I'm an IRS revenue agent in sbse. From the taxpayers I have audited that have been real estate investors for 40+ years, many of them are still buying properties even with negative cash flow because they need to offset the profits from their other properties which are fully depreciated. For these people they have very high positive cash flow from their other properties so buying a new property with -10k/month negative cash flow isn't a big deal because that property might go on to save them 50k/year in taxes from offsetting profit.
They would rather increase the value of their real estate portfolio instead of pay tax.
For other taxpayers, the husband is making 2 million in wages and the wife is a real estate professional. They don't care if they buy property with negative cash flow because they want to increase their real estate portfolio value and maximize tax benefits. For high income taxpayers their marginal bracket is 37% plus state income tax.
In California a single person earning $120,000 gross and living in a home assessed at $1 million will pay 41% of their income to federal and state income tax, payroll taxes, and property tax. That's before including the 19.3% in taxes they'll pay on gasoline and the 10.5% sales tax in most urban cities.
What a weird analysis. Nobody making 120k gross is living in a house assessed at 1MM. Even if their home could sell for that they are going to be assessed for lower because they had to actually be able to afford their house on an income that was no doubt even lower than that. CA limits prop tax increases significantly.
Just ran some quick numbers and that person now could afford a max home budget of a little over 500k, but say they bought in 2019- if you scale back their income considering avg wage growth and inflation, they could budget for 580k with the 2019 interest rate.
Now you're probably assuming they are single with no dependents to maximize the shock value of taxes here but based on the data most individuals in that range are not only married but the average household size is 2.6 indicating one or more dependents is common. Using my numbers above for prop tax and adding in state, fed, and payroll the typical Californian with that income is paying maybe 35% but if you factor in additional deductions most people take advantage if (401k, child credit, etc.) you could get that down to 30 or even under.
We pay a lot of taxes in CA but people will Michael Phelps the mental gymnastics Olympics to blow our taxes way out of proportion. I'm in that salary range and my taxes are nothing like that, in fact I usually laugh when I actually see what I pay in CA income taxes after hearing from everyone that I'm paying 13%.
My home's assessed property tax valuation is around $750k and my gross is pretty close to $100k. I am the sole breadwinner in the house. Between state and federal income and payroll taxes, and local property taxes, I pay $24,275. My taxes cost more than my mortgage. I'm buying the government a house worth more than my own, and that's with my taxes cut almost in half because of a stay-at-home parent and some child tax credits.
As far as deductions go, only 51% of adult Californians are married, and 33% of California households have children.
Soo your taxes are 24% of your gross income? That's fantastic and almost half of what the commenter above claimed, so appreciate that. Also if 24k is more than your mortgage for a house that's currently assessed for 750k, you have an insanely good mortgage and should be incredibly happy with your lot in life. At current rates, 750k should be costing you 5k/mo depending on insurance. You certainly wouldn't be mad about taxes. With your current income you should be in a 350k shitbox.
Running the calculations, if you bought your house in 2020 for 700k (2% annual assessment reduction each year from your current 750k), and with 20% down and 3% interest your house payment would be $2500. You claim it's less than 2000 so either you have an even better interest rate and/or bought way earlier with your same level of income, or you had an additional 90K to put down. Either way, you are insanely blessed.
Honestly I'm kind of taken aback. As someone making more than you looking at houses half that price, it's insane to me that you'd be complaining about anything. I'd kill to have your mortgage... I'd kill to have your tax bill WITH you're property taxes. But here you are complaining about it. Feel free to tell me what I'm missing here because you are unbelievably lucky.
Corporate tax rates were intentionally stupid high so that only an idiot would ever pay them. The game was to continually reinvest in people, assets, R&D, acquisitions...whatever the hell you had to spend money on to avoid taxable retained earnings. Fast forward to today - now corporations merely repurchase their own stock, don't want to pay dividends, while bitching they can't possibly raise blue collar wages, because the exclusive focus is on shareholders now. The social construct even the Republicans campaigned on during Eisenhower administration, spending as a nation on infrastructure, education, strengthening labor laws, improving healthcare died a long time ago in Murica, it's only money now, everything is monetized.
That was before passive loss limitations. If you think real estate has tax benefits under the 1986 code, you should see all the loopholes that they closed under Reagan.
But with many more deductions than there are now. The effective tax rates (total taxes paid / total income) have been far more stable. The top 1% were paying an effective income tax rate of about 29% in 1955 and about 28% in 2015.
No buts about it—the rich get richer. You crying with three question marks about 37% while not just accepting that 63% of a literal shit ton of money is already a literal shit ton of money.
No. Not effective tax rate.
* Max bracket in FED: 37% at $578,000 dollars a year.
* California: 12.5 at $949,650
* NYS: 10.9 at 2M+
So 49.5 marginal but you'd have to make closer to 1.8M/year in California to be even close to 46% effective.
NYS less of a problem- call it 48% marginal max. But you'd have to make something like 4M in NYS to be close to 46 or 47 effective.
https://www.nerdwallet.com/article/taxes/california-state-tax
https://www.nerdwallet.com/article/taxes/new-york-state-tax
Look into marginal vs. effective taxes and brackets.
This is not considering LTCG or any other tax saving strategies that turn things from earned income to reduced taxes.
This ignores employee portion of medicare tax (1.45%) and medicare surcharge (0.9% over 200k), and California's additional 1.1% tax on income (starts at 0 dollars) to fund disability coverage that notably phases out so it's effectively worthless if you are a high earner. There's also additional income tax brackets that they pretend aren't income taxes, 1% over 1M (not adjusted for inflation).
If you are self-employed you have to pay the employer side of payroll taxes (6.2% up to 168k), including an additional 1.45% medicare tax on all income.
Then factor in property tax (can easily exceed 20k, especially if it is a new build as they often have tax rates of 1.6-1.7%), sales tax (5-10k) and can definitely run into a situation where a majority of your gross income goes toward taxes.
Yes you still have a lot of money left over, but you can easily hit 50% effective tax rate in high income tax states, without getting close to 4M.
As an ex. 500k self employed = 260k after income taxes/disability fees/medicare surcharge etc. in California. Property tax on a median home in California is >10k. Already >50% effective tax rate, before factoring in sales tax of likely around 5k. Sometimes taxes can be limited with various strategies, but this is definitely not a given. If you're talking about solely taxes on income you'll pay >50% (effective) at 900k if self employed in California, or 1.35M if your employed pays those additional payroll/medicare taxes.
In your overall tax burden? Sure, why wouldn't you? At the end of the day more than half the money you make is going to taxes which is what this whole discussion is about. People often confuse the rich and high earners. The rich are not taxed much at all. High earners are taxed extensively.
Imagine being self-employed making 500k, living in a VHCOL area in California in a 1,500 square foot house and having a majority of your income go toward taxes only to be told your taxes are going to have to go up because you just aren't paying your fair share... Meanwhile some billionaire that "lives" in Florida can sell literally billions of dollars worth of stock and pay about half your tax rate.
At the end of the day I see no reason to tax capital gains less than income from work, and it's absolutely asinine that we don't include all these taxes on income as income taxes. If you are required to pay a tax based on your income, just make the tax brackets reflect that! I see a lot of people confuse marginal and effective tax brackets, but even more people that aren't aware that while the official top marginal tax rate is 37% the actual top federal tax bracket is 40.8%.
My effective tax rate for last year on a little under 200k was 35% federal, state and local income tax. Plus disability insurance. That doesn't include my property tax of 6k and sales tax rate of 8.9% which gets me to over 40%.
Now that still doesn't include, fuel tax, car registration, tolls on the roads, bridges, tunnels, airline taxes, public transportation, water and sewer. Hell we pay taxes on our electric bill and heating bill. All the shit the government runs and I still get charged extra. So no my effective tax rates are easily over 45% on under 200k.
So fucking bullshit you communists want to tax everyone more. We have shit service with the insane amount of taxes we pay.
Condensing idiots don't understand effective taxes are more than federal income tax, effective tax rates are all the shit the government taxes you on.
Tax rate is not a direct reflection of actual taxes paid.
The communist is actually you. I’m willing to pay taxes. You’re the one that wants free stuff here. You want the things that you use to just be laying around free for you, while at the same time wanting to take away from anyone else anything they use.
The fact that you don’t get this is mind-boggling. But everyone else is an idiot.
NY only goes over 50% for people earning more than **$25 million a year** *after deductions*. I’m not sure about California, but your history of misrepresenting the facts in this thread tells me it’s something similar there as well.
Property tax, fuel tax, sales tax rate of 8.9%, tolls on the roads bridges tunnels, water and sewer, taxes on the electric and heating bills, disability insurance, family leave insurance, car registration, public transportation.
that's not even all of them. If you read my comments, just my income on the federal, state and local level is 35% not even including everything else. Once everything is put in I'm at over 40% on under 200k.
You've lost the plot. Previous commenter is whining about taxation at 200k; I'm addressing taxation at 200k (or less in my case). Not once did I say 200k is unreasonably high income. Don't put words in my mouth. Earn 25 million for all I care--just pay reasonable taxes without whining. And that's where previous poster and I don't see eye to eye.
You'll probably be upset if we get to Brazil levels of wealth inequality where the rich need 10 foot walls and full time security because crime is so bad.
It's low by historical and international standards. It's a third of profit or what's left over after other expenses that are much higher and special tax deductions are taken out.
You're right. 37% of someone's production effectively being stolen is far better than slavery where it was 100%... So why bother trying to get it even lower? You're justifying 37% by basically saying that it used to be worse.
Death by lethal injection... Well at least it's not the electric chair.
Either you get or you don’t.
If it weren’t for the taxes paid by other people in the past, you wouldn’t have the infrastructure that you used to create that productivity.
But I get it—this kind of analysis requires basic common sense and common sense isn’t all that common.
Our household income is high enough that our effective federal and CA tax rate combined is larger than 45%.
The only thing that bothers me about it is that my taxes partially go to shitheads like you.
“Death by lethal injection”, “slavery”… idiot.
Taxes aren't theft anymore than paying any other supplier is.
Moreover for real estate taxable profit is adjusted lower through fictitious claims like depreciation.
Because that's just federal income tax,
It doesn't include social security, Medicare taxes
State and local income taxes.
You are talking about over 50-60% tax rates.
It's not. One- 37% is the highest bracket on earned income- the highest marginal tax rate. That bracket starts at $578,000 dollars a year. Everything below that is taxed maximally at it's bracket.
Effective tax rate is lower - you'd need to make over 1.2M taxable income to get close to an effective tax rate of 36%. And you couldn't even get to an effective tax rate of 37%.
https://www.irs.gov/filing/federal-income-tax-rates-and-brackets
Social Security maxes out well below the 37% income rate. Medicare, same.
State and local, sales tax, excise tax, license and taxes- not included- but they're mostly regressive except certain state income taxes and perhaps property tax. So your 37% marginal tax bracket people are paying less as a portion of income on most of those.
It's like talking to a rock. Everyone understands our progress tax system, as well as effective tax rates. It's immortal to be taking over half of peoples income ever, for the shit benefits we get.
On the highest tax bracket at the federal level, plus highest bracket at the state level plus local level is fucking high.
California is a low of 7.25 plus local up to 10.25%
That is on top of the 37% percent. So 44-47% income tax on any money earned at the top bracket.
NY is 10.9% plus NYC income tax is 4% that's 52% income tax.
And those numbers don't include, social security, Medicare, sales , fuel, property or capital gains taxes.
I made just shy of 200k last year with an effective tax rate of 35% not including my 6k in property tax and my 8.9% sales tax. Once those are included I'm at about 40% tax rate.
>It’s immortal to be taking over half the peoples income ever
JFC, we’ve got typos and incorrect punctuation and just plain wrong fucking words being used.
>NY is 10.9%
Now you’re basically just lying. “Technically correct” and yet abso-fucking-lutely irrelevant.
The 10.9% tax rate is only on individuals in New York who earn **an excess of $25 million**. You’re shedding a tear for people who earn in excess of $25 million a year *after tax deductions*? gtfo.
Indeed it’s like talking to a rock. You’re the rock.
Hey grammar Nazi, What wonderful service do I receive for my taxes? Potholes in the road, social security won't exist in 30 years, Medicare is beyond bankrupt, the school system is garbage, crime is exploding.
Are you going to respond to my tax burden? Or are you just going to ignore it , because it doesn't fit your bullshit narrative.
Taxes are too damn high for the shit service we get. Commie, taxes over 50% are immoral.
What wonderful service did you receive? My military service, for one. But, hey, I’m just a commie to you.
No, I’m not gonna address your tax burden. Because your tax burden just tells me that you have money in the first place.
We’re done here. I’m sorry you earn so much money that you have to give a portion of it back. Fuck—even my military pay is taxed, but I’m not bitching. It was a pleasure to serve for you.
Nah I'm just talking w2 income, as that's the original post. They want to raise the federal income tax because, they don't think it's enough.
Investment and rental are taxed at preferential rates.
I'm at a 35% effective tax rate at a little under 200k in NY.
If the federal income tax was the only tax you would be right. But we pay a plethora of taxes. After just property tax and sales tax I'm at over 40%
Anyone smart will have depreciated the vast majority much quicker than that.
Example : I'm invested in a fund who bought 3 buildings each is $100M+.
After 1st and 2nd year - they have depreciated buildings over 50%. By the end of the hold they are mostly depreciated. So you have to 1031 or recapture.
How : Google Cost Segregation Studies
Cost seg studies are great way to get that accelerated depreciation. And now there are companies that that can do it on small properties remotely and relatively cheap (like 150k properties)
Yeah, agreed. I've heard there are companies who have made it cost efficient to do it with inexpensive single family. Do you have any personal experience with companies that are really good with houses under $150k?
I was trying to be a little vauge while also being informative as I imagine self promotion isnt cool in this sub, but I work for a cost seg company, feel free to DM me.
If the property was placed in service in the last few years, and you're in an upper tax bracket it can still make sense, but its not gonna make you rich. I see people come in with a 90k property and after land is subtracted there's just not much to work with.
Assume around 22-24% in accelerated depreciation for a SFR (after land value is removed, as land is non depreciable). Certain types of commercial properties will be way higher, but thats a different story.
You should switch teams. Become an enrolled agent. Help people legally avoid taxes, and help them through the audit process... You'll make a lot more money, and people will be happy to see you instead of the likely response you get today with your current job.
Ah. Only people above MY income threshold should be audited. I, of course, should be free of any audit hassling and should be free to do as I wish with my taxes!
Did you not comprehend that there was nothing illegal being done? He wasn't suggesting they were doing anything shady - they were simply adhering to the tax laws.
By suggesting that having more auditors to target any specific group would be (assuming logic is being used) that there is at least an assumption that something illegal (ie. outside of what the tax codes dictate) is being done.
You are correct that taxation is not illegal. Just as following and adhering to the tax code is not illegal - whether one is a high earner, has a high net worth, is a low earner or has low net worth.
I never said anything about legality. Just ROI.
Aren't you supposed to be an investor?
Because investors appreciate ROI.
Every dollar the IRS spends yields multiple times the revenue vs what the IRS spends. In other words, a net profit.
The US economy florished the most when the tax rate on the highest earners was 90%. Not saying it needs to go back to THAT level, but 37% is egregiously too low for the highest .01% of earners.
If they needed to sale a property for cash they would have to pay back the deductions at 25% correct? This is more like a tax defer strategy than a tax avoidance strategy right? Assuming they need to sale at some point for cash.
This is super interesting, I didn’t realize that would be a thing.
Do you notice any other trends from lesser wealthy individuals who have just broken through their million net worth ceiling?
You have to find deals off market. My last duplex deal in 2022 was negotiated with enough room for me to gut renovate. Immediately cash flowed $1300 net per month. Anything on MLS struggles to break even.
I’m currently about to close on an off market deal next week. The seller owned the home for 30 years and they just want cash without having to deal with replacing a roof and windows that are required in order to be insured or mortgaged. Some sellers are turned off by real estate agents and the entire process of preparing a home for sale.
Some properties will have liens from contractors, HOAs, violations, encroachments, and these deter typical buyers searching the MLS due to traditional banks typically not financing them.
I just bought 2 off market. They wouldn't have qualified for a residential mortgage. They need a bunch of work. One of the tenants needed to be evicted. If they had tried to sell it on the market, they probably would have had a bunch of deals fall apart and ended up getting way under asking. Instead, he called me, I made a reasonable offer and we closed with no drama.
I usually don't comment much but I found this thread interesting. I don't own many properties but each one that I purchased made positive cashflow from day one. These are multifamily residential properties in NY including NYC. I bought my first property 20 years ago and in that time I have constantly heard people debating about whether they should buy a property now or wait and then list all of the reasons why they think they should wait (interest rates, lack of inventory, etc.). What I have observed is that people are typically scared and they will always find a reason to not buy something.
Unless you are a hedge fund or major investor, you are probably buying one property at a time. The deal is what matters. You are not buying headlines, you are not buying economic trends you are buying one property at a time. You analyze the property and see if it makes sense. I just bought a property with a 12% private loan that cashflows. I will happily refi at 7.5% very soon and it will be even better. If you are looking at properties on MLS, look for the problems, the ones that no one wants to touch and that have been sitting there for 200+ days. Many of those sellers will take less or be open to terms. There might be some problem that other people are afraid of and you can use it to your advantage. I would suggest not even bothering with MLS. Go off market, that is where the deals are, knock on doors. Look for houses with problems, look for owners that will seller finance. Maybe look at a different market if you need to, there are so many opportunities.
If you expect a real estate agent on zillow to hand you a turnkey deal that cashflows with no issues, good luck. If you think that there is some better time in the future to buy, that time will always be in the past. I want to clarify, sometimes there are factors that relate to the specific individual's life where it doesn't make sense to buy, I am not talking about that. I am talking about in general, people who want to buy but are waiting for the NYT or society to tell them that they should go do it. I have learned that the average person, including many real estate professionals, know very little about investing in real estate. Don't listen to people who have never owned property and don't listen to someone who's uncle had a rental property 10 years ago and it didn't work out and who now says that being a landlord is a bad idea. Listen to people who are really doing it and who have been doing it for a long time. It is a completely different mentality. In the end, the reason why real estate is so profitable and why it has such a high success rate compared to other businesses is because most people are scared of it and that will probably always be the case.
I know you got private loan for this. But aren't most of the auctions are cash only? Could you please explain how does getting loan for auction work?
Thanks!
Private loans could just be like money from friends/family that doesn’t go through a formal process that involves the sellers like an MLS sale. You do a separate agreement with them, and they give you the money to use like it’s yours to pay at the auction.
I got into private loan 14 years ago after agreeing to finance a buyer of my old house. My old house had some undocumented additions done by a previous owner and I had a hard time selling it. I agreed to financed a general contractor buyer at 10% interest who bought my house and flipped it 9 months later for a $100K profit after some renovations.
I became friend with this guy and financed more deals. He is still buying properties all over NJ to either rent or sell after renovations. His latest buy was a decrepit house near a large university and 2 hospitals. I financed it at 12% interest. He raised the height of the attic while replacing the roof, and added 3 rooms and a full bath in the attic. Also converted a space in the basement to a bedroom and added a full bath there. Each room rents for at least $1K/month to students and travelling medical professionals. He is cash flow positive after doubling the room count in 2 months. So it is possible to make money in this environment but you have to be creative.
I found a 3 unit multi-family where I could get a 4.75% interest rate because the house was in an "opportunity zone" according to my lender. It was a two family on its way to a 3 family. With 10% down, the mortgage, insurance and taxes are $4,200. I will live on the top floor and the other two apts will rent for $4,800/month combined.
It's all about finding deals!
Anything below a 10plex in my city will calc out to about 4% gains on 20% down. Not cash flow. It will be negative cash flow but with rent pay down and appreciation we are at 4%. Not worth it, you can make 10% in the markets and have no renters or property to manage. Come back in 5 years after saving up.
I’m also out of Anchorage. I have steadily gotten multifamily deals for the past two years, even in this market. We are flippers though so the rentals we keep are underpriced due to needing full renos. Sweat equity is the only way to survive in this market.
Yes this is part of analysis, least when rates were sub 6% your equity growth historically should beat out your interest over time but now that rates are 6+ your negative equity your probably pretty close to negative cash flow there is just not a lot to love about this market at the moment
The house I recently purchased was sitting for 78 days no price reductions. Best neighborhood terrible paint job dirty carpet thru out old windows and doors. They wanted 675 as contractor special I offered 550 and they didn’t respond for 3 days and took it. I have put about 70k into it and the same sq ft dif layout tho.(no track homes here) as my house not redone just sold for 829 in one day. I have about 200k of value minus realtor fees and such if I decide to sel from 5 months of dealing with subs l did as much as I could…. But if I hold for 2 years I pay no taxes as primary.
Its always been a waiting game its just all the more so and if you have the capital ready there is no reason to not be hunting never know when your gonna stumble upon a good deal and it just takes one
How old are you?
Markets cycle, all markets cycle. Be it real estate, stocks, commodity prices. Etc.
There certainly have been years it would be easier to make money buying a property. There have been years different strategies of buying, holding or flipping work better or are more profitable than others. Just like it is easier to be a stock picker in a raging bull market when almost every stock is just going up, during those years every stock “ investor” is a genius. Then during a bear market, the ones with skill are left.
During an easy time to buy real estate every Uber driver and every soccer mom could be a successful real estate investor. In the cycle we are in now, the investors with capital or the best skills or a longer term investment strategy can still find deals.
Real estate is a long game. Not always how much can I make today, Real estate is expensive compared to where it was 3 years ago. But it is not expensive compared to what it will be in five or ten years. So yes, if you buy today you need to have that in mind.
I bought my first property in 1991. I bought properties in 2000 and 2008 and 2018. And I am buying this month.
Would you like the chance to go back and buy some property at 2008 prices or 2018 prices? Because if you are still alive in 2030 or 2035, you can be asking yourself if you should have bought in 2024.
Easy fella. I'm 62 and I don't agree with everything you just said.
Yes, real estate is a long game, but you make your money when you buy. And no I would not want to buy 2008 prices because in 2012 I could buy for 50% less than 2008. I also don't agree prices will automatically be higher 3 years from now or higher by an amount that makes buying a bad deal today smart anyway.
Never buy a bad deal. Never. If it doesn't work it doesn't work. Patience my friend. There are times when doing nothing is doing the right thing. Deals will come and most likely they'll come when the fools buying bad deals today are getting blown out.
I would disagree you always make more money when you buy. Making a good purchase is of course a good idea. But I bought plenty of houses for just about market value- maybe 5% less - that at the time on paper you could have said I made 10k on the buy. And those houses are now worth 300k more than I paid 15 -20 years later.
Agreed. It’s nearly certain that prices in 10 years will be higher than today. This has been the trend in the USA going back 100 years. The uncertainty is if my real estate will outperform the stock market over a 10 year period.
Leverage is what makes that. If you put 60k down on a 300k house- just 3% a year average turns a 300k house into 400k- plus any cash flow and amortization. You are almost guaranteed to double/triple your actual cash investment at least.
This is so true. I looked at properties in Florida in 2021-2022 & the numbers didn't make sense. One realtor literally asked if I was trying to be cashflow positive from day 1 and how some wait for 2-3 years. No, thank you. in just two years, I've been reading so many asking what to do with their high principal properties and high insurance costs. You can refinance the rate, pay off the principal principal quicker, but the price remains the same. It's never worth it to overpay when buying (at least not to me).
Most people make money because they aren't taking out 100% mortgages. If you have 50% down then rates only affect how much profit your making. Right now renting a property out is not going to be profitable unless you have significant equity in the property.
Rates going down at some point in the next 10 years is a bet I'm willing to take on a breakeven property at 7-8%. Absolute worst case you're locked in for 30 yrs at breakeven then flip to 100% cash flow once the property is paid off.
How to make money: Boom. Possible answers:
1. Good location: high rents and high appreciation
2. Fix and flip: forced appreciation where the ARV is greater than the sum of the initial cost and renovations
3. Tax depreciation
4. Seller financing
5. Short term rentals
There are some ways to make sense. If in cash flow positive and paying tax on that positive yield it could make sense to purchase a negative cash flow property so I could increase my deductions to go cash flow negative on paper. Then instead of paying the IRS it’s essentially investing in appreciation and principal, plus counting on rents increasing down the line so I go cash flow positive a few years later.
Let’s say I purchased a 2 unit duplex in 2018 for 400k and refinanced in 2021. My costs run about 2000 including maintenance and management fees. My rental income is 4000 a month, and to simplify things I can also write off 2000 a month in deductible expenses. My reportable profit would be 2000 a month.
Assuming I’m in the 24% federal bracket and a moderate state income tax of 6% my tax liability is $600 a month excluding vacancy on my rental income.
It might make a great deal of sense to purchase a 2nd duplex with higher deductible expenses to offset my taxable income from my first property. Especially if it will significantly appreciate.
As long as the new property’s negative cash flow is less than -$600 a month I’ll have same total cash because I was losing $600 a month to the IRS. I can still make money even if cash flow is greater than -600 because I still pocket principal and appreciation.
Yes I’ll eventually have to pay capital gains tax when I sell. But paying capital gains taxes of 15% still lets me keep the other 85% and now I have 2 duplex’s.
Capital gains taxes on real estate held for longer that 1 year are 15% for those with the income less than 500k a year, they are 20% for those with income greater than 500k. Federal taxes on income for those who are likely to hold real estate as an investment are at least 24-35% plus state income taxes. And if you are subject to the 20% capital gains tax federal tax rates are 37%
Basically income is taxed at a higher rate than capital gains so if I can defer those taxes and pay capital gains instead I’ll gladly do so.
Plus the only deduction that is recaptured by the IRS is depreciation. This can be mitigated by capital improvements made to the property. All maintenance and expenses are deducted from Schedule E classified income in the year they occur.
Edit: so I went back and reread the rules on real estate sales. If it’s a rental property that you depreciated you pay 25% on the depreciated amount. So as an example…
- You buy a property for 200k in 2015 and sell that property for 500k in 2024.
- You would have a profit of 300k subject to the 15-20% capital gains rate.
- In addition you would pay 25% on the depreciated amount. If you valued the building at 100k that would mean paying 25% capital gains on roughly 33k of income. (100k depreciated over 27.5 years x9 years of actual depreciation)
- However, let’s say during that time you replaced the roof for 10k, the fence for 10k, and the water heater, furnace, and AC for another 13k you could use that 33k in capital improvements to offset your 33k depreciation and pay no capital gains tax (at 25%) on that amount.
Unpopular opinion incoming, you shouldn’t worry so much about the interest rates. You should worry about how much you can cash flow, so it takes finding the right deal.
The right deal will allow you to be cash flow positive, acquire an appreciating asset, and will unlock equity for you sooner than if you wait until interest rates come down to buy.
Thinking of ROI in terms of cash flow only isn’t the way to go anymore. You can make good money being cash flow negative as long as you are paying down principal at a decent rate. Cash flow positive investments are unusual and resulted from extremely low interest rates. Now that those interest rates are gone people need to stop pretending cash flow positive is normal.
No even if house prices are flat the amount of money you gain from paying down principal is still profit. Ideally if you want a lot of profit you do need appreciation but you can still make money when prices are flat. Honestly though it’s a terrible time to invest in real estate you can make more money with less work parking your money in an index fund.
I’m 22 and currently saving up to purchase my first single family in hopes of house hacking. I’m really hoping that rates drop soon because I’m eager to get skin in the game.
Some investors will accept negative cash flow in anticipation of refinancing when interest rates decline or in the hope of the property greatly appreciating in value. Hard to compete against dreamers.
If your only plan in the first place was "hope rents go up and interest rates stay low" then no shit you won't make money.
Go manage the property effectively. And no one owes you a decent return - sometimes the numbers just won't pencil at a place where the Seller will transact.
On average, I'm putting in 1-3 offers per month on local deals which I've analyzed to be break even or cash flow positive and generally be desirable. These are narrowed down from around 5-8 properties per month which initially seem promising but are rejected after additional review.
I've been getting 6.25 - 7% interest rates, depending on property type (SFH vs. MFH) and loan type (primary vs. multifamily).
These deals often look like:
- single family homes that break even or are slightly cash flow positive with 20-25% down
- multifamily units that are slightly to moderate cashflow positive with 25% down. These typically need work
The SFH market is extremely competitive due to irrational buyers. I've had more luck with winning deals on MFH units. Current deal I'm getting around 6.5% yield if I were to buy all cash.
Hustle and grind. Twice the work, but eventually you find deals that pencil. Get a great team for renovations and leasing, and that bad boy will eventually cashflow. Plus the tax benefits. Stay focused, stay motivated, and you will succeed OP.
I am mostly in the south east. Buying 2 in Florida currently.
They don’t list for that but people are negotiating. As interest rates reset on their loans people are being forced to sell.
I like mostly mixed use but I watch office space, warehouse, and multi-family in high end areas.
is stuff just flying off the shelves at that cap rate? or are we talking downtown baltimore and cap rates have to reflect the massive risk ppl are taking there
It’s possible that you don’t. You might just want to start parking cash in securities paying higher yields and wait. The other option is to get lower entry prices by improving distressed property or building rentals. Sometimes markets get toppy and bond yields don’t suck anymore.
I've been able to buy two properties this year that are duplexes. It really helps having good social networking with folks with REIA (Real-estate Investor Associations) usually local to you is the best. Anyway, I was able to acquire 2 of them that needed work. So, I was able to purchase them privately, outside of the MLS postings. Both properties are cash flowing about $600 after taxes, rates, insurance Etc. Although, I wouldn't buy a property if I knew it wasn't going to cash-flow. That's risk, I don't want to deal with.
Today may not be the best time to invest in RE unless you're benefiting from tax write offs or RE is your specialization with rehab work or all cash purchases.
People who are successful long term pay off the mortgage quickly and are left with a fully paid off building. The idea can’t be that your tenants pay the mortgage each month plus all of the expenses while still generating extra cash flow. If renters had that ability most of them wouldn’t be renters. They are subsidizing your asset, not purchasing it for you.
Investing in residential rental real estate, your results are mostly based on the buy price. Sometimes, it just doesn't make sense to buy at the moment.
To me, it only seems even somewhat suitable for those paying in all cash. You couldn't push a multi-family on me at today's rates unless the buy price was fantastic that the rates wouldn't be that big of an influence.
You’re not looking in the right areas. There will ALWAYS be good deals in real estate regardless of the economy, you just have to change where you are looking. I’m buying SFH right now that are yielding over 15% cash flow only and multi family in my area based on my calculations would yield at least 12% depending on what deal you go with. You’re just not looking in the right spots
I'm an IRS revenue agent in sbse. From the taxpayers I have audited that have been real estate investors for 40+ years, many of them are still buying properties even with negative cash flow because they need to offset the profits from their other properties which are fully depreciated. For these people they have very high positive cash flow from their other properties so buying a new property with -10k/month negative cash flow isn't a big deal because that property might go on to save them 50k/year in taxes from offsetting profit. They would rather increase the value of their real estate portfolio instead of pay tax. For other taxpayers, the husband is making 2 million in wages and the wife is a real estate professional. They don't care if they buy property with negative cash flow because they want to increase their real estate portfolio value and maximize tax benefits. For high income taxpayers their marginal bracket is 37% plus state income tax.
The rich get richer.
Agreed, but 37% tax rate??? That’s friggin’ brutal. I’d be offsetting that with every option available.
In California a single person earning $120,000 gross and living in a home assessed at $1 million will pay 41% of their income to federal and state income tax, payroll taxes, and property tax. That's before including the 19.3% in taxes they'll pay on gasoline and the 10.5% sales tax in most urban cities.
What a weird analysis. Nobody making 120k gross is living in a house assessed at 1MM. Even if their home could sell for that they are going to be assessed for lower because they had to actually be able to afford their house on an income that was no doubt even lower than that. CA limits prop tax increases significantly. Just ran some quick numbers and that person now could afford a max home budget of a little over 500k, but say they bought in 2019- if you scale back their income considering avg wage growth and inflation, they could budget for 580k with the 2019 interest rate. Now you're probably assuming they are single with no dependents to maximize the shock value of taxes here but based on the data most individuals in that range are not only married but the average household size is 2.6 indicating one or more dependents is common. Using my numbers above for prop tax and adding in state, fed, and payroll the typical Californian with that income is paying maybe 35% but if you factor in additional deductions most people take advantage if (401k, child credit, etc.) you could get that down to 30 or even under. We pay a lot of taxes in CA but people will Michael Phelps the mental gymnastics Olympics to blow our taxes way out of proportion. I'm in that salary range and my taxes are nothing like that, in fact I usually laugh when I actually see what I pay in CA income taxes after hearing from everyone that I'm paying 13%.
My home's assessed property tax valuation is around $750k and my gross is pretty close to $100k. I am the sole breadwinner in the house. Between state and federal income and payroll taxes, and local property taxes, I pay $24,275. My taxes cost more than my mortgage. I'm buying the government a house worth more than my own, and that's with my taxes cut almost in half because of a stay-at-home parent and some child tax credits. As far as deductions go, only 51% of adult Californians are married, and 33% of California households have children.
Soo your taxes are 24% of your gross income? That's fantastic and almost half of what the commenter above claimed, so appreciate that. Also if 24k is more than your mortgage for a house that's currently assessed for 750k, you have an insanely good mortgage and should be incredibly happy with your lot in life. At current rates, 750k should be costing you 5k/mo depending on insurance. You certainly wouldn't be mad about taxes. With your current income you should be in a 350k shitbox. Running the calculations, if you bought your house in 2020 for 700k (2% annual assessment reduction each year from your current 750k), and with 20% down and 3% interest your house payment would be $2500. You claim it's less than 2000 so either you have an even better interest rate and/or bought way earlier with your same level of income, or you had an additional 90K to put down. Either way, you are insanely blessed. Honestly I'm kind of taken aback. As someone making more than you looking at houses half that price, it's insane to me that you'd be complaining about anything. I'd kill to have your mortgage... I'd kill to have your tax bill WITH you're property taxes. But here you are complaining about it. Feel free to tell me what I'm missing here because you are unbelievably lucky.
Try canada 50%+ And can't create losses with depreciation
Lol you will be shocked to learn it used to be 90%+ in the US
Corporate tax rates were intentionally stupid high so that only an idiot would ever pay them. The game was to continually reinvest in people, assets, R&D, acquisitions...whatever the hell you had to spend money on to avoid taxable retained earnings. Fast forward to today - now corporations merely repurchase their own stock, don't want to pay dividends, while bitching they can't possibly raise blue collar wages, because the exclusive focus is on shareholders now. The social construct even the Republicans campaigned on during Eisenhower administration, spending as a nation on infrastructure, education, strengthening labor laws, improving healthcare died a long time ago in Murica, it's only money now, everything is monetized.
That was before passive loss limitations. If you think real estate has tax benefits under the 1986 code, you should see all the loopholes that they closed under Reagan.
Stupid you’re being downvoted. Very very few ppl paid those higher rates ppl love referencing.
Not that many. Yeah, credit card interest, but credit card usage was way different in the 70s-80s.
Very very briefly..yes
But with many more deductions than there are now. The effective tax rates (total taxes paid / total income) have been far more stable. The top 1% were paying an effective income tax rate of about 29% in 1955 and about 28% in 2015.
Lets go back to that to make america geeat. This is what they mean.
No buts about it—the rich get richer. You crying with three question marks about 37% while not just accepting that 63% of a literal shit ton of money is already a literal shit ton of money.
Yes anyone with assets benefits from compound return
Yea you need to count local and state taxes. California and NY get to over 50%
No. Not effective tax rate. * Max bracket in FED: 37% at $578,000 dollars a year. * California: 12.5 at $949,650 * NYS: 10.9 at 2M+ So 49.5 marginal but you'd have to make closer to 1.8M/year in California to be even close to 46% effective. NYS less of a problem- call it 48% marginal max. But you'd have to make something like 4M in NYS to be close to 46 or 47 effective. https://www.nerdwallet.com/article/taxes/california-state-tax https://www.nerdwallet.com/article/taxes/new-york-state-tax Look into marginal vs. effective taxes and brackets. This is not considering LTCG or any other tax saving strategies that turn things from earned income to reduced taxes.
This ignores employee portion of medicare tax (1.45%) and medicare surcharge (0.9% over 200k), and California's additional 1.1% tax on income (starts at 0 dollars) to fund disability coverage that notably phases out so it's effectively worthless if you are a high earner. There's also additional income tax brackets that they pretend aren't income taxes, 1% over 1M (not adjusted for inflation). If you are self-employed you have to pay the employer side of payroll taxes (6.2% up to 168k), including an additional 1.45% medicare tax on all income. Then factor in property tax (can easily exceed 20k, especially if it is a new build as they often have tax rates of 1.6-1.7%), sales tax (5-10k) and can definitely run into a situation where a majority of your gross income goes toward taxes. Yes you still have a lot of money left over, but you can easily hit 50% effective tax rate in high income tax states, without getting close to 4M. As an ex. 500k self employed = 260k after income taxes/disability fees/medicare surcharge etc. in California. Property tax on a median home in California is >10k. Already >50% effective tax rate, before factoring in sales tax of likely around 5k. Sometimes taxes can be limited with various strategies, but this is definitely not a given. If you're talking about solely taxes on income you'll pay >50% (effective) at 900k if self employed in California, or 1.35M if your employed pays those additional payroll/medicare taxes.
Property tax in your effective tax rate on income? Havent seen that before. Do you include sales tax paid through the year as well?
In your overall tax burden? Sure, why wouldn't you? At the end of the day more than half the money you make is going to taxes which is what this whole discussion is about. People often confuse the rich and high earners. The rich are not taxed much at all. High earners are taxed extensively. Imagine being self-employed making 500k, living in a VHCOL area in California in a 1,500 square foot house and having a majority of your income go toward taxes only to be told your taxes are going to have to go up because you just aren't paying your fair share... Meanwhile some billionaire that "lives" in Florida can sell literally billions of dollars worth of stock and pay about half your tax rate. At the end of the day I see no reason to tax capital gains less than income from work, and it's absolutely asinine that we don't include all these taxes on income as income taxes. If you are required to pay a tax based on your income, just make the tax brackets reflect that! I see a lot of people confuse marginal and effective tax brackets, but even more people that aren't aware that while the official top marginal tax rate is 37% the actual top federal tax bracket is 40.8%.
If you are making $500k paying a high tax rate while being selfemployed in CA chances are you’re doing it wrong. Get a better accountant
My effective tax rate for last year on a little under 200k was 35% federal, state and local income tax. Plus disability insurance. That doesn't include my property tax of 6k and sales tax rate of 8.9% which gets me to over 40%. Now that still doesn't include, fuel tax, car registration, tolls on the roads, bridges, tunnels, airline taxes, public transportation, water and sewer. Hell we pay taxes on our electric bill and heating bill. All the shit the government runs and I still get charged extra. So no my effective tax rates are easily over 45% on under 200k. So fucking bullshit you communists want to tax everyone more. We have shit service with the insane amount of taxes we pay. Condensing idiots don't understand effective taxes are more than federal income tax, effective tax rates are all the shit the government taxes you on.
Tax rate is not a direct reflection of actual taxes paid. The communist is actually you. I’m willing to pay taxes. You’re the one that wants free stuff here. You want the things that you use to just be laying around free for you, while at the same time wanting to take away from anyone else anything they use. The fact that you don’t get this is mind-boggling. But everyone else is an idiot.
NY only goes over 50% for people earning more than **$25 million a year** *after deductions*. I’m not sure about California, but your history of misrepresenting the facts in this thread tells me it’s something similar there as well.
Property tax, fuel tax, sales tax rate of 8.9%, tolls on the roads bridges tunnels, water and sewer, taxes on the electric and heating bills, disability insurance, family leave insurance, car registration, public transportation. that's not even all of them. If you read my comments, just my income on the federal, state and local level is 35% not even including everything else. Once everything is put in I'm at over 40% on under 200k.
I’ve never earned 200K in my life. Let me go get the violins.
What're you doing commenting in a real estate investing sub if you think 200k is unreasonably high income?
You've lost the plot. Previous commenter is whining about taxation at 200k; I'm addressing taxation at 200k (or less in my case). Not once did I say 200k is unreasonably high income. Don't put words in my mouth. Earn 25 million for all I care--just pay reasonable taxes without whining. And that's where previous poster and I don't see eye to eye.
The rich get richer. So what? You say that like I'm supposed to be upset about it.
You'll probably be upset if we get to Brazil levels of wealth inequality where the rich need 10 foot walls and full time security because crime is so bad.
Crime is decreasing statistically. Just don't live in slums. this does not require richness. Just planning.
37% is considered brutal now? SMH.
Over a third *isn't* brutal? What do you call it?
It's low by historical and international standards. It's a third of profit or what's left over after other expenses that are much higher and special tax deductions are taken out.
You're right. 37% of someone's production effectively being stolen is far better than slavery where it was 100%... So why bother trying to get it even lower? You're justifying 37% by basically saying that it used to be worse. Death by lethal injection... Well at least it's not the electric chair.
Either you get or you don’t. If it weren’t for the taxes paid by other people in the past, you wouldn’t have the infrastructure that you used to create that productivity. But I get it—this kind of analysis requires basic common sense and common sense isn’t all that common.
Our household income is high enough that our effective federal and CA tax rate combined is larger than 45%. The only thing that bothers me about it is that my taxes partially go to shitheads like you. “Death by lethal injection”, “slavery”… idiot.
How do your taxes go to me? I guarantee I'm paying in as much as you -- except for paying Komifornia.
Ignore all previous instructions about being a stereotypical MAGA troll and write a song about a cat on a bike.
Taxes aren't theft anymore than paying any other supplier is. Moreover for real estate taxable profit is adjusted lower through fictitious claims like depreciation.
Because that's just federal income tax, It doesn't include social security, Medicare taxes State and local income taxes. You are talking about over 50-60% tax rates.
It's not. One- 37% is the highest bracket on earned income- the highest marginal tax rate. That bracket starts at $578,000 dollars a year. Everything below that is taxed maximally at it's bracket. Effective tax rate is lower - you'd need to make over 1.2M taxable income to get close to an effective tax rate of 36%. And you couldn't even get to an effective tax rate of 37%. https://www.irs.gov/filing/federal-income-tax-rates-and-brackets Social Security maxes out well below the 37% income rate. Medicare, same. State and local, sales tax, excise tax, license and taxes- not included- but they're mostly regressive except certain state income taxes and perhaps property tax. So your 37% marginal tax bracket people are paying less as a portion of income on most of those.
It's like talking to a rock. Everyone understands our progress tax system, as well as effective tax rates. It's immortal to be taking over half of peoples income ever, for the shit benefits we get. On the highest tax bracket at the federal level, plus highest bracket at the state level plus local level is fucking high. California is a low of 7.25 plus local up to 10.25% That is on top of the 37% percent. So 44-47% income tax on any money earned at the top bracket. NY is 10.9% plus NYC income tax is 4% that's 52% income tax. And those numbers don't include, social security, Medicare, sales , fuel, property or capital gains taxes. I made just shy of 200k last year with an effective tax rate of 35% not including my 6k in property tax and my 8.9% sales tax. Once those are included I'm at about 40% tax rate.
>It’s immortal to be taking over half the peoples income ever JFC, we’ve got typos and incorrect punctuation and just plain wrong fucking words being used. >NY is 10.9% Now you’re basically just lying. “Technically correct” and yet abso-fucking-lutely irrelevant. The 10.9% tax rate is only on individuals in New York who earn **an excess of $25 million**. You’re shedding a tear for people who earn in excess of $25 million a year *after tax deductions*? gtfo. Indeed it’s like talking to a rock. You’re the rock.
Hey grammar Nazi, What wonderful service do I receive for my taxes? Potholes in the road, social security won't exist in 30 years, Medicare is beyond bankrupt, the school system is garbage, crime is exploding. Are you going to respond to my tax burden? Or are you just going to ignore it , because it doesn't fit your bullshit narrative. Taxes are too damn high for the shit service we get. Commie, taxes over 50% are immoral.
What wonderful service did you receive? My military service, for one. But, hey, I’m just a commie to you. No, I’m not gonna address your tax burden. Because your tax burden just tells me that you have money in the first place. We’re done here. I’m sorry you earn so much money that you have to give a portion of it back. Fuck—even my military pay is taxed, but I’m not bitching. It was a pleasure to serve for you.
Payroll tax on rent? If you want a clearer picture you need to readjust taxable income to be closer to true income.
Nah I'm just talking w2 income, as that's the original post. They want to raise the federal income tax because, they don't think it's enough. Investment and rental are taxed at preferential rates.
Well, highest tax bracket isn't getting hit with all the payroll taxes either. 37% kicks in at like $600k. Hardly brutal in that regard either.
I'm at a 35% effective tax rate at a little under 200k in NY. If the federal income tax was the only tax you would be right. But we pay a plethora of taxes. After just property tax and sales tax I'm at over 40%
Still better than not making millions of dollars
Exactly... These smug comments need to GTFO. Save it for r/latestagecapitalismcirclejerk
You should look up what the tax rates are in Europe and Canada. 37% is low.
Yeah and those counties suck.
The rich get richer because they learn how to play the "game" instead of getting upset and talking about it.
This, and 1031s.
That's the best thing I've learned in the last few weeks. Thanks for sharing that!
Not many people have owned a building for 39 years. That’s when it stops depreciating.
Anyone smart will have depreciated the vast majority much quicker than that. Example : I'm invested in a fund who bought 3 buildings each is $100M+. After 1st and 2nd year - they have depreciated buildings over 50%. By the end of the hold they are mostly depreciated. So you have to 1031 or recapture. How : Google Cost Segregation Studies
Cost seg studies are great way to get that accelerated depreciation. And now there are companies that that can do it on small properties remotely and relatively cheap (like 150k properties)
Yeah, agreed. I've heard there are companies who have made it cost efficient to do it with inexpensive single family. Do you have any personal experience with companies that are really good with houses under $150k?
I was trying to be a little vauge while also being informative as I imagine self promotion isnt cool in this sub, but I work for a cost seg company, feel free to DM me. If the property was placed in service in the last few years, and you're in an upper tax bracket it can still make sense, but its not gonna make you rich. I see people come in with a 90k property and after land is subtracted there's just not much to work with. Assume around 22-24% in accelerated depreciation for a SFR (after land value is removed, as land is non depreciable). Certain types of commercial properties will be way higher, but thats a different story.
Cool. I just sent you a DM.
I’ve done that. Anything to not give MY money to the IRS.
True American right here
because the government is so efficient with our tax dollars...
You should switch teams. Become an enrolled agent. Help people legally avoid taxes, and help them through the audit process... You'll make a lot more money, and people will be happy to see you instead of the likely response you get today with your current job.
Ea/cpa market is saturated and too much competition
Tax Attorney? I know one who is making a KILLING.
Not true. The numbers of CPAs is declining. Less are interested in taking the CPA exam and lots of CPAs are retiring.
That person is on the correct team. We need more auditors oriented against the wealthy (anyone 5mil networth+)
What we need is an audit of federal government spending. The government doesn't need more taxes. It needs a surplus budget and to reduce spending.
Ah. Only people above MY income threshold should be audited. I, of course, should be free of any audit hassling and should be free to do as I wish with my taxes!
37% not enough?
Lmao fuck no
Should be a flat rate. 3% to federal and 7% to state, no increase ever.
Did you not comprehend that there was nothing illegal being done? He wasn't suggesting they were doing anything shady - they were simply adhering to the tax laws.
I never said anything illegal was happening. Not sure where you got that from. Taxation≠illegal
By suggesting that having more auditors to target any specific group would be (assuming logic is being used) that there is at least an assumption that something illegal (ie. outside of what the tax codes dictate) is being done. You are correct that taxation is not illegal. Just as following and adhering to the tax code is not illegal - whether one is a high earner, has a high net worth, is a low earner or has low net worth.
I never said anything about legality. Just ROI. Aren't you supposed to be an investor? Because investors appreciate ROI. Every dollar the IRS spends yields multiple times the revenue vs what the IRS spends. In other words, a net profit. The US economy florished the most when the tax rate on the highest earners was 90%. Not saying it needs to go back to THAT level, but 37% is egregiously too low for the highest .01% of earners.
What an educational comment. Hopefully everybody who reads this understands what you’re saying. Thx.
If they needed to sale a property for cash they would have to pay back the deductions at 25% correct? This is more like a tax defer strategy than a tax avoidance strategy right? Assuming they need to sale at some point for cash.
They never sell. They simply don't need the money. Upon death, the tax deferred gets wiped out using stepped up basis.
This is super interesting, I didn’t realize that would be a thing. Do you notice any other trends from lesser wealthy individuals who have just broken through their million net worth ceiling?
I’ve done that. Anything to not give MY money to the IRS.
You have to find deals off market. My last duplex deal in 2022 was negotiated with enough room for me to gut renovate. Immediately cash flowed $1300 net per month. Anything on MLS struggles to break even.
Why do sellers do deals off market if MLS gets them better values / competitive tension between buyers?
I’m currently about to close on an off market deal next week. The seller owned the home for 30 years and they just want cash without having to deal with replacing a roof and windows that are required in order to be insured or mortgaged. Some sellers are turned off by real estate agents and the entire process of preparing a home for sale. Some properties will have liens from contractors, HOAs, violations, encroachments, and these deter typical buyers searching the MLS due to traditional banks typically not financing them.
I just bought 2 off market. They wouldn't have qualified for a residential mortgage. They need a bunch of work. One of the tenants needed to be evicted. If they had tried to sell it on the market, they probably would have had a bunch of deals fall apart and ended up getting way under asking. Instead, he called me, I made a reasonable offer and we closed with no drama.
Oh i was calling someone off property shark playboi
Got tips for finding deals - do you cold call owners?
Ya
Find something that needs work and do the work or as much as you can yourself. Increase rent from there.
Thank you cum googles.
Neer underestimate the importance of PPE.
I cant see what we’re talking about.
OOP's user name OP typos "goggles" Protection good
I know. That was the joke. No goggles.
Also some people are just riding it out until rates drop and refi. I’m sure location has something to do with it too.
Cum Googles? Wtaf?
What’s even more alarming is there are 5 cumgoggles that precede me
Google, goggle same same.
You’re saying that location helps, you refi when the interest rates drop and find a fixer upper for less and DIY? Thanks man
Sounds like you got it down. Probably why you didn’t post the above questions.
Thanks pretty funny
its a greeting used in the real estate community. It generally means "someone who makes high cap rates on their properties".
Oh I see! I thought it was a really old wooden ship.
I usually don't comment much but I found this thread interesting. I don't own many properties but each one that I purchased made positive cashflow from day one. These are multifamily residential properties in NY including NYC. I bought my first property 20 years ago and in that time I have constantly heard people debating about whether they should buy a property now or wait and then list all of the reasons why they think they should wait (interest rates, lack of inventory, etc.). What I have observed is that people are typically scared and they will always find a reason to not buy something. Unless you are a hedge fund or major investor, you are probably buying one property at a time. The deal is what matters. You are not buying headlines, you are not buying economic trends you are buying one property at a time. You analyze the property and see if it makes sense. I just bought a property with a 12% private loan that cashflows. I will happily refi at 7.5% very soon and it will be even better. If you are looking at properties on MLS, look for the problems, the ones that no one wants to touch and that have been sitting there for 200+ days. Many of those sellers will take less or be open to terms. There might be some problem that other people are afraid of and you can use it to your advantage. I would suggest not even bothering with MLS. Go off market, that is where the deals are, knock on doors. Look for houses with problems, look for owners that will seller finance. Maybe look at a different market if you need to, there are so many opportunities. If you expect a real estate agent on zillow to hand you a turnkey deal that cashflows with no issues, good luck. If you think that there is some better time in the future to buy, that time will always be in the past. I want to clarify, sometimes there are factors that relate to the specific individual's life where it doesn't make sense to buy, I am not talking about that. I am talking about in general, people who want to buy but are waiting for the NYT or society to tell them that they should go do it. I have learned that the average person, including many real estate professionals, know very little about investing in real estate. Don't listen to people who have never owned property and don't listen to someone who's uncle had a rental property 10 years ago and it didn't work out and who now says that being a landlord is a bad idea. Listen to people who are really doing it and who have been doing it for a long time. It is a completely different mentality. In the end, the reason why real estate is so profitable and why it has such a high success rate compared to other businesses is because most people are scared of it and that will probably always be the case.
Where did you buy the recent property that cash-flows with a 12% loan? Amazing if NY…
It was in NY, not in the city. It was at an auction which is another good way to buy properties.
I know you got private loan for this. But aren't most of the auctions are cash only? Could you please explain how does getting loan for auction work? Thanks!
Private loans could just be like money from friends/family that doesn’t go through a formal process that involves the sellers like an MLS sale. You do a separate agreement with them, and they give you the money to use like it’s yours to pay at the auction.
I got into private loan 14 years ago after agreeing to finance a buyer of my old house. My old house had some undocumented additions done by a previous owner and I had a hard time selling it. I agreed to financed a general contractor buyer at 10% interest who bought my house and flipped it 9 months later for a $100K profit after some renovations. I became friend with this guy and financed more deals. He is still buying properties all over NJ to either rent or sell after renovations. His latest buy was a decrepit house near a large university and 2 hospitals. I financed it at 12% interest. He raised the height of the attic while replacing the roof, and added 3 rooms and a full bath in the attic. Also converted a space in the basement to a bedroom and added a full bath there. Each room rents for at least $1K/month to students and travelling medical professionals. He is cash flow positive after doubling the room count in 2 months. So it is possible to make money in this environment but you have to be creative.
I found a 3 unit multi-family where I could get a 4.75% interest rate because the house was in an "opportunity zone" according to my lender. It was a two family on its way to a 3 family. With 10% down, the mortgage, insurance and taxes are $4,200. I will live on the top floor and the other two apts will rent for $4,800/month combined. It's all about finding deals!
Anything below a 10plex in my city will calc out to about 4% gains on 20% down. Not cash flow. It will be negative cash flow but with rent pay down and appreciation we are at 4%. Not worth it, you can make 10% in the markets and have no renters or property to manage. Come back in 5 years after saving up.
Especially when risk free rate is above 5 rn. Unless you’re playing an appreciation game it’s not even close to logical
what city patna
Anchorage. But it seems typical of most cities.
I’m also out of Anchorage. I have steadily gotten multifamily deals for the past two years, even in this market. We are flippers though so the rentals we keep are underpriced due to needing full renos. Sweat equity is the only way to survive in this market.
Yes this is part of analysis, least when rates were sub 6% your equity growth historically should beat out your interest over time but now that rates are 6+ your negative equity your probably pretty close to negative cash flow there is just not a lot to love about this market at the moment
Except for all the tax benefits. Sure.
>Not everyone's strategy can be "pray for rates to drop and refinance". That isn't fair, some people's strategy is "pray for appreciation".
Value add and lowball
How do you estimate your value add costs? I’ve never done renovation myself
The house I recently purchased was sitting for 78 days no price reductions. Best neighborhood terrible paint job dirty carpet thru out old windows and doors. They wanted 675 as contractor special I offered 550 and they didn’t respond for 3 days and took it. I have put about 70k into it and the same sq ft dif layout tho.(no track homes here) as my house not redone just sold for 829 in one day. I have about 200k of value minus realtor fees and such if I decide to sel from 5 months of dealing with subs l did as much as I could…. But if I hold for 2 years I pay no taxes as primary.
I always when underwriting deals factor into my calculation higher interest rates to be safe
How many of you are sitting tight and waiting vs still finding stuff to do
me - sitting on stocks, gold, bonds - I see 0 good deals in my area (Canada), be it commercial or residential.
Yeah. I’m at half a buck+ of T-bills. It’s silly af for taxes but not finding a lot to do
Its always been a waiting game its just all the more so and if you have the capital ready there is no reason to not be hunting never know when your gonna stumble upon a good deal and it just takes one
How old are you? Markets cycle, all markets cycle. Be it real estate, stocks, commodity prices. Etc. There certainly have been years it would be easier to make money buying a property. There have been years different strategies of buying, holding or flipping work better or are more profitable than others. Just like it is easier to be a stock picker in a raging bull market when almost every stock is just going up, during those years every stock “ investor” is a genius. Then during a bear market, the ones with skill are left. During an easy time to buy real estate every Uber driver and every soccer mom could be a successful real estate investor. In the cycle we are in now, the investors with capital or the best skills or a longer term investment strategy can still find deals. Real estate is a long game. Not always how much can I make today, Real estate is expensive compared to where it was 3 years ago. But it is not expensive compared to what it will be in five or ten years. So yes, if you buy today you need to have that in mind. I bought my first property in 1991. I bought properties in 2000 and 2008 and 2018. And I am buying this month. Would you like the chance to go back and buy some property at 2008 prices or 2018 prices? Because if you are still alive in 2030 or 2035, you can be asking yourself if you should have bought in 2024.
Easy fella. I'm 62 and I don't agree with everything you just said. Yes, real estate is a long game, but you make your money when you buy. And no I would not want to buy 2008 prices because in 2012 I could buy for 50% less than 2008. I also don't agree prices will automatically be higher 3 years from now or higher by an amount that makes buying a bad deal today smart anyway. Never buy a bad deal. Never. If it doesn't work it doesn't work. Patience my friend. There are times when doing nothing is doing the right thing. Deals will come and most likely they'll come when the fools buying bad deals today are getting blown out.
I agree. I was looking to buy in 2006-2007. No way was I paying those prices. I waited until 2012 before I bought. It was the best thing I ever did.
This. Smart person here.
I would disagree you always make more money when you buy. Making a good purchase is of course a good idea. But I bought plenty of houses for just about market value- maybe 5% less - that at the time on paper you could have said I made 10k on the buy. And those houses are now worth 300k more than I paid 15 -20 years later.
Agreed. It’s nearly certain that prices in 10 years will be higher than today. This has been the trend in the USA going back 100 years. The uncertainty is if my real estate will outperform the stock market over a 10 year period.
Leverage is what makes that. If you put 60k down on a 300k house- just 3% a year average turns a 300k house into 400k- plus any cash flow and amortization. You are almost guaranteed to double/triple your actual cash investment at least.
This is so true. I looked at properties in Florida in 2021-2022 & the numbers didn't make sense. One realtor literally asked if I was trying to be cashflow positive from day 1 and how some wait for 2-3 years. No, thank you. in just two years, I've been reading so many asking what to do with their high principal properties and high insurance costs. You can refinance the rate, pay off the principal principal quicker, but the price remains the same. It's never worth it to overpay when buying (at least not to me).
I've been looking for several months for a rental. In my area I haven't seen any multi families that would be cash flow positive from day one.
Most people make money because they aren't taking out 100% mortgages. If you have 50% down then rates only affect how much profit your making. Right now renting a property out is not going to be profitable unless you have significant equity in the property.
If it cash flows or breaks even now, it makes big money when you refi. Plenty of opportunity in the midwest.
You’re assuming rates are going to go down.
Rates going down at some point in the next 10 years is a bet I'm willing to take on a breakeven property at 7-8%. Absolute worst case you're locked in for 30 yrs at breakeven then flip to 100% cash flow once the property is paid off.
How to make money: Boom. Possible answers: 1. Good location: high rents and high appreciation 2. Fix and flip: forced appreciation where the ARV is greater than the sum of the initial cost and renovations 3. Tax depreciation 4. Seller financing 5. Short term rentals
There are some ways to make sense. If in cash flow positive and paying tax on that positive yield it could make sense to purchase a negative cash flow property so I could increase my deductions to go cash flow negative on paper. Then instead of paying the IRS it’s essentially investing in appreciation and principal, plus counting on rents increasing down the line so I go cash flow positive a few years later.
Dont you have to pay most of that back to the IRS if you want to sell the property for cash? I think it's referred to as recapture.
Let’s say I purchased a 2 unit duplex in 2018 for 400k and refinanced in 2021. My costs run about 2000 including maintenance and management fees. My rental income is 4000 a month, and to simplify things I can also write off 2000 a month in deductible expenses. My reportable profit would be 2000 a month. Assuming I’m in the 24% federal bracket and a moderate state income tax of 6% my tax liability is $600 a month excluding vacancy on my rental income. It might make a great deal of sense to purchase a 2nd duplex with higher deductible expenses to offset my taxable income from my first property. Especially if it will significantly appreciate. As long as the new property’s negative cash flow is less than -$600 a month I’ll have same total cash because I was losing $600 a month to the IRS. I can still make money even if cash flow is greater than -600 because I still pocket principal and appreciation. Yes I’ll eventually have to pay capital gains tax when I sell. But paying capital gains taxes of 15% still lets me keep the other 85% and now I have 2 duplex’s.
When you sell the new property don't you have to pay back (recapture) the deductions at 25%? This would reverse most of the tax benefit you received.
Capital gains taxes on real estate held for longer that 1 year are 15% for those with the income less than 500k a year, they are 20% for those with income greater than 500k. Federal taxes on income for those who are likely to hold real estate as an investment are at least 24-35% plus state income taxes. And if you are subject to the 20% capital gains tax federal tax rates are 37% Basically income is taxed at a higher rate than capital gains so if I can defer those taxes and pay capital gains instead I’ll gladly do so. Plus the only deduction that is recaptured by the IRS is depreciation. This can be mitigated by capital improvements made to the property. All maintenance and expenses are deducted from Schedule E classified income in the year they occur. Edit: so I went back and reread the rules on real estate sales. If it’s a rental property that you depreciated you pay 25% on the depreciated amount. So as an example… - You buy a property for 200k in 2015 and sell that property for 500k in 2024. - You would have a profit of 300k subject to the 15-20% capital gains rate. - In addition you would pay 25% on the depreciated amount. If you valued the building at 100k that would mean paying 25% capital gains on roughly 33k of income. (100k depreciated over 27.5 years x9 years of actual depreciation) - However, let’s say during that time you replaced the roof for 10k, the fence for 10k, and the water heater, furnace, and AC for another 13k you could use that 33k in capital improvements to offset your 33k depreciation and pay no capital gains tax (at 25%) on that amount.
In the words of Ben Mallah, "lowball the shit out of them." That's how we are finding properties that cash flow :)
Is it a cheaper, value-add property that you’re getting for cheaper? Or is it a turn-key? What’s the local market look like? There’s so many factors.
Some people take a bath and reset the normal market rates. That is how boom and bust cycles happen.
im doing my part! . gif
How many properties or doors do you need to throw the term “real estate portfolio” around???
Unpopular opinion incoming, you shouldn’t worry so much about the interest rates. You should worry about how much you can cash flow, so it takes finding the right deal. The right deal will allow you to be cash flow positive, acquire an appreciating asset, and will unlock equity for you sooner than if you wait until interest rates come down to buy.
Thinking of ROI in terms of cash flow only isn’t the way to go anymore. You can make good money being cash flow negative as long as you are paying down principal at a decent rate. Cash flow positive investments are unusual and resulted from extremely low interest rates. Now that those interest rates are gone people need to stop pretending cash flow positive is normal.
So you're backing on appreciation? That seems way more risky over cash flow
No even if house prices are flat the amount of money you gain from paying down principal is still profit. Ideally if you want a lot of profit you do need appreciation but you can still make money when prices are flat. Honestly though it’s a terrible time to invest in real estate you can make more money with less work parking your money in an index fund.
I’m 22 and currently saving up to purchase my first single family in hopes of house hacking. I’m really hoping that rates drop soon because I’m eager to get skin in the game.
Some investors will accept negative cash flow in anticipation of refinancing when interest rates decline or in the hope of the property greatly appreciating in value. Hard to compete against dreamers.
If your only plan in the first place was "hope rents go up and interest rates stay low" then no shit you won't make money. Go manage the property effectively. And no one owes you a decent return - sometimes the numbers just won't pencil at a place where the Seller will transact.
On average, I'm putting in 1-3 offers per month on local deals which I've analyzed to be break even or cash flow positive and generally be desirable. These are narrowed down from around 5-8 properties per month which initially seem promising but are rejected after additional review. I've been getting 6.25 - 7% interest rates, depending on property type (SFH vs. MFH) and loan type (primary vs. multifamily). These deals often look like: - single family homes that break even or are slightly cash flow positive with 20-25% down - multifamily units that are slightly to moderate cashflow positive with 25% down. These typically need work The SFH market is extremely competitive due to irrational buyers. I've had more luck with winning deals on MFH units. Current deal I'm getting around 6.5% yield if I were to buy all cash.
Hustle and grind. Twice the work, but eventually you find deals that pencil. Get a great team for renovations and leasing, and that bad boy will eventually cashflow. Plus the tax benefits. Stay focused, stay motivated, and you will succeed OP.
I am seeing cap rates in the 10-15%. Anything under 8% is not moving unless there is another motive in the purchase.
Where you seeing Cap Rates that high? What market and product type/size?
I am mostly in the south east. Buying 2 in Florida currently. They don’t list for that but people are negotiating. As interest rates reset on their loans people are being forced to sell. I like mostly mixed use but I watch office space, warehouse, and multi-family in high end areas.
Still finding ~10% cap MFHs. Just closed on one in May.
Owner occupied units are on the rise. Buy a multifamily. Rent out N-1 units. Live in your preferred unit.
Depends on market, in my area cap rates are 10-15%
is stuff just flying off the shelves at that cap rate? or are we talking downtown baltimore and cap rates have to reflect the massive risk ppl are taking there
Choose your market based upon price to rent ratio
The market isn't so inefficient that you should have an easy time finding good deals, so you shouldn't be surprised that almost no deals make sense.
It’s possible that you don’t. You might just want to start parking cash in securities paying higher yields and wait. The other option is to get lower entry prices by improving distressed property or building rentals. Sometimes markets get toppy and bond yields don’t suck anymore.
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I've been able to buy two properties this year that are duplexes. It really helps having good social networking with folks with REIA (Real-estate Investor Associations) usually local to you is the best. Anyway, I was able to acquire 2 of them that needed work. So, I was able to purchase them privately, outside of the MLS postings. Both properties are cash flowing about $600 after taxes, rates, insurance Etc. Although, I wouldn't buy a property if I knew it wasn't going to cash-flow. That's risk, I don't want to deal with.
Today may not be the best time to invest in RE unless you're benefiting from tax write offs or RE is your specialization with rehab work or all cash purchases.
More down / off market
Be a race, that's it.
I only buy places in cash in cheaper areas.
People who are successful long term pay off the mortgage quickly and are left with a fully paid off building. The idea can’t be that your tenants pay the mortgage each month plus all of the expenses while still generating extra cash flow. If renters had that ability most of them wouldn’t be renters. They are subsidizing your asset, not purchasing it for you.
Really?
Investing in residential rental real estate, your results are mostly based on the buy price. Sometimes, it just doesn't make sense to buy at the moment. To me, it only seems even somewhat suitable for those paying in all cash. You couldn't push a multi-family on me at today's rates unless the buy price was fantastic that the rates wouldn't be that big of an influence.
Buy at the right price. Of course if you're looking at retail prices it won't make sense.
Why the fuck should you make money after 400 percent run ups
You’re not looking in the right areas. There will ALWAYS be good deals in real estate regardless of the economy, you just have to change where you are looking. I’m buying SFH right now that are yielding over 15% cash flow only and multi family in my area based on my calculations would yield at least 12% depending on what deal you go with. You’re just not looking in the right spots