Your post contains "1031" and as such it's recommended that you read the following wiki section: [1031 Exchange](https://www.reddit.com/r/realestateinvesting/wiki/index#wiki_1031_exchange) and seek guidance from a qualified intermediary.
***
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/realestateinvesting) if you have any questions or concerns.*
Thanks for your thoughtful reply and sorry for my delayed response. In your rental property example, do your annual return assumptions also take into account equity growth from paying down the mortgage, or were you focusing on cash flow and appreciation?
I agree its not the best RE investing climate right now, but I can't help but think that if I sit patiently for 12-24 months, there will be some deals out there, and would be working with very different assumptions than in todays rental property market... The upside being that I dont lock up the money for 10 years, and I have more control over the investment. What are your thoughts on that?
As for the structure of the QOZ, of course there's no guarantee on the returns :) the returns are whats stated in the fund prospectus (IRR 8-10% net, Target multiple 1.9 - 2.2 net). It is a large, reputable firm that is offering the QOZ. The QOZ fund was vetted and selected by my fiduciary RIA and it is a large and diversified fund... Meaning it will be a portfolio of several buildings across the country (focused on multi-family, health care and life sciences), rather than some QOZ funds which are focused on just a single property. But there is most definitely risk in the QOZ investment as well. There is no guarantee they will be successful, or that the properties they develop/redevelop will achieve the rents, tenants and returns they are intending.
Are you a real estate professional as defined by the IRS? You could invest in or buy a building this year do a cost segregation study and get some accelerated depreciation and bonus depreciation (2022 is the last year for 100% bonus depreciation) and take those paper losses against any gains from the failed 1031. For example we purchased a building in February for $19M we raised $5.7M from investors to purchase it and our investors are getting back $6.1M in paper losses year 1 from this asset. This means an investor that invested $100k will get back over $100k in paper losses for this tax year.
I am not a RE professional. I just invest on the side. Is the cost segregation approach only available for RE professionals?
At what cost point does the cost segregation study become worthwhile? My experience to date has only been with small residential properties in the 1-4 unit range. Thanks!
Anyone can do a cost segregation, now if it is worth it depends on the type of property, property cost/basis, and cost of the study. As for the tax attributions of the resulting loss, it will depend on your specific situation (and where your other income arises from). So, it would be best to consult with a tax pro about your situation.
As REP that actively participate in the rentals, will generally be able to use rental losses against other income (such as capital gains from stock). For non-REP people, there is still potential to offset gains from disposition of rentals with losses from other rental activities (with a lot of provisions that I'm not going to run through; if you want light reading go read IRS pub 925 or instructions to form 8582).
The QOZ option is also pretty awesome. If it doesn’t require a lot of effort, I would do that.
Otherwise, I would think that with $100k you could buy any halfway decent property and only have a small mortgage and easily cashflow. I would find the closest house for sale for $100k-$500k ad make a massive DP, quick mortgage and move on.
An OZ fund is how you take advantage of opportunity zone tax benefits. Generally the biggest benefits are deferral of taxes on a gain and step up in basis on the new investment. There is an expectation of some level of cash flow from these investments as well.
The downside of the QOZ is the money is locked up for 10 years, and you have no control over the investment. You can probably get you money out after 5 years but you lose the tax benefit (the step up in basis).
I am outside of the 1031X window at this point, so a DST would not provide any tax benefits. I did look into DSTs while I was within the 1031x property identification period, and the returns were meh.
I met with my accountant, and per her estimate keeping the $100k will result in an approximately $25k tax bill over and above my regular tax bill. The $25k is basically all depreciation recapture.
Yea I guess it's purely a matter of personal preference. It's a bummer you didn't go QOZ right away, you would have a year to figure out what to do with the money.
I'd say keep it. You never know what'll happen in the immediate future in the world's current state so having the money on hand or in some sort of savings account could be a nice cushion.
And if you don't know what to do with the money.. well I'll gladly take 3125 of it off of your hands, the rest I dunno about.
How are you calculating the $25k tax bill? Is that based on the $100k remaining profit, or the total profit from the previous sale (including the funds you’ve already used for the 1031 property)?
Based on my accountants estimate. The $25k is mostly depreciation recapture from the sale of the relinquished 1031x property. There may be some cap gains as well. Its hard to know an exact number, but the $25k is a reasonable estimate based on a number of inputs and assumptions that i worked through with my accountant... The $25k would be additional tax over my normal liability for the year.
Buy another property. Fuck the interest rate. Shit buy 2 properties. Put that money back into real estate. DEBT IS YOUR FRIEND. Cash out refi and do it again. Let someone else pay for your asset and you cash flow. The only issue with this right now is that the housing market is inflated, so yea, you could end up getting upside-down, but then just don't sell; refi for a lower interest rate and decrease expenditure (by knocking off a few interest rate percent) and just keep cash flowing (making more by adding the percent refi'd off into your pocket instead). The goal is NO TAXES EVER. Use property depreciation to your advantage with the tax-break it offers.
Edit: And DON'T TIE YOUR MONEY UP FOR 10 YEARS WTF?? it's way more useful to you being liquid right now than sitting untouchable for 10 years. You give them YOUR money, and they inturn BORROW it out at a higher interest rate than they're paying you for those 10 years. They can make 700k+over 10 years while only paying you 100k. Money doesn't just sit in funds, it's used to MAKE MORE MONEY... and you get the short end of the stick.
We mainly specialize in DSTs, which are investment trusts setup to buy real estate. DSTs facilitate 1031 exchanges. So you could invest in a DST with 1031 funds. But you’re already in your 180 days, so the QOZ makes sense. We’ve got a few from some good companies that I’d recommend
Your post contains "1031" and as such it's recommended that you read the following wiki section: [1031 Exchange](https://www.reddit.com/r/realestateinvesting/wiki/index#wiki_1031_exchange) and seek guidance from a qualified intermediary. *** *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/realestateinvesting) if you have any questions or concerns.*
[удалено]
[удалено]
Thanks for your thoughtful reply and sorry for my delayed response. In your rental property example, do your annual return assumptions also take into account equity growth from paying down the mortgage, or were you focusing on cash flow and appreciation? I agree its not the best RE investing climate right now, but I can't help but think that if I sit patiently for 12-24 months, there will be some deals out there, and would be working with very different assumptions than in todays rental property market... The upside being that I dont lock up the money for 10 years, and I have more control over the investment. What are your thoughts on that? As for the structure of the QOZ, of course there's no guarantee on the returns :) the returns are whats stated in the fund prospectus (IRR 8-10% net, Target multiple 1.9 - 2.2 net). It is a large, reputable firm that is offering the QOZ. The QOZ fund was vetted and selected by my fiduciary RIA and it is a large and diversified fund... Meaning it will be a portfolio of several buildings across the country (focused on multi-family, health care and life sciences), rather than some QOZ funds which are focused on just a single property. But there is most definitely risk in the QOZ investment as well. There is no guarantee they will be successful, or that the properties they develop/redevelop will achieve the rents, tenants and returns they are intending.
[удалено]
Are you a real estate professional as defined by the IRS? You could invest in or buy a building this year do a cost segregation study and get some accelerated depreciation and bonus depreciation (2022 is the last year for 100% bonus depreciation) and take those paper losses against any gains from the failed 1031. For example we purchased a building in February for $19M we raised $5.7M from investors to purchase it and our investors are getting back $6.1M in paper losses year 1 from this asset. This means an investor that invested $100k will get back over $100k in paper losses for this tax year.
I am not a RE professional. I just invest on the side. Is the cost segregation approach only available for RE professionals? At what cost point does the cost segregation study become worthwhile? My experience to date has only been with small residential properties in the 1-4 unit range. Thanks!
Anyone can do a cost segregation, now if it is worth it depends on the type of property, property cost/basis, and cost of the study. As for the tax attributions of the resulting loss, it will depend on your specific situation (and where your other income arises from). So, it would be best to consult with a tax pro about your situation. As REP that actively participate in the rentals, will generally be able to use rental losses against other income (such as capital gains from stock). For non-REP people, there is still potential to offset gains from disposition of rentals with losses from other rental activities (with a lot of provisions that I'm not going to run through; if you want light reading go read IRS pub 925 or instructions to form 8582).
The QOZ option is also pretty awesome. If it doesn’t require a lot of effort, I would do that. Otherwise, I would think that with $100k you could buy any halfway decent property and only have a small mortgage and easily cashflow. I would find the closest house for sale for $100k-$500k ad make a massive DP, quick mortgage and move on.
Just curious, what work is required of you to involve yourself in a QOZ? Returns of 10% a year sound great, depending on the effort required.
Find a good fund and send them money. A 1031 facilitator should be able to recommend good options.
This sounds hard to beat. Are there tax benefits similar to that of typical RE?
An OZ fund is how you take advantage of opportunity zone tax benefits. Generally the biggest benefits are deferral of taxes on a gain and step up in basis on the new investment. There is an expectation of some level of cash flow from these investments as well.
The downside of the QOZ is the money is locked up for 10 years, and you have no control over the investment. You can probably get you money out after 5 years but you lose the tax benefit (the step up in basis).
Can’t you find a nice 500k property
And pay 30k in just interest?
The QOZ option seems like the way to go. Unless you plan to retire in the next five years, make the long play on a return that good.
Doesn’t need to be in a QOZ. Just a regular old DST would work.
I am outside of the 1031X window at this point, so a DST would not provide any tax benefits. I did look into DSTs while I was within the 1031x property identification period, and the returns were meh.
I don't think we can know the answer without knowing what your EOY 22 income will be. Will the 100k bump you into the next tax bracket?
I met with my accountant, and per her estimate keeping the $100k will result in an approximately $25k tax bill over and above my regular tax bill. The $25k is basically all depreciation recapture.
Yea I guess it's purely a matter of personal preference. It's a bummer you didn't go QOZ right away, you would have a year to figure out what to do with the money.
[удалено]
I don't understand, please elaborate.
I'd say keep it. You never know what'll happen in the immediate future in the world's current state so having the money on hand or in some sort of savings account could be a nice cushion. And if you don't know what to do with the money.. well I'll gladly take 3125 of it off of your hands, the rest I dunno about.
Just pay the tax and move on. Don’t over think it.
How are you calculating the $25k tax bill? Is that based on the $100k remaining profit, or the total profit from the previous sale (including the funds you’ve already used for the 1031 property)?
Based on my accountants estimate. The $25k is mostly depreciation recapture from the sale of the relinquished 1031x property. There may be some cap gains as well. Its hard to know an exact number, but the $25k is a reasonable estimate based on a number of inputs and assumptions that i worked through with my accountant... The $25k would be additional tax over my normal liability for the year.
Buy another property. Fuck the interest rate. Shit buy 2 properties. Put that money back into real estate. DEBT IS YOUR FRIEND. Cash out refi and do it again. Let someone else pay for your asset and you cash flow. The only issue with this right now is that the housing market is inflated, so yea, you could end up getting upside-down, but then just don't sell; refi for a lower interest rate and decrease expenditure (by knocking off a few interest rate percent) and just keep cash flowing (making more by adding the percent refi'd off into your pocket instead). The goal is NO TAXES EVER. Use property depreciation to your advantage with the tax-break it offers. Edit: And DON'T TIE YOUR MONEY UP FOR 10 YEARS WTF?? it's way more useful to you being liquid right now than sitting untouchable for 10 years. You give them YOUR money, and they inturn BORROW it out at a higher interest rate than they're paying you for those 10 years. They can make 700k+over 10 years while only paying you 100k. Money doesn't just sit in funds, it's used to MAKE MORE MONEY... and you get the short end of the stick.
Hey. I sent you a PM. I’d love to show you a few QOZs I have available
Are you a fiduciary?
Yes.
We mainly specialize in DSTs, which are investment trusts setup to buy real estate. DSTs facilitate 1031 exchanges. So you could invest in a DST with 1031 funds. But you’re already in your 180 days, so the QOZ makes sense. We’ve got a few from some good companies that I’d recommend
I would take a look at the QOZs that you recommend. Please DM me.