Author Topic: Out of state property - taxes, landlording, and other things  (Read 2017 times)

more4less

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I am officially real-estate investor now. Woo-hoo! I bought 3-unit building in San Antonio, TX.
Selling price was $125K. I put 25% down, the rest is financed @ 4.5% (30 years, fixed).
All three units are rented out for $550 each (slightly below market). Obviously I have property management which costs me 10% of rent.

Figures are:
$1650 - rent
$165 - management fee
$60-$100 - water bill
$770 - mortgage payment (including property tax and insurance)
So on good month cash flow is $600-$650

The plan is install high-efficiency shower heads, and raise rent by $30-$50 in the end of the leases.

The thing I have very vague understanding is how taxes work. My questions are:
1. What can I write off (besides property repairs, management fees,  property taxes, mortgage interest)?
2. Is this income subject to my home state income tax (property in TX with no state income tax, but I live in CA)?
3. Any other tips and tricks? :)

Many thanks in advance! I'm so-o-o excited! :D

money_bunny

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Re: Out of state property - taxes, landlording, and other things
« Reply #1 on: July 15, 2015, 05:48:29 PM »
You can install the shower heads but they might not stay installed.

bearman

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Re: Out of state property - taxes, landlording, and other things
« Reply #2 on: July 16, 2015, 02:55:35 AM »
To your tax questions: you named most of the ones I know of. One other to look into is setting up a home office (to work on this business) and deducting that portion of your primary residence's costs.

To your overall investment: Be sure to calculate 10% of rent for capital expenditures and another 10% for maintenance and then something like 5%-10% for vacancy. People handle this in various ways, but this is money that you will spend in the long run, one way or another (new roof, etc), so it's wise to set aside and not spend or consider "profit."
« Last Edit: July 16, 2015, 03:15:56 AM by bearman »

more4less

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Re: Out of state property - taxes, landlording, and other things
« Reply #3 on: July 16, 2015, 11:43:22 AM »
Can someone please explain me in brief how depreciation works from tax perspective? Or at least point me to a place where it is explained in clear manner?

braje

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Re: Out of state property - taxes, landlording, and other things
« Reply #4 on: July 16, 2015, 08:15:57 PM »
You should probably download a Schedule E and it's instruction for IRS.gov

CashFlowDiaries

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Re: Out of state property - taxes, landlording, and other things
« Reply #5 on: July 17, 2015, 11:25:45 AM »
Congrats on the purchase.  Dont forget to take funds out of that cash flow to accommodate for future vacancy and repairs.  Dont think that $650 is straight cash flow other wise you will be very disappointed a year from now when you start turning over tenants and fixing repairs.

Im going to send you a PM on the tax questions, I have a link from my blog where I list all the possible deductions but I dont think im allowed to post that link here.
Passive Income earner.  Creator of  www.cashflowdiaries.com

yeahgofigure

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Re: Out of state property - taxes, landlording, and other things
« Reply #6 on: July 19, 2015, 11:17:21 PM »
I'm the opposite where am a NV resident which has no state income tax however rental income generated by my CA property is taxable by CA. If I was a CA resident would have to pay CA income tax on ALL rental income regardless of location. So yes your TX income is taxable by CA if you are a CA resident.

Yeah after real world expenses such as repairs, improvements, vacancy and if you choose to take depreciation bet you won't have much to be taxed on. If you choose to depreciate think it's purchase price divided by 27.5 is how much you deduct each year.

norcalmike

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Re: Out of state property - taxes, landlording, and other things
« Reply #7 on: July 23, 2015, 04:34:35 AM »
I am looking to buy rentals out of state. What made you choose san antonio?
Better late than never

CashFlowDiaries

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Re: Out of state property - taxes, landlording, and other things
« Reply #8 on: July 23, 2015, 10:00:19 AM »
I know that San Antonio has good price/rent ratios, a healthy economy and a steady increasing population.  Those are all awesome traits to have for out of state investing.  The real estate taxes I hear are high though as they are in just about all of texas and at least where I live in TX, most houses eventually have foundation issues.  Which can be fixed of course but as long as you incorporate those future costs with your numbers it will work out well.

I would definitely also consider purchasing in San Antonio.
Passive Income earner.  Creator of  www.cashflowdiaries.com

more4less

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Re: Out of state property - taxes, landlording, and other things
« Reply #9 on: July 23, 2015, 06:30:07 PM »
I am looking to buy rentals out of state. What made you choose san antonio?
I was doing some research on GRM (rent/price ratio) across the nation. San Antonio and Minneapolis I think had the best in US. Sorry, I can't find my table with this data.