All Forum Posts by: Lane Kawaoka

It depends on when the asset is purchased not when you the LP invested. For example we have purchased an apartment in Dec 2023... LP invested Feb 2024 and cost seg done May 2024... still can get the bonus depreciation for 2023K1 for LP.

If your an accredited investors I would skip over getting into single-family homes. I used to do that when I worked a w2 job as an engineer, investing in rentals from Seattle to Alabama, Indianapolis, and Georgia. But honestly, they're more hassle than they're worth, especially for those with higher incomes or as an accredited investor. I switched to syndications as a limited partner (LP) instead.

It seems like you're venturing into buying single-family homes, I've been there in my early twenties, back when I was juggling an engineering job. I used to invest in turnkey rentals from Seattle, choosing locations like Alabama, Indianapolis, and Georgia.

However, I realized they were more trouble than they're worth. This is particularly true for higher income earners and accredited investors. I shifted my focus towards syndications, opting to be a limited partner (LP).

If you're curious about this shift, you can do a quick Google search for more insights. Or, feel free to contact me directly. 

We own several apartments in Huntsville and Decatur - you have a lot of good areas in your backyard. Let me know if you have specific questions.

syndication... obviously the lesson learned is invest with the right people and in every investment there is risk.

Just make sure its a 70/30 or 90/10 Mec to Insurance ratio. Anything more will be high in fees

Not unless you have REP status you can't offset your ordinary income with your passive losses.

Make a run for real estate professional status to open the avenue to lowering your total AGI with real estate passive losses now being treated as ordinary losses.

🚀 Join our Interactive Virtual Webinar! 🚀

🤓 Ask a Certified Public Accountant (CPA) ANYTHING! 📚

👉 Topics We'll Cover:
LLC Mysteries? We've Got Answers! 🏢
S-Corp & C-Corp Insights! 💼
Navigating Passive Income & Losses 💰
Grouping Election Explained! 📈
Real Estate Professional Status Demystified! 🏠
🌐 Your Chance to Gain Clarity on Complex Financial Topics! 🎓

📅 Don't Miss Out! Secure Your Spot Now! 🎟️

🔗: https://lnkd.in/gNn2SymN

#CPAWebinar #FinancialInsights #AskTheExperts

The reason those investor accounts are out dated because many operators get more institutional... when they go over 2-4B in AUM... higher splits and fees means less ROI for LPs... the trade off is reliability in terms of counter party risk (stealing your money). However some big institutions use a net zero reversion cap rate, assuming they're selling into a stronger market as opposed to increasing it by 0.5%-1.0%. I remember attending this real estate conference without the usual YouTube influencers and real estate fake gurus. I asked a bunch of institutional operators about their strategies. Their answers were surprising. Most people in Sub 2B in AUM expect the market to dip slightly and use a reversion cap rate of about half a percent.

Take late 2023, for example. We saw cap rates accelerate. Phoenix, Arizona, is a perfect case. Cap rates there jumped from 3.5% to 6.5%, even 7%. That's a 30-40% drop in market value. It all boils down to how commercial real estate works: your net operating income divided by the cap rate determines your property's value. Let me break it down: A property with a net operating income of half a million, at a 3.5% cap rate, is worth around 14 million. But at a 6% cap rate? It's only worth about 8.3 million. That's a huge loss.

This is why your investment model needs to account for cap rate changes. If it doesn't, you're in trouble when rates spike. And that's exactly what happened last year. Diversifying over different time lengths is key to handling these swings. High cap rates are rare, but they do happen. As a passive investor, you've got to weigh the risk and reward.

Operators usually evolve (less in favor for LP). They either go institutional, tapping into large, passive sources of capital, or they change asset classes.  For the smaller LP investor, finding the right operator is crucial but if you net worth is under 4M (what I call endgame status) then I would try to find a less institutional operator.