Real estate investors who have gone before: some thoughts please?

[honobob]

I've never had my brokerage call at 3 AM to complain about the furnace or the toilets, either...

I've never had a tenant call at 3 AM to complain about the furnace or the toilets, either... but if they did I could fix it. If your broker called you at 9:00am to tell you you've lost earnings and principal who ya gonna call?

I've never lost any of MY money in real estate, been asked to return some of my 25-50% equity gains for the short term. So far my stock investment has not resulted in principal loss but the gains have not been stellar.

Seems the risk is high just to not have a possible non business hour call.

 

[cute fuzzy bunny]

I've never had my brokerage call at 3 AM to complain about the furnace or the toilets, either...

You must have Flagship service...

 

[jdw_fire]

That being said, we are ignorant of investing and though I have been reading here and also books on finance, I am uncomfortable putting a very large sum of money into the stock market. I am sure the whole thing will tank as soon as we put our money in! I would be thrilled to just let it sit in a bank account and earn interest, but I understand that is just plain foolish due to inflation. There has to be a happy medium for those of us who need the belt and suspenders.

If you don't want to be in the stock market I can see 3 investment choices that don't include RE or owning a business. The first is bonds, which further breaks into two catigories when trying to keep up with inflation, TIPS (and other CPI adjusted bonds) and high yield bonds. The second is CPI adjusted immediate annuities, and the third is private lending which can be broken into two catigories also: 1) sell your property with owner financing that has some kind of adjustment factor included that gives you an overall real return and 2) hard money lending. Maybe something in this list appeals to you more that the stock market. Good luck with what ever choice you make.

 

[Jane_Doe]

Thanks guys for the replies.

JDW - Yes I am aware of the alternatives to stocks and will probably end up with a good sized chunk in TIPS and conservative bond funds. No thanks to the hard money lending. We may end up doing an installment loan on the sale of the property and that may work out well.

All hypothetical right now until we can put our property into MLS system. We are dong word of mouth that we will be selling out, but it is still contingent upon legistlative issues which are coming down the pike. It is hard to wait for these wheels to turn.

TRyan - Can you check and make sure you were paying AMT on the LTCG and not on your income over and above that. If I understand it corrrectly, the earned income, including rents received, are put on "top of the pile" so you don't get deductions on your earned income and the whole EARNED income is taxed at the highest rate. My accountant said cap gains (we've owned the prop since 1988) are a straight tax rate - period. Of course you need to deduct cost basis and figure in your depreciation recapture, plus any state tax on top of the 15%. I also have run this stuff thru my 2004 version of TurboTax (yes, I know I need to get newer version - but it should come out with similar results for "test" purposes.) I only put as income the sales info on the orperty (hypothetical), plus rental income rec'd during that year to make it as if we sold it at the end of the year. Please note DH & I currently have no earned income other than rents (actively managed). I have a business that generates very little or no income - we keep putting it back into the business. :

I think (but am not sure) we ran around this same AMT issue with MathJak who also ran into paying AMT due to income from real estate sold. I will try to find it and re-post a link here.

Thoughts from TRyan and the rest of our forum?

Thanks again for the continuing help as we figure this stuff out. I hope it will be helpful to our new friend, Calmloki, as well.

Jane

 

[tryan]

Jane,

I see my accountant on the 14th .... I'll ask for clarification. I definately felt like I paid more than 15% on the capitol gain. Just need to understand why.

Stay tuned.

 

[Jane_Doe]

Thanks a lot TRyan - that would be really swell! I appreciate it and I hope for all our sakes your accountant concurs with mine!

Staying tuned ........

Jane

 

[jdw_fire]

TRyan - Can you check and make sure you were paying AMT on the LTCG and not on your income over and above that. If I understand it corrrectly, the earned income, including rents received, are put on "top of the pile" so you don't get deductions on your earned income and the whole EARNED income is taxed at the highest rate. My accountant said cap gains (we've owned the prop since 1988) are a straight tax rate - period. Of course you need to deduct cost basis and figure in your depreciation recapture, plus any state tax on top of the 15%. I also have run this stuff thru my 2004 version of TurboTax (yes, I know I need to get newer version - but it should come out with similar results for "test" purposes.) I only put as income the sales info on the orperty (hypothetical), plus rental income rec'd during that year to make it as if we sold it at the end of the year. Please note DH & I currently have no earned income other than rents (actively managed). I have a business that generates very little or no income - we keep putting it back into the business. :

My understanding of AMT is as yours with one exception and that is that you use the term EARNED income and my understanding is that all income (not CG) will be put on "top of the pile". BTW rents received are not EARNED income, nor is interest. EARNED income, in general, is income you pay FICA on.

 

[calmloki]

Thanks guys for the replies.

JDW - Yes I am aware of the alternatives to stocks and will probably end up with a good sized chunk in TIPS and conservative bond funds. No thanks to the hard money lending. We may end up doing an installment loan on the sale of the property and that may work out well.

All hypothetical right now until we can put our property into MLS system. We are dong word of mouth that we will be selling out, but it is still contingent upon legistlative issues which are coming down the pike. It is hard to wait for these wheels to turn.

TRyan - Can you check and make sure you were paying AMT on the LTCG and not on your income over and above that. If I understand it corrrectly, the earned income, including rents received, are put on "top of the pile" so you don't get deductions on your earned income and the whole EARNED income is taxed at the highest rate. My accountant said cap gains (we've owned the prop since 1988) are a straight tax rate - period. Of course you need to deduct cost basis and figure in your depreciation recapture, plus any state tax on top of the 15%. I also have run this stuff thru my 2004 version of TurboTax (yes, I know I need to get newer version - but it should come out with similar results for "test" purposes.) I only put as income the sales info on the orperty (hypothetical), plus rental income rec'd during that year to make it as if we sold it at the end of the year. Please note DH & I currently have no earned income other than rents (actively managed). I have a business that generates very little or no income - we keep putting it back into the business. :

I think (but am not sure) we ran around this same AMT issue with MathJak who also ran into paying AMT due to income from real estate sold. I will try to find it and re-post a link here.

Thoughts from TRyan and the rest of our forum?

Thanks again for the continuing help as we figure this stuff out. I hope it will be helpful to our new friend, Calmloki, as well.

Jane

JaneDoe - Calmloki is reading right along! Just back from some sink/fire alarm/phone plug repairs and need to get some wall mud & cabinet screws for 2 doors removed (why they were removed, i don't know). Your first message sounded mighty similiar in thinking to me & my gal. Tryan's AMT news may have started a small ulcer - we also need to have a tax appointment but haven't set a date yet, so I'm following postings fairly avidly. Googling AMT hasn't really spoken directly to rental sales for me yet....

 

[Jane_Doe]

Calmloki,

Yes, we have similar situatons, and I think the AMT does not apply to Cap Gains because if I recall correctly, last time we all discussed this (March of 2006) I THINK I ended up calling my accountant to confirm that that was true. It did cause me loss of some sleep till then. I will still be glad to get TRyan's accountant's take as well, but I'm pretty sure we are ok.

JWR - Yes, you are right, I phrased that incorrectly - sorry for the confusion - Any income other than the Cap Gains would be subject to AMT (Is that right now?)

Just chugging along .........

Jane