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Re: Real estate investors who have gone before: some thoughts please?
Old 01-31-2007, 10:27 AM   #21
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Re: Real estate investors who have gone before: some thoughts please?

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Originally Posted by tryan
GWB lowered RE LTCG to 15% - that was a good thing. What sucks is the alternate minimum tax ... we'll all hit this on any property sale; and it grabs at your gain like ordinary income (YIKES!) which are also lower (but still too high).

The idea of a live-in property manager is a good ... but I wouldn't trust the guy/gal to fill vacancies. And with 16 units at 5% vacancy you've got alot of vacancies to fill. We can all agree turning over a vacancy is the lions share of RE "work".

The 4 high end properties ($400k) would certianly work in CA/HI/east-coast cities. Not sure where OP property is, but this wouldn't fly in many states. Of course, moving 4 times is a quality of life issue (especially with a spouse and kids).

Yeah, my RE has out performed my stocks ... and I wouldn't want to lump-sum into the stock market at all time highs. Buuut, having been pre-occupied by frozen pipes the last couple weeks ... makes Mr. Market look pretty tempting. Maybe a DCA approach into index funds?

Point being, anybody who already has ~2m is thinking more about preservation than they are growth; preservation comes with enough diversification.
We're up in Oregon - manage to keep our vacancy rate below 2.5%, but with 53 units that translates into 4-5 turnovers/month. I am quite sure our vacancy rate would be higher with management that didn't have the incentive i do. Figure that's about 1 turnover/unit/year, which seems pretty optimal to me, though when in the midst of co-ordinating 4 or 5 leaving and getting them cleaned and repaired and filled it feels pretty busy. Moving to take advantage of the tax free nature of personal residence sales appeals to my thrifty nature but would not fly with SWMBO. We spent about 6 years doing an extensive remodel (new plumbing,wiring,staircase,walls,foundation...)on this house to make it just what we wanted. We've considered a winter home, and buying a rental house that later converted might work for one of our house sales. Wouldn't address getting the majority of the profit out of Unca Sam't fingers. Don't need,can't afford a giant second home, need to have a 1031 exchange property(ies) be equal or greater in price to the exchanged property. SWMBO has put the DCA onus on me as a condition of transfer into the stock market. We tend to reinforce cautious behavior in each other.
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Re: Real estate investors who have gone before: some thoughts please?
Old 01-31-2007, 11:02 AM   #22
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Re: Real estate investors who have gone before: some thoughts please?

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the potential tax (exclusive of the AMT) which uses 25% on depreciation recapture and 15% on the balance of profit minus depreciation.
This is consistent with the taxes I paid selling a SF rental in 2005.

Quote:

need to have a 1031 exchange property(ies) be equal or greater in price to the exchanged property
Many trip over this (online help is unclear) ... buuut you can 1031 a small portion of a gain and pay taxes on the rest. For example, a few years ago I did a 1031 selling a duplex (for ~170k gain) and bought waterfront raw land (for ~100k). And paid taxes on the excess gain (~70k).
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Re: Real estate investors who have gone before: some thoughts please?
Old 01-31-2007, 11:34 AM   #23
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Re: Real estate investors who have gone before: some thoughts please?

Quote:
Originally Posted by tryan
This is consistent with the taxes I paid selling a SF rental in 2005.

Many trip over this (online help is unclear) ... buuut you can 1031 a small portion of a gain and pay taxes on the rest. For example, a few years ago I did a 1031 selling a duplex (for ~170k gain) and bought waterfront raw land (for ~100k). And paid taxes on the excess gain (~70k).
Wasn't aware of the potential to trade down on a 1031 and pay tax on the remainder - that opens up some options.
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Re: Real estate investors who have gone before: some thoughts please?
Old 01-31-2007, 03:19 PM   #24
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Re: Real estate investors who have gone before: some thoughts please?

Two items:

I know someone who sold a shopping center for several million a couple years ago. He 1031'd it into a whole bunch of single family homes (and pushed up the local RE market while he was at it!) It worked but I would use a good atty and accountant on this.


Second --- more of a question,

I thought I understood that the AMT only applies to EARNED income, not cap gains. Am I wrong? IF so, I need to refigure how much we would net upon sale of our property .......... :P

Anyone know for sure on this one?

Jane
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Re: Real estate investors who have gone before: some thoughts please?
Old 01-31-2007, 03:42 PM   #25
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Re: Real estate investors who have gone before: some thoughts please?

Quote:

I thought I understood that the AMT only applies to EARNED income, not cap gains. Am I wrong? IF so, I need to refigure how much we would net upon sale of our property ..........

Anyone know for sure on this one?
Yeah, I know for sure because I've been hit with AMT EVERYTIME I sold a property. Problem is the "trigger" is not set to inflation so every year more and more people are getting snagged. GWB raised the trigger from 49k to 63K for couples ... figure the first 63k will be taxed at the "teaser rate" (15%) after that it's ordinary income (28%??).

DISCLAIMER: I've used an accountant for my taxes for 20 years ... I am NO tax expert!
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Re: Real estate investors who have gone before: some thoughts please?
Old 01-31-2007, 09:52 PM   #26
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Re: Real estate investors who have gone before: some thoughts please?

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Originally Posted by Nords


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.
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Re: Real estate investors who have gone before: some thoughts please?
Old 01-31-2007, 10:04 PM   #27
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Re: Real estate investors who have gone before: some thoughts please?

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I've never had my brokerage call at 3 AM to complain about the furnace or the toilets, either...
You must have Flagship service...
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Re: Real estate investors who have gone before: some thoughts please?
Old 02-01-2007, 12:01 AM   #28
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Re: Real estate investors who have gone before: some thoughts please?

Quote:
Originally Posted by Jane_Doe
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.
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Re: Real estate investors who have gone before: some thoughts please?
Old 02-01-2007, 10:25 AM   #29
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Re: Real estate investors who have gone before: some thoughts please?

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
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Re: Real estate investors who have gone before: some thoughts please?
Old 02-01-2007, 12:24 PM   #30
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Re: Real estate investors who have gone before: some thoughts please?

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.
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Re: Real estate investors who have gone before: some thoughts please?
Old 02-01-2007, 12:47 PM   #31
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Re: Real estate investors who have gone before: some thoughts please?

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
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Re: Real estate investors who have gone before: some thoughts please?
Old 02-01-2007, 01:06 PM   #32
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Re: Real estate investors who have gone before: some thoughts please?

Quote:
Originally Posted by Jane_Doe
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.
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Re: Real estate investors who have gone before: some thoughts please?
Old 02-01-2007, 02:26 PM   #33
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Re: Real estate investors who have gone before: some thoughts please?

Quote:
Originally Posted by 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
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....
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Re: Real estate investors who have gone before: some thoughts please?
Old 02-01-2007, 06:05 PM   #34
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Re: Real estate investors who have gone before: some thoughts please?

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
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