All Forum Posts by: Kyle K.

I was reading an old BP article posted by Jeff Brown regarding the use of excess depreciation and how it could be used in replacement of 1031 exchanges: http://www.biggerpockets.com/renewsblog/2010/01/05/150k-year-excellent-strategy/ In it, Jeff mentioned something that I was hoping someone could elaborate on, as I think it is a critical point. He said:

I have two questions:
1. Why exactly does this significantly reduce your annual depreciation?
2. In the event you have excess depreciation, is there ever a time you HAVE to use it to offset capital gains, or can you use it to offset capital gains whenever you choose?

These guys are definitely loonies. Let me guess: they advise you to buy a bunch of gold?

I'm not expert, but I feel like there is a gold bubble that is going to burst at some point (no idea when). Perhaps these fearmongers are trying to inflate the price of gold even further for a profit.

I'm just echoing Jon's point. Although, I'd reiterate that a half point is nothing to sneeze at, especially when that means extra dough in your pockets each month.

Unless you're buying an inexpensive property that you probably can't get a conventional loan for, I think this is a no-brainer: use leverage. You will be able to control more properties, your upside is several times greater, you've created a hedge against inflation and you get solid tax benefits with a mortgage.

That's exactly what my lender told me, and he's the man.

My understanding is that any depreciation one cannot take against his ordinary income (for reasons such as making >$150k) can be later used to offset any capital gains down the road. That seems like a pretty good reason to take advantage of accelerated depreciation, especially if you don't hold on to the property for 30 years.
This unused depreciation sounds extrememly useful in that case.

Of course, it all depends on your end game. If you just purchased a property and you just retired, you probably don't want to use accelerated depreciation.

To answer the question at hand, there are basically two primary reason one sells: out of some sort of necessity or to access the capital for better investments. Hopefully we're all able to sell for the latter reason.

Let's be real. You're gonna use that $600/month cash flow to buy more property? Even if you bought another $50K property, its gonna take you 7 years of saving that extra cash flow to buy more property. And you've still got an ancient property in a crappy area.

What's the equity doing? It is simply growing. Month after month, the tenant is paying down my mortgage at an increasingly progressive rate.

As for my new property 30 years down the line, who says I'm gonna hold the property 30 years? It may make sense to sell the property in 10 years and use the gains to buy 3 new properties in a better market. I don't know if that will be the case, but nobody else does either. Who knows what the future holds? This I do know: it will be much easier for me to unload my nice newer property than your ever-older property in an area that has doubtfully gotten any better.

I agree with Mitch: "And besides, I'm in this game for the upside, not the monthly rental scratch. Let's all meet back here in 10 years and compare total returns." Like I said earlier, you really gonna buy a bunch more property with that monthly rental scratch?

I also agree with Curt. Why in the world would a thirty-something year old buy a sfh for $50K cash for $850/month rents? First of all, this individual is using no leverage. He's not building equity with pricipal pay down (yes, I understand the cash flow from said propert could be used to build equity in other ways). Whatever place he purchased is either old as hell, in a very undesirable area, or both. And, most importantly, what the heck does a 30-something year old need with huge amounts of cash flow? He's sacrificing capital growth as a result.

With that same $50K cash, you could use it as a downpayment on a brand new duplex worth $250,000. So, instead of owning a crappy $50K shack, you could own a brand new $250K property in a fantastic area. Your long-term prospects are immesurably better.

That's a depressing article, although I found it very informative and potentially useful as I attempt to navigate the next few years of my financial future.

So, by my tally, one person has actually purchashed an EIUL and he's happy with it. Anybody else?