Lifestyle Buying a Vacation/Investment Property: TME

[The Big Guy]

Still not totally sure what you're trying to do. So you're going to buy a second place presumably as a vacation spot for yourself? Okay. You meet the definition of a second home. You can get second home mortgages etc.
If you're going to try to take that acreage and run a business off of it while not living there, You could run into some issues with your mortgage lender. Most favorable rates for a second home. Do not apply once it's used for businesses or rental for more than the IRS maximum days a year.
If it's just your second property, you can tax deduct The mortgage interest up until the federal taxes just like your primary residence.
You will want to overcome that tax deduction benefit with whatever business venture you do if you decide to convert the property from a personal second home to an investment property.
You'll see people screw this up regularly with Airbnb. They pick up one extra night and no longer qualify for a personal property with a deduction. And the tax hit is bigger than the pickup for that one extra night for rent

To me, this sounds very much like a hobby farm project?


You either need a business plan that generates greater than the stock market historical. Or you need to purchase land in an area that will appreciate just the same since part of your post seems to indicate wanting to leave something for the family.

There are plenty of cheap wide open ranches in Texas that have not appreciated faster than the stock market. The headache, insolvent nature of land, difficult to getting land loans for less than 50% down if there is no residence on it, I'll make buying large pieces of land, a questionable investment for anything other than a good business plan or a primary residence.

 

[Filthy]

Still not totally sure what you're trying to do. So you're going to buy a second place presumably as a vacation spot for yourself? Okay. You meet the definition of a second home. You can get second home mortgages etc.
If you're going to try to take that acreage and run a business off of it while not living there, You could run into some issues with your mortgage lender. Most favorable rates for a second home. Do not apply once it's used for businesses or rental for more than the IRS maximum days a year.
If it's just your second property, you can tax deduct The mortgage interest up until the federal taxes just like your primary residence.
You will want to overcome that tax deduction benefit with whatever business venture you do if you decide to convert the property from a personal second home to an investment property.
You'll see people screw this up regularly with Airbnb. They pick up one extra night and no longer qualify for a personal property with a deduction. And the tax hit is bigger than the pickup for that one extra night for rent

To me, this sounds very much like a hobby farm project?


You either need a business plan that generates greater than the stock market historical. Or you need to purchase land in an area that will appreciate just the same since part of your post seems to indicate wanting to leave something for the family.

There are plenty of cheap wide open ranches in Texas that have not appreciated faster than the stock market. The headache, insolvent nature of land, difficult to getting land loans for less than 50% down if there is no residence on it, I'll make buying large pieces of land, a questionable investment for anything other than a good business plan or a primary residence.

that's good input, although I'm not worried about the ROI or opportunity cost per se, that's why I hesitate on calling it an "investment". If it's not making back the opportunity cost, it's an expense. I'm OK with that, because the property that my kids spend their childhood summers on will have significantly more "value" to them than a property I buy when I cash out my portfolio.

my best friend's brother works at a title agency, I'll hit him up for the line between business and residence. One of the things I was looking at was properties that are already divided into tax lots. That way I could put a tenant on a subdivision and let that be the business while the other lots were residence.

really appreciate this - thanks!

 

[Deleted member 1]

that's good input, although I'm not worried about the ROI or opportunity cost per se, that's why I hesitate on calling it an "investment". If it's not making back the opportunity cost, it's an expense. I'm OK with that, because the property that my kids spend their childhood summers on will have significantly more "value" to them than a property I buy when I cash out my portfolio.

my best friend's brother works at a title agency, I'll hit him up for the line between business and residence. One of the things I was looking at was properties that are already divided into tax lots. That way I could put a tenant on a subdivision and let that be the business while the other lots were residence.

really appreciate this - thanks!

Got it. Structured a personal property plan with plans to minimize the loss. I do the same with short-term rentals.

You could start by simply getting yourself a Casita or RV and put it on there for when you go, use it. Then short-term rent the thing out to IRS maximum to practice your system. Expand from there once you've done the math and decide you really want to.


If I were going to buy a large piece of property as a play thing and then look for ways to rapidly use it and rent it, I would seriously look into purchasing an airstream trailer on a 20-year financing. You're a smart electronics guy. Figure out the electric and add septic or other plans for the toilet.

Put a cheap one-sided wall with a metal covering. Your airstream will look good as new 30 years from now. Fire pit with some Adirondack chairs. String some LED lights from the covering down to ground level to create that glamping effect.

Photographs well rents fast. You're only issue will be considering how you'll get the thing cleaned from afar.

 

[Filthy]

Got it. Structured a personal property plan with plans to minimize the loss. I do the same with short-term rentals.

You could start by simply getting yourself a Casita or RV and put it on there for when you go, use it. Then short-term rent the thing out to IRS maximum to practice your system. Expand from there once you've done the math and decide you really want to.


If I were going to buy a large piece of property as a play thing and then look for ways to rapidly use it and rent it, I would seriously look into purchasing an airstream trailer on a 20-year financing. You're a smart electronics guy. Figure out the electric and add septic or other plans for the toilet.

Put a cheap one-sided wall with a metal covering. Your airstream will look good as new 30 years from now. Fire pit with some Adirondack chairs. String some LED lights from the covering down to ground level to create that glamping effect.

Photographs well rents fast. You're only issue will be considering how you'll get the thing cleaned from afar.

that hilarious because a friend in OR has a 1974 Silver Streak that he wants me to take off his hands. It was a project trailer that got out of control...pulled it out of the garage to pour a new pad, didn't realize that when he bought it there a literally a pinhole in the rain gutter, came out to get something out of it a couple weeks later and it was covered in mildew.

Are you reading my mail?

there's actually quite a few properties that I've looked at that have a pad or a pole barn and a septic system.

 

[Filthy]

IRS guidance on rental vs business property

If you rent a dwelling unit to others that you also use as a residence, limitations may apply to the rental expenses you can deduct. You're considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for more than the greater of:

1. 14 days, or
2. 10% of the total days you rent it to others at a fair rental price.

so if I rent it out for 200 days a year, and then live on it for 21 days, it's a residence?

 

[mysticmac]

Build a hidden dungeon under the house just to freak out AirBnB guests that happen to find it.

 

[member 1013]

Idk anything about this

 

[Filthy]

Build a hidden dungeon under the house just to freak out AirBnB guests that happen to find it.

i just saw a reddit yesterday of a secret room, in a secret room, in a secret room.

 

[mysticmac]

i just saw a reddit yesterday of a secret room, in a secret room, in a secret room.

 

[Deleted member 1]

IRS guidance on rental vs business property



so if I rent it out for 200 days a year, and then live on it for 21 days, it's a residence?

They have an example. Yes, but that isn't really the point...

Minimal Rental Use
There's a special rule if you use a dwelling unit as a residence and rent it for fewer than 15 days. In this case, don't report any of the rental income and don't deduct any expenses as rental expenses

15 days a year or less you maintain that as a residence without incurring rental income rules.

You would be able to continue IRS mortgage interest deduction up until the maximum. If you rent out for 16 days you now can no longer deduct your mortgage interest but can now deduct expenses from your rental income where you couldn't before. But now you also have to pay taxes on your rental income.

Start by trying to just rent it out for 15 days a year. Get the free money pain free. 16 days probably cost you more in taxes than the one additional day of rental income.

Things get more complicated on the taxes but also more financially beneficial if you are already performing itemized deductions. At that point, once you go past 15 days, you can break out the amount of personal use in the amount of rental use and apply the deductions proportionally.

This gets less complicated but less advantageous if you are not itemizing your deductions.