There were really two separate questions asked.
1. If he rents it out, does he need to worry about anything other than depreciation recapture assuming he sells it within the proper time period?
I don't believe so, but I'm not an accountant.

2. How to do the math to determine if it's worth keeping the property longer than 5 years? In other words, is it worth it to pay the taxes that would be due if he keeps it 5 years plus 1 day? Or sell it before then and never owe those taxes at all?
In my mind, it's really about how the extra taxes affect what kinds of returns on the property. Feel free to offer something better, but I still think the two methods I suggested are easily done in 5 minutes and good enough for someone worried about one property.

1) I agree with that. His will almost certainly lose money year to year since he needs to depreciate, the depreciation will be recaptured at some point. My point was that he is going to be considered an active participant by the IRS allowing him to deduct the expense. (http://www.apartment-building-real-e...-investor.html is a quick and dirty explanation. He'd fall under then 2nd.)

2) I misunderstood your original answer. In light of it in this, sure w/e. I highly doubt he'd be able to get this make any money based on a pro forma (no major capital expenses lead everyone to think their property cash flows), but who actually bothers with this when faced with one of the largest financial transactions of their life?

You can deduct expenses, including depreciation, while being a passive investor. You just can't use any losses to offset your non-passive income. At least, that's what my accountant says. If you do have losses, you would carry those forward to offset future income from your rental.

He's not going to be a passive investor.

I see nothing in the description that requires him to be a active investor. Maybe you know something I don't. What specific expense/deduction is going to require him to be an active investor?

I have lived and been a REI in southern baja since the recession.
I am looking at doing a substantial off market 11 unit deal in Cabo San Lucas that I have wanted for a long time. This deal is a unique situation for me because of size. Anyone interested in discussing PM me.

At least a basic understanding of how syndicated deals work, history investing in Mexico or some unique value you can bring to the table would be appreciated. Am willing to discuss with anyone though. This might be a shot in the dark but am hopeful to find someone interested or at least generate some good conversation or unique perspective.

Anyone in this thread have any experience with HomeVestors or the "We Buy Ugly Houses" people? Approached about buying a franchise and wondering what peoples experiences have been in this arena? Trying to find inside tracks on purchasing good deals before they hit the market.

I don't have any experience with them. My assumption is they are essentially trying to sell you a "system," in the same manner as Than Merrill or Trump University, and it is up to you to do all of the leg work. I wouldn't waste your time. But, if you do, please report back.

Is anyone here familiar with condo de-conversions? I'm the president of a 16 unit association and just began working on a potential deal. I'm in downtown Chicago and I know they have become very popular in the past 2 years. I contacted a larger brokerage company and just received the property valuation. The numbers look very good with about a 25% premium over the market value of the individual units assuming a bulk sale. I can't imagine any unit owner would hold out. Everyone has the same pro rata share and each unit's prices are nearly the same with similar interiors given the 5 sales in the past 3 years. The building is almost half investors. Most of these owners are netting nearly 1K a month positive cash flow. If the building sells, the premium over market value would be about 70-85K a unit after net proceeds. No investor would turn this deal down, correct?

We need 75% of the units to agree to the sale and want to present the numbers in a way that makes sense as only the board is aware of the valuation currently. Also, is 3.5% total commission standard in this type of sale? I'm used to seeing 5-6% for total commission and surprised to see something this low. On top of lower legal fees and such given a bulk sale.

Is there anything else that I should be considering when going through this process? I've bought and sold one condo before but have never done anything like this.

be prepared for a handful of lawsuits from the others that don't want to go through with this. i'd also imagine not all of the investors in the building are willing to give up their free 1k/mo in positive cash flow and tax benefits if they sell. remember not all investors care only about margins/bottom lines.

to answer your questions ya if you can get 75% of the units to agree legally you can go through with it but it will be expensive/stressful dealing with the 25% that don't want to sell their units.

What would cause them to have a valid lawsuit? State law says if 75% of the units agree then the deal would go through. And everyone would get a substantial premium so no one is getting screwed over. Our reserves are pretty small so we couldn't deal with a prolonged legal battle.

2 older ladies have lived in the building for over 15 years but I can't imagine anyone else being against this.

most lawsuits are never valid to begin with you should know this (esp before starting this kind of process).

i think your thinking too much like a bottom line investor and not enough as a typical *average real estate investor. most of them are pretty passive by nature, don't really care for the best rate of return, and just happy to own their property.

by forcing them to sell you are essentially taking away something they own. who knows maybe all the investors in your building don't fit this description but id be hard pressed to assume so.

i'd contact a few attorney's that specialize in this type of thing before you start. i have a feeling they will be on my side of this argument...

my brother and I have bought a couple of properties and are trying to figure out the best way to structure it. I know its been suggested in here to set up an LLC for every 2-3 properties; how would we go about allowing ourselves to market as say "xnbomb rentals"? Could we set up all the llc's with a DBA and be able to have all of them work within that company, or is there a way around it? mostly looking at it from a legal view-I'm pretty sure multiple people have said you don't want more than 2-3 in case of a lawsuit against 1 of the properties, but we'd still like to have 1 company name for all the properties under the different LLCs

Might cost $100 per property more, but a Series LLC is what your'e looking for.

looks like exactly what I need...they just aren't offered in my state lol. Thanks for the info though

Any advice for figuring out a solid price to offer for a home? I'm looking to make my first home purchase in the next 2-3 years. It seems like most places in my area are priced well above the zestimate (I know not fully accurate estimate).

For example I've seen a place i'm interested in that is listed at 160k. Has been on the market for 20 weeks and the price was dropped from 172.5k-170k-160k over that time frame and I wanna say the zestimate is 120-125k. I feel this zestimate is incorrect and condo probably is 130-150k range in value I would assume.

I would obviously hire a real estate agent before purchasing my own place but is there a ball park range to start negotiations percentage wise? From local research, it seems most real estate still on zillow in my area is still up and prices are dropped multiple times.

When I was looking my agent ran comps and I looked at comps myself to get an idea on pricing. If I remember correctly Zillow (and maybe other sites) will show you comparable homes on the page for each home and you can click on them and see the pros and cons of the place you are looking at and the comps.

Remember that an agent only gets paid if you buy a home and the quicker you buy the less work they have to do.

We are attempting to buy a pretty high end oceanfront property to use as a vacation rental. The negotiations have been extremely tough and the Seller is saying they will not fix anything and make sure the unit is sold "as is." I am still willing to jump through the hoops they want since the property is pretty rare. However, after the inspection finds a bunch of stuff that needs fixing (they always do), if the seller won't fix or credit me money for it, is it reasonable to just go in there and pay for/make the repairs? It seems a bit strange to be putting money/time/etc into a property that I do not yet own. I wouldn't likely do anything major but I was wondering if there is a way to mitigate this risk rather than just wait until after close?

I am trying to do property tax protesting this year. It went up by 30k comparing to last year. My house is in a new community where the developer still building more houses. I am think of hiring a company and it will take 30% of what they save. Is it worth it? If I do it myself, is there any tips?

Do not do a thing until after close. Hopefully it isn't anything that would render the property unfinanceable.

Agreed. I would be surprised they would let you do repairs before you own it, and you certainly don't want to do it without permission. Sounds like a total mess. Just do your inspection, and even get contractors to quote for you if you want. That way, you know what you're getting into. But fixing a property you don't own is a recipe for a lawsuit. (You find or create another problem while doing the work.)

Sounds like a nobrainer... taxes come every year. If it's truly 30% of whatever they saved you on year 1 and there is no hidden fee why not try you are freerolling

The only reason you'd do repairs before closing is if the place couldn't get financing with the shape it's in. And if you're buying something that needs that much work, relying on an inspector is a bad idea.

And if it's minor repairs that are causing damage the longer they sit (I bought a 4plex that was vacant and had a shut off valve leaking, so I snap fixed it before I even made an offer...I've also thrown tarps over roofs before closing too as a quick fix).

Question in relation to the new tax law. I own a rental property (condo) as well my own condo in Michigan. I am considering selling the investment property as I have owned it for several years, it has seen good appreciation, etc. But am also considering holding it for a few more years.

In relation to taxes, I do not currently have it as part of an LLC (I know I should). My total personal tax deductions last year were about $11,500, which includes mainly the taxes and interest on the two properties that I have. I am single and no kids, and the standard deduction will double to $12k this year. Am I now losing a lot of of the tax incentive that I have to hang onto this property being that I am losing the ability to write off the taxes and mortgage interest? Well, not really “losing” it but it doesn’t affect my current tax situation as I likely won’t have enough tax write offs to exceed the standard deduction.

Would putting this into an LLC change this?

Thanks.

I'm not a tax professional, but have done a lot of real estate investing...

You should see no difference in your tax burden regardless of whether the property is in an LLC or held personally. The mortgage interest and taxes are both fully deductible, even when held in your personal name -- these are business deductions, not personal deductions. That said, depending on the specifics, you may have to spread any losses over multiple years, given passive loss rules (talk to a tax professional about your specific situation).

You'll also have to recapture depreciation when you sell, regardless of whether you took depreciation during your ownership (hopefully you did).

Another option is a 1031 exchange. If you'll be re-investing the proceeds into another rental property, you may be able to delay capital gains tax on any profits this way. Just something to consider.