All Forum Posts by: Vik C.

Thanks Jeff, super helpful. One question I had is - why doesn't everyone just go to the most reputable, longest-tenured HMLs in the region? How did you compete when starting out? I would imagine that a seasoned flipper would have HMLs competing for their business, not the other way around. Did you compete on price at first until you established a track record and enough relationships? Or is it just that there is a finite supply of capital in the market and a new lender will always have a choice of good investors to work with since demand outpaces supply in most markets?

I have about 2.5mm in liquid assets I can loan out, might be closer to 3.5 or 4 in the next couple years. I want to work alone (not run a consortium/partnership). My background is in banking, finance, analytics, and consulting. I know my way around an Excel spreadsheet. My wife is a lawyer, which is a plus.

Where do I get started? Obviously setting up an LLC and networking/putting my name out there in local real estate groups. But other than that, are there any resources for getting started? What are the biggest risks? It would appear to me that with a "free" lawyer by my side and first liens on the properties I finance, the only major risk is locked up capital during a foreclosure process. Am I thinking about this right?

Large sunny studio in good Kips Bay location, can probably get $2200 on rental market (after coop rental fees - $2600 gross) and can maybe sell for $500k if lucky.

I figure prices might bounce back after vaccine in 2021, but then again, maybe not. 

How would you proceed? Wait it out and rent it in meantime or just sell straightaway?

Hello all,

I currently reside in a NYC cooperative building (meaning I do not own the actual apartment but rather shares in the coop). For all intents and purposes, as a primary residence it comes with all the same tax write-offs as a regular home. However, I am considering moving out but keeping the property in my portfolio. A few questions about this scenario:

• How does deducting depreciation work for coops? How do I find out what % is "land" and what % is building? Can I take standard 80/20 ratio? Do I get an appraiser to appraise just my unit? Or is there a number for the entire building that every coop shareholder needs to use for their unit?
• Since I am not depreciating from the moment I bought, but only starting several years later, is my depreciation basis the original sale price or the fair market value as appraised by an appraiser as of the date I begin renting it?
• My coop charges a fee for renting out and not using as a primary residence. This is clearly a cost of doing business from a practical perspective, but is it also considered a tax-deductible cost in the eyes of the IRS?
• Even if I convert from a residence to a rental, I can still take advantage of the capital gains tax exemption on sale if I have lived in the property for 2 of the last 5 years prior to selling, correct?

Thank you.

Well, posted too soon. Did some more research and I learned that:

• Carryover losses extend indefinitely until final sale (and can be transferred from property to property if a 1031 is used). They can be applied in any year you are eligible and carried over in years you are not.
• At final sale, the carryover losses are subtracted from the gain on sale. So if you gain $50K and you have $20K in carried over losses, your taxable amount is only $30K.
• However, you would still need to pay taxes on depreciation recapture at this point. So if your gain was $50K, your carryover loss was $20K, and your total depreciation taken was $300K, I understand you'd have to pay capital gains tax on $30K (50-30), plus 25% tax on the $300K depreciation recapture.

1) Depreciation Carryover - Let's hypothetically say I have $100K in salary so that I qualify for $25K in passive activity loss deductions. In 2012, I take a $30K net loss from real estate operations. My understanding is I can deduct $25K from my AGI, which brings my taxable income down to $75K in 2012. However, I have to carry over $5K in losses because it exceeds my $25K annual limit. In 2013, I break even on real estate activity. I am at this point allowed to use my carried over $5K as a deduction to my AGI. Right? More broadly, am I allowed to apply this carry over deduction in any subsequent year in which I am eligible?

2) Depreciation Carryover - Let's say I make $200K in salary and am not eligible for the $25K annual passive activity loss deduction. Across the life of my real estate investment, I accrue $50K in depreciation/passive activity loss carryover. I sell the property and break even - $0 profit. What happens to the $50K that has been carried over?

3) Depreciation recapture - Same example as #2, but I actually make a $100K capital gain on sale. What happens to the $50K that has been carried over?

4) Same as #4, but I use a 1031 exchange.

Thanks for any help you can provide on this subject!

That is hard to see - here is full-size image link: 

http://s17.postimg.org/xnsdd8zgv/model.jpg

Hi Tom,

I had to re-create the model from scratch quickly. Here it is with conservative assumptions (opex 60% of gross income, incl vacancy, maintenance, etc.).

The cap rate is 4.8%, the CCR is 1.1%, the CCR incl. tax benefit is 17.5%, and the IRR is 24.4%. I am probably doing something wrong but am eager to see what exactly is off. Thanks.

This has puzzled me quite a bit. 

Particularly when looking at real estate as an asset to invest in vs. alternative investments (equities, bonds, commodities, etc.), it seems silly to me to ignore total returns. Total real estate ROI should include 1) cash flow, 2) tax benefits realized each tax season in the form of real cash (non-operating items such as depreciation, mortgage interest, RE tax), 3) equity. Now, I can understand why some folks might want to leave #3 off the table since it is accounting money and not cold hard cash, but I do not fully understand why people do not include the tax benefits in cash on cash. I suppose one reason is that everyone has a different tax rate so it doesn't make sense as an objective metric that can be used across various investors. But for calculating real estate attractiveness, this absolutely needs to be part of the calc.

From doing the math, a recent model I ran showed a CCR of 7% but a CCR (incl. tax benefits) return of 17%. Not even taking into account equity. This is a huge difference and makes all the difference when comparing RE as an asset class to equities.

Am I stating the obvious or is this often not considered in public discourse on the returns on RE investment properties?

Thanks all for the interesting discussion and helpful feedback.