All Forum Posts by: Account Closed

Good morning Corey! 
It’s great that you’re considering a multi-family property as part of your wealth-building strategy. Since your goal is passive income, breaking even, and long-term wealth, here are some general steps to guide you:

Location Research: Focus on areas with landlord-friendly laws, especially since you want to avoid tenant-landlord issues like those in New York. Consider states with strong rental demand, population growth, and stable or appreciating real estate markets.

Financing: Look into various financing options. If you plan to live in one of the units, you may qualify for favorable terms with an FHA or VA loan, which often allows you to put less down on a multi-family home. If it's strictly an investment, you may need to consider conventional loans or other creative financing options.

Cash Flow Analysis: Do a thorough analysis to ensure that the rental income will at least cover your mortgage, property taxes, maintenance, and vacancy periods. Break-even or positive cash flow is key for passive income.

Property Management: Since you’re aiming for passive income, consider whether you’ll manage the property yourself or hire a property manager. A good property manager can handle tenant issues and reduce your hands-on involvement.

Building a Network: While you don’t currently have local connections, networking with other investors, attending real estate meetups, or joining online communities can provide valuable insights and opportunities.

The next steps depend on your financing options, preferred markets, and whether you’re willing to manage tenants directly or prefer to stay hands-off. Happy to dive into any specific questions you have. 

That is correct! All great answers above, just wanted to add that your tax guy should be able to help here I'm not so sure going to an expensive real estate attorney for an LLC alone is a good use of funds in many cases its overkill.

Quote from @Amanda C.:

We had tenants renting for 4yrs, when we got to the property after they moved out we noticed a large oil-stain in the driveway as well as various other smaller oil stains in the driveway. This photo is before pressure washing, we are trying solvents to remove the stains. Would you charge damages from the security deposit? I understand a small drip or two would be normal wear and tear, but a stain this large seems excessive?

 Hey Amanda, 

In this case, you can likely deduct the cost of cleaning the oil stains from the security deposit. While minor drips or small stains may be considered normal wear and tear, a large and excessive oil stain that requires significant cleaning effort or solvent treatment goes beyond that. Normal wear and tear refers to deterioration over time from ordinary use, but damage like a large oil stain in the driveway from a vehicle is preventable and would fall under tenant responsibility. To deduct expenses, you should document the damage with photos (before and after cleaning) and keep receipts for any cleaning services or products you purchase. As long as you can prove the costs are directly related to restoring the driveway to its original condition, it's reasonable to charge the tenant for these damages using their security deposit.

 This is great from a tax perspective as well. You can usually use bonus depreciation against the asset assuming it will follow the short term rental loophole rules of 7 days or less average stays. 

 Hey Marc,

First, I would need to know the goals of this LLC, as operating agreements vary widely in purpose.

 Hey Christian, 

You would typically prorate the property taxes based on the portion of the property that is exempt. In Texas, the property tax exemption for veterans with a disability generally applies to the portion of the property you live in, so since you’ll be living in one of the units of a multi-unit property, the exemption should apply to that unit. 

Hey Ricky, 

Selling a property with a tenant in place can be advantageous, especially if you're targeting investors looking for a turn-key rental opportunity. This approach makes the property attractive due to its steady rental income and immediate returns, and it can appeal to buyers seeking hassle-free investments. However, it might limit your buyer pool, as owner-occupants may be less interested in waiting for a lease to end or dealing with current tenants. Transparency about lease terms and the tenant's situation is crucial. When selling for sale by owner (FSBO), ensure all legal documentation is in order and consider consulting with a real estate professional or attorney to handle the lease transfer and legal aspects effectively.

Yes, saving your receipts for local meetups could potentially provide tax benefits if the meetups are related to your business or professional development. If the meetup is directly related to growing your side business or improving your skills, expenses like registration fees, transportation, and meals may qualify as tax-deductible business expenses. To claim these, you’ll need to keep detailed records, including receipts, the purpose of the meetup, and how it relates to your business, as the IRS requires proof that the expense is ordinary and necessary. Meals may be 50% deductible if tied to business discussions, and if you drive, you could deduct the mileage at the standard rate. Keeping receipts and a log of these expenses will help support your deductions during tax time.

Hey Mike, 

Here's a breakdown of the backdoor Roth IRA strategy and some additional considerations:

Open a Traditional IRA: You can contribute up to $6,500 in 2024 (or $7,500 if you're over 50). If you're over the income limits, the contribution won't be tax-deductible.

Convert to a Roth IRA: After contributing to the Traditional IRA, convert it to your Roth IRA. Since it's a non-deductible contribution, you'll only owe taxes on any earnings between the contribution and conversion.

Pro-Rata Rule: Since you don't have any other IRAs, you can avoid this rule, which taxes conversions based on the ratio of pre-tax and post-tax IRA balances. This simplifies your situation.

Contribution Limits: Keep in mind that the IRA contribution limit is $6,500 per year. You mentioned $25,000, but you'll need to spread that over multiple years unless you're using other strategies.

Five-Year Rule: The converted amount will need to stay in the Roth for five years before you can withdraw it without penalty. However, Roth IRA withdrawals are generally tax-free after age 59½, assuming the account is at least five years old.

Self-Directed Roth 401(k): You can contribute more to your Roth 401(k) through your 1099 income, especially since contribution limits are higher than IRAs.

Mega Backdoor Roth: If your side business offers a 401(k) with after-tax contributions, you could contribute much larger amounts and convert them into a Roth 401(k) or Roth IRA, maximizing your tax-free savings.

 Since on of my wonderful BP colleagues already answered it above, I wanted to ask if this person would be open to re-investing the proceeds? You maybe able to suggest they invest in another asset with some of the money. Obvious I know, but just wanted to call it out if that discussion hasn't happened yet.