Taylor Brugna is an advisory manager here at The Real Estate CPA and active real estate investor. Taylor has previously joined us on Episode 32 and Episode 80 to discuss his real estate investments and accounting tips.
Back in 2018 on Episode 32, Taylor had around 40-50 units. On Episode 80, about a year later in 2019, he had about 95 units. His lofty goal was to add an additional 100 units in 2020 - today we discuss how he pivoted from growth mode to portfolio maintenance and much more!
Taylor's Real Estate Overview
Taylor has 102 units in the Tampa, Florida area.
"It has been a fascinating market that I don't think anybody really expected. I don't think there has really been a negative impact for sellers yet."
Taylor still sees increased demand. Days on market has been very low. With interest rates so low, investors are willing to chase deals despite much uncertainty.
Taylor has added 8-10 units so far in 2020. Usually, he adds units about twice that speed. Now he's looking more towards optimizing his current holdings by looking at debt and refinancing.
Concentrating in One Market
"The amount of effort and work it would take to expand into a second market is pretty much like starting a brand new business in itself. While I think I do take on some additional risk that I don't love by being concentrated in [Tampa], I think the years that it took to build a system out of people that I can trust is far more valuable that that extra risk."
Taylor feels like he can evaluate a deal down to the street in Tampa, this is a level of comfort most real estate investors are looking for. With 100 units, he likely has a property nearby and understands all of the comps.
Adjustments with COVID
"Being more patient is key and being a lot more strict on my underwriting criteria... the market was so strong that a lot of [issues] didn't matter."
Taylor is increasing his cash reserves, almost doubling his rate of cash saving per unit. With stimulus uncertainty, the barring of evictions, and no mortgage relief, there are many things that could cause the environment for landlords to turn sour.
Looking forward, Taylor is focusing on holding cash and evaluating every loan. He's preparing for a tough 2021, but also wants to be in a position to buy when the opportunity is there. This opportunity, in Taylor's mind, is a larger multifamily deal that makes sense, maybe 20 or 30 units.
Taylor has several single family homes that he really likes, but he is considering selling them to further consolidate and prepare for a larger multifamily deal. These homes are great, but they have appreciated quite a bit. Taylor notes that he has some passive losses that he can't use yet, so selling these homes may make sense.
Real Estate Professional Status vs. Other Ways to Use Passive Losses
Over the years, his suspended losses have increased. These losses continue to accumulate until they're actually used. He can't qualify as a real estate professional because he works a full-time W2 job.
There are generally two major ways to use passive losses (without the real estate professional status):
- You have passive income that can be offset by the passive losses.
- If you dispose of a passive activity, the gain can be offset by suspended passive losses.
With a full-time job, it's nearly impossible to qualify as a real estate professional. You would have to spend more time on personal service hours that directly impact your real estate portfolio (no education) than you do at your W2 job. If you're a full-time W2 employee, the IRS is going to be looking for 40 hours a week of material real estate participation for the real estate professional status in addition to your 40 hours a week at the W2 job.
"I would rather have a certain lifestyle with a lot less time spent on [real estate] than be able to qualify [as a real estate professional]. I've come to terms with it, it's nice that I don't have that over my head... A lot of clients, when they originally come in, are spending a lot of time on low value tasks. There just becomes a point of scale that the value of the time spent on self-managing is just not that important. I try to stress that if something can be outsourced, it pretty much always makes sense to do so."
Reach out to Taylor on LinkedIn or via email!