home. Remember, when you sell your actual house, you get to exclude that gain from your taxes.

If you hold investment property the required amount (I recall 366 days) of time and prefer to roll your tax basis into the new property, then you do a 1031x.

A couple other things to consider. PLEASE review your state's rules on tennancy rights, specifically around eviction.

Second - Make sure you are realistic where you are going with this property. You say it is in a bad area... it doesn't have the best tennants. Well, I will assure you that great tennants won't live in a bad area. And you can evict all you want and slap some lipstick on the fourplex, but you may still wind up with bad tennants.

You can not force a tennant to sign a new lease. You can give them the option that you intend to end the month to month arrangement absent their signing the lease (after considering the length of notice required by law and lease).

Don't forget that a tennant has rights to your property under a month-to-month lease and some of those are stated in the lease, but there are some ofthers that are statutory. I would make sure you really want another lease as you may want to feel out the people for a while and then start to muscle the 1 or 2 that don't pay timely and try to leave those other tennants alone, if possible. If you want to remodel unit at a time, you have a real opportunity to determine which tennants you want to stick around. I call this hi-grading. You slowly dump your worst renter and then move in a better one (maybe after doing some work on the place).

How much do you know about the leases in place and there related terms? If these were 12 month leases that then went to month to month after the primary term, they other aspects of the lease generaly hold. Has the seller provided them?

I would only make changes to a lease if they were really meaningful to you. For example, are they paying late? If they are not, is it that big of a deal adding a late fee and sending a negative day one message to your tennant? There are some advantages of not being tied to tennants for the long term, and one of

If I were you, I would make sure you send a letter to the tennants (signed by the seller if possible) stating where each new payments should go.

If you want to remodel, you may opt to just raise the rent or evict... clearly one of those is faster.

Does anyone know how people typically value PM companies when/if they sale them?

I think there are advantages to having a CPA that owns some properties on the side as well. Hard to find for sure, but those CPA's see the whole picture.

Flipping isn't for everyone.... you may not be up for it. It may be worth trying to find a mentor who can show you the ropes and "take the fear out of it."