Sadly, the simpletons who lack education make grave mistakes that even the illiterate and uneducated immigrants know enough to avoid.oh, by the way Terri ... you said I am ignorant about "finance". In the above example my ignorance as you call it shows. Here is how "ignorant" I am...
1. purchase price-$625K, one million below appraisal.
2. Zero cash down.
3. Financed 100% with OPM.
4. Re-fied immediately and pulled cash out.
5. Still no cash in of my own in the deal
6. Used rents (OPM) to finance repairs, fix up, marketing
7. Collected $1.5M in rents, full fix up of $150K with none of my own money.
8. Resold for $2M,+$1.5M in cash flow on top of that.
9. Net:$3.5M less $775K in costs.
BOTTOM LINE: bought at 40% of value, 100 unit apt building, no cash down, financed 100%, return is infinity.~$2.7 million profit in a short time. ALL 1031'd into 4 other deals in great locations, tax free.
So, Terri ... you want to tell us all how I don't know anything about finance...?
The unsophisticated and naive whose fantasy world is derived from infomercials about real estate fail to know some of the most elementary principles of real estate.
1. The great one has his holdings in an S corp., so that s/he can "take all the deductions." But lacking education s/he doesn't know that
“(i) In general An [error in original] election under subsection (a) shall be terminated whenever the corporation—
“(II) has gross receipts for each of such taxable years more than 25 percent of which are passive investment income.”
“(C) Passive investment income defined
“(i) In general Except [error in original] as otherwise provided in this subparagraph, the term “passive investment income” means gross receipts derived from royalties, RENTS, dividends, interest, and annuities.”[Citation omitted as too obvious to any knowledgeable real estate player.]
2. Based on the poster's own description of her/his very successful forays into the world of real estate, s/he reveals unwittingly that s/he is a dealer and, therefore, not entitled to capital gain treatment on ANY her/his real estate transactions.
Perhaps the unsophisticated and naive one might have profited from a good M.S.T. or M.B.A. program at a strong academic institution such as the University of Chicago to avoid such basic and juvenile errors known to anyone who really maximizes their return through their real estate business.