Re: Southern California- go or no go??? - Posted by speednxs
Posted by speednxs on April 25, 2006 at 09:32:18:
Let?s assume you will have $25 million after estate taxes. You want to grow an estate over the next 50 years. Boy I wouldn?t want to be in your shoes.
Let?s assume 3% inflation. You will be losing $750,000 a year to inflation. And the government way under-reports inflation anyway. If you just buy CDs you will be in the 35% federal tax bracket and 9.3% CA state tax bracket. So you need to earn $1,345,000 before taxes just for this $750,000 of inflation adjustment growth. 4.5% CDs will earn you $1,125,000 a year. You are already losing $200,000 a year before you have a single dime to spend on income.
Let?s say you go out and buy 10 $2 million Single Family Residences in a really nice area of Southern California. You can probably rent them for $5,000 a month and net about $2,500 a month. So now you have $25,000 a month spendable income. If each residence is $1 million property and $1 million dollar building you have $36,000 depreciation on each property. This more than covers your income. 0% tax bracket. Let?s say CA real estate appreciates an average of 6.5% over the next 50 years. Your estate is growing in value $1,300,000 a year, covering your inflation needs. You could actually earn Schedule E income and use up this phantom negative income. REITs? TIC?s? Talk to an accountant, I don?t really know. ?Real Estate Professionals? can deduct more than $25,000 a year loses against other income. See IRS pub 527 at irs.gov. People who earn over $150,000 a year start to lose tax deductions on earned income and face AMT. Earned income stinks when you have a lot of it. You will have to pay a 25% depreciation recapture 10, 20 or 50 years from now. The appreciation should just make this a small line item on your profit when you sell.
Talk to professionals about LLCs, Land Trusts and Insurance.
You can spend as much or as little time as you like fixing up 10 really nice houses for snotty rich renters. No idle hands to do the devil?s work.
Enjoy your life.