Episode Transcript
[00:00:05] Speaker A: Welcome to the Short term Show. The show about short term rentals and long term wealth with real property owners hosting real properties who are crushing it in the vacation and short term rental space.
And here's your host, Avery Carle.
[00:00:29] Speaker B: Hey, y' all. Welcome back to another episode of the Short Term show. Today I have Barbara SRI Hands, the founder of your tax coach. Super excited to talk to her today about everyone's favorite topic, taxes and real estate investing, of course. How's it going, Barbara?
[00:00:44] Speaker C: Good, how are you doing?
[00:00:46] Speaker B: Awesome. I'm not dead yet, so can't complain.
[00:00:49] Speaker C: That's great.
[00:00:51] Speaker B: Well, can you start off by just introducing yourself to our listeners and giving them a little bit of a backstory?
[00:00:57] Speaker C: Yeah. I started your tax coach about five and a half years ago after being in public accounting for 10 years. And probably everyone listening has had like a really crappy accountant before.
And I was tired of working for those people where their communication sucked. They weren't actually saving anyone money in taxes. And so I was like, I think I just have to start my own thing because I'm not finding the right thing out there.
[00:01:24] Speaker B: Yeah, that's exactly why I got into being a real estate agent. So we have that.
Awesome. So tell us a little bit about, you know, what your specialty is in terms of taxes and real estate investing and kind of, you know, what your, your, I guess, ideas on that are.
[00:01:43] Speaker C: Yeah, I mean, from my 15 years of experience, I have just seen time and time again where real estate is the best way to save money in taxes while also building wealth. Yes, there are other ways to save taxes, but you don't have an asset at the end. So it's like a double whammy where you're building generational wealth, getting appreciation of the property while also getting depreciation. So it really is just the best way. And so as I was building my company, I just turned all my profits into real estate investing as well. And so I always say, like, stop using accountants if you're a real estate investor that are not investing in real estate themselves because they're not going to know like the nuances and the ins and outs.
[00:02:29] Speaker B: Yeah, I totally agree with that. And we see people every day who come, you know, into through our doors to buy short term rentals or maybe they've already bought a short term rental with us. And then they come to us and they're like, my CPA says I need to do schedule C or schedule E or that. What do I do? And a lot of times we're like, man, if your CPA is not familiar with this or is not familiar with things like the short term rental tax loophole.
[00:02:51] Speaker A: It.
[00:02:52] Speaker C: Right.
[00:02:52] Speaker B: It feels people don't like to hear that they've got the wrong person. So it's kind of a difficult conversation to have. But like, hey, you probably need to go find a CPA who specializes in people who are investing in real estate because that's what you're doing.
[00:03:06] Speaker C: Yeah, it's so nuanced and all the little rules, like you really have to find someone that specializes in. Just like with you and real estate agents, it's like, I, I also will not use an agent unless they're an investor too because they've probably seen so many other things that another agent wouldn't.
[00:03:23] Speaker B: Yeah, yeah. And I've seen a few things go wrong with that myself where, you know, some, some real estate agents, they're like, nobody's ever going to turn down business. No accountant's ever going to turn down business because you said, oh, hey, I'm a real estate investor. Can you help with that? Well, yes, I can help with real estate investors. I, as a real estate agent can help you buy anything, but that doesn't mean I'm good at every single asset class. We had a client actually fire us recently because they wanted to buy something in a pretty expensive market where the entry level was I think like 500,000 and there was a $250,000. Like, I don't want to call it a modular home. It wasn't that nice. It was something between like an actual trailer and a modular home that like cabin siding on it. And it just wasn't something that was going to rent in the market because again, it's kind of a luxury tourist market.
And our agent was like, I mean, I will help you buy this, but this is not going to rent. It's not going to do what you want it to do. And so they just went and bought with another agent who let them buy it and they are going to be disappointed.
[00:04:28] Speaker C: Yeah.
[00:04:30] Speaker B: That so.
[00:04:31] Speaker C: Well, you tried.
[00:04:32] Speaker B: Yeah, yeah. I mean, it's just so important. Whatever vendor you're using for whatever you need done, they need to be very, very well versed in real estate investing. And so you've kind of found something that I think is a little bit unique even in the, the short term rental tax world by using midterm rentals as a bridge until short term rental opportunities align. So what does that mean exactly?
[00:04:59] Speaker C: Yeah. So the market is kind of weird right now. It has been for a couple of years. And so it's just harder to find some properties. But what I really like is when we can flip flop between midterm rentals and short term rentals. And it could be you find a market where a midterm rental works really well and you have to furnish it just like a short term rental. So it's already furnished, already the same amount of work, but maybe in one year you need more depreciation. And so when you need more depreciation, that's the year that you should have it be a short term rental and use the short term rental loophole. But then once you've utilized like the accelerated depreciation, flip it to a midterm rental because it's less work, less kind of headaches. Sometimes short term rentals can be hard to manage.
And so just figuring out which year you should use a midterm versus short term and going back and forth, I think a lot of investors don't think about, they just think like buy or sell instead of how else can I use this property?
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[00:06:44] Speaker B: That's very interesting. So what you're saying is instead of being like oh my, oh my gosh, I need to buy a short term rental and use the short term rental loophole now you look at maybe what your income is now, what your income's going to be. So you know, the, the best example I can think of is like okay, if you're in, let's say you own a mortgage company. Well right now mortgage applications are way down because the real estate market is in the toilet. So you might not need a lot of tax benefits right now because your income is lower than it's going to be when the interest rates go down and a lot of applications start coming back in. People are getting more properties under contract. So you know that your income is lower now than it's going to be two years from now. But you maybe you found a deal today that you would like to have for a midterm rental or even have for a short term rental. But you keep it for a midterm rental now because you know you don't need as much tax help right now. And then in two years when the market picks back up and you're doing a lot of closings, then you Switch it to a short term rental, get those good tax benefits of the short term rental tax loophole then. So that's what you mean.
[00:07:52] Speaker C: Yes, exactly. And so we'll see this a lot of times too with say like doctors, lawyers, and in some years they get really high bonuses or maybe like some RSU is kick in in some years. So find the property now. So, so that way you kind of have it in your piggy bank ready to go for later on. But also the flip side of it, we see this a lot where our clients need to save money in taxes before the end of the year. And so buy a property, let's say in like Q4, so October, November, December, furnish it, make sure it gets rented out at least twice under seven days. So that way you hit the short term rental loophole. We cost seg it before the end of the year. You get all the depreciation this year. And then in January you're like, actually the short term rental thing was taking too much of my time. I'm going to switch my intent to a midterm rental. So then in January you can switch it to a midterm because it's already furnished and ready to go. And so we'll see that as well when you like need to save in taxes now before the end of the year.
[00:08:54] Speaker B: Gotcha. So I'm trying to think of markets that might be better or worse for this that where you can flip to a short term, flip to a midterm. So I admittedly don't know a whole lot about midterm rentals just because I don't invest in that asset class. Not to say that, that it's not a good one. It's just not in my wheelhouse. I was way down the road on everything else by the time I was even aware of that.
[00:09:18] Speaker C: So.
[00:09:20] Speaker B: So are there any. I'm going to ask you this question and I think I know the answer to it, but are there any tax benefits similar to like the short term rental tax loophole that are specific to midterm rentals?
[00:09:34] Speaker C: No.
[00:09:35] Speaker B: Yeah.
[00:09:35] Speaker C: So that's the downside of midterm. The plus side is like a lot less time commitment because people are staying for 30, 60, 90 days. The downside is there is no like short term rental loophole because the IRS says the average stay has to be less than seven days. And so if you're looking for the tax benefits for sure, the short term rental loophole, if you're looking for time savings, then midterm rentals can work out really really well. And I just like them because they're already furnished, ready to go when you can short term rent them.
[00:10:09] Speaker B: Yes. Yeah. You don't have to spend that time setting it up as if it were a long term rental that's not furnished. And then you have to do all this work like it's already set up and ready to go, waiting for you to pull the trigger when you have that high income year. I like that. That's. I have not heard this before. So very, very interesting and learning something new.
[00:10:26] Speaker C: Yeah. And like midterms were very big during COVID you know, because there are a lot of traveling nurses in a lot of places. And so we had set up a bunch of midterm rentals in Tucson, Arizona, near a hospital.
And then there's not as much traveling nurses. And they did work really well. We switched them to short term rentals and they did work well for short term as well. And so just. Yeah, finding the market where it pencils out will be important.
[00:10:53] Speaker B: Yeah. And I think you're going to want typically for a midterm to work like a metro type market where there's a lot of traffic. That's where it's not completely dependent on tourism because a lot of times tourists are not going to come for a midterm stay. Some will, but most of the time they're going to be, you know, just a week vacation, tops. So something where there might be like a lot of corporate travel where people might have to come on big projects. Again, the traveling nurse thing, where there's like, I think where there's a lot of development, a lot of big. I'm not talking about just like building houses, I'm talking about like building skyscrapers. You know, they bring crews in from other places and they need places to stay for long periods of time. You've got the insurance thing. I think the insurance one is probably the most consistent throughout the US have you found that? Do you. Do you find that you get a lot of the insurance stays in your midterms?
[00:11:44] Speaker C: Yeah, I think if you are going to set up a midterm rental, it's really important to figure out who your clients are going to be. Are you by a hospital? Then it's going to be traveling nurses. Is it a market where you find out some sort of headquarters is coming in? So is an Amazon warehouse coming in or Nvidia? Are they bringing their chips closer to you? Something like that. But insurance is so great because what a lot of people don't think about is like there are house fires at every single day. And there are floods every single day in people's houses. Maybe not from a hurricane, but from like a busted pipe or something.
Or you are in a market like Florida where there's seasonal hurricanes and there's a lot of insurance claims. So really creating a relationship with your local insurance agent will be really important because they're going to know the clients that need that 30, 60, 90 day stay.
[00:12:36] Speaker B: So it's a local insurance agent that you want to try and build the relationship with. You're not trying to go to like State Farm corporate to, to, to sign up your, your medium term rental for this.
[00:12:47] Speaker C: That's what I've found to be successful. You know, the bigger you go, the harder it is to actually get someone that will care about your one midterm rental.
[00:12:56] Speaker B: Right.
[00:12:57] Speaker C: So finding someone local to you will be important.
[00:13:01] Speaker B: Okay.
All right, so let's talk about who this might work for. And actually is there anybody, before I ask you that, is there anybody that this might not be a good idea for?
[00:13:16] Speaker C: Well, midterm to the short term strategy might not work well for anyone that needs to save money in taxes this year. Right. Because again, midterm rentals, unless you're a real estate professional, you're not going to save money in taxes.
If you're going the short term rental and flipping it to the midterm rental, I think that's great because get the great tax benefits now and then next year it doesn't really matter because you've already done the cost seg. You've already accelerated the depreciation.
So just knowing when you need the tax benefits will be key. But then also you still have to know it is going to take time. So how much time do you have to commit to like furnish a place, make sure it's, there's upkeep to it because you'll still have people coming in and out every 30 days.
Okay.
[00:14:02] Speaker B: Yeah, I love that. I guess if you need a more immediate tax benefit then you would need to just go on straight to short term rental this year. So I have a question about that.
In our Facebook group, we've seen a few people make posts right around tax time this year in April saying like, I've tried to use the short term rental tax loophole and don't do this because I got audited and it didn't stand up in an audit. So what would be your advice on. Because you know you can't control who's going to get audited. But what would be your advice to ensure that you are properly documenting. Because I think what happened in a lot of these cases is they did not have a very good believable log of their hours.
[00:14:46] Speaker C: Yeah.
[00:14:46] Speaker B: So what would be your advice for people who want to use this strategy and potential audits?
[00:14:53] Speaker C: That's exactly right. You have to, have to, have to document your hours in real time. So it can't be, oh, now I'm getting audited for last year or the year before. So now I'm going to recreate a log. Like, let me go back to my calendar and be like, oh yeah, I had these hundred hours.
That is not going to work. The IRS can tell by like through timestamps when you created a time log. So either you're handwriting it so that there's no time stamp on it or if you're doing it electronically, make sure you're doing it when it's happening the week that you're spending the time on it. Put the dates and times.
So that's going to be key really, making sure you log your hours. There's even apps now where you can log your hours. There's a rep tracker app.
So that's key. Have it on your calendar. Because we have seen calendars stand up in audits where you literally just print out your calendar from the year where it has like, oh, I worked on the property this Monday through Wednesday or this weekend or I chatted with the tenants for three hours on this day. So have the time tracker, have it on your calendar.
Send yourself emails, I think is also really important and people forget. So if you don't have a team where you can send someone else an email about the property, send it to yourself like, hey, I worked on this, that whatever, I will even in some of our properties email like, hey, we bought this property as a short term, it is not working out and I need to switch it to a midterm because of X, Y, Z or vice versa. And so just have as much documentation as you can.
[00:16:29] Speaker B: So.
[00:16:29] Speaker C: So that if you are questioned years later it can be better, you know, held up.
[00:16:38] Speaker B: Yeah, I think that was my next question actually is so, you know, I see people who will say, okay, I just want to buy something as a short term rental for this year and then next year I'm going to convert it to a long term.
So have you seen anybody be audited where they have done this thing where they've had it as a short term rental for a portion of the year and then immediately change it to long term once January 1st comes along or midterm, have you seen that audited? And typically how does the IRS respond to that, that change? Because I know it can. I see people who are blatantly like shouting from the rooftops that they're only doing this to check this box for the short term and then flip it over. And I feel like that's probably not something the IRS wants to see.
[00:17:21] Speaker C: Exactly. So I have not seen that specific audit. But what I can say, what the IRS will not like is if you have that intention beforehand.
So definitely don't go into an investment being like, I'm going to short term it this year and then next year, long term it just for the tax benefits. That's a big no, no. But what you can do is say, hey, I think this will work as a short term property for the next five years.
And then next year you can say, well, you know, it didn't actually pencil out. You don't want to have the intention ahead of time that you're going to switch it.
And if you do, please don't shout it from the rooftop that it just doesn't look right. I always say like everything has to pass a sniff test. You know, like the IRS auditors are people too and so they're going to be able to see the lies and deceit from a mile away. So just, you know, have it appear to be well intended.
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[00:19:54] Speaker B: Love that. Yeah, just guys, the gray areas just, just stay out of them. You know, it's the gray areas very quickly become red areas.
[00:20:03] Speaker C: Yeah.
[00:20:04] Speaker B: So what have I not asked you about this strategy that you feel like our, our listeners could benefit from hearing the, the midterm to almost a long term, the midterm to short term during a high income year. Because I think that's pretty genius. I've not thought about that or heard it before.
[00:20:23] Speaker C: Thank you. Yeah, I just think a lot of people don't think about their taxes ahead of time until it's like April. And you're trying to worry about last year and so really getting ahead of like, okay, it's May 2025. What's the rest of my year gonna look like? How much do I need to save in taxes so I can start planning it now? Really the strategy works out well because you're planning. It's not a strategy that's going to work well for you retroactively because you're not going to know which way to use the property. And so I think just knowing ahead of time how much you need to save, you need to be having these conversations with your accountants. And if they don't even know like what a midterm rental is or a short term rental loophole, like that is a big red flag for you that you need to switch your accountant. I think people like, I hear this all the time where they're like, oh, I just really like them. You know, I've had them for seven years and I'm like, you can like someone and that person still can cost you a lot of money, you know.
So just knowing the right time to switch, have the right money team like in your pocket, just like experts like you, you can collapse time for them and help them build wealth faster. Your accountant should do that too.
[00:21:44] Speaker B: Totally. And now I have a few more questions on my brain. Went back to the audit thing. So I think we've actually had the founder of Reps Tracker on the podcast before. So there are some great apps like Reps Tracker, Toggl, but I feel like there are probably a few more ways, some of which you mentioned, like have these things blocked off on your calendar so you can just print out your calendar for the year. Sending emails to yourself at the time that you did them. I think that's also super helpful. So it seems like anything that can kind reinforce the timestamp on the original log is helpful. Is there anything else that timestamp wise or documentation wise that helps to have? So if you're, if somebody's listening, that's like, okay, I really want to do this the right way. I'm going to download this app, I'm going to copy or not copy. I'm going to follow all the protocol to make sure. I'm documenting it. Right. I'm going to email myself, like timestamped pictures of things that they're doing. Anything else that could help reinforce that they can easily do? Like, that email suggestion was great.
[00:22:47] Speaker C: Yeah. To your point with the pictures, I think pictures and videos go a long way as well. We've seen that in audits where you have a video and maybe you're talking about like, okay, this short term rental will be great because look at this amazing binder we have for them to look at all the local spots. And look at this, you know, stash of coffee that they get to enjoy while they're here. Like, whatever about your property makes it a short term rental. If that's your intention, have it in that video.
Also, always screenshot your listings.
So maybe you're on furnish finder as a midterm rental, screenshot the listing. Because not always I've seen the listings disappear in your login, so. So screenshot them so you can prove this was listed as a midterm rental on these dates or vice versa. Like screenshot it on Airbnb or VRBO if it's a short term rental. But screenshot the listings. That's really important because the IRS allows you to take depreciation on properties as long as they're listed for rent.
And sometimes you can't prove that they were listed for rent unless you've screenshotted your own listings. And that's for any rental, long term, short term, the midterm. Always screenshot the listing and let's see the pictures, the videos. Oh, another great, like, new thing that people can do now is use Chat GBT to your advantage. Like when you're buying a property, even when you're in escrow before you close, create like an intent log.
So go into Chat GBT and say, I'm buying this property at this address. Tell me the, the estimated rents for midterm, short term, long term.
Okay, great. I like it as a short term rental. Write a paragraph how this short term is going to be profitable. So you kind of have like a mini business plan for your rental and just use Chat GPT for it also.
[00:24:51] Speaker B: Genius. Chat GPT is becoming so much a part of like everyday life now, it's crazy.
[00:24:56] Speaker C: I use it for Google. Like I don't use Google anymore. I'm just like, ask ChatGPT.
[00:25:01] Speaker B: Yeah, because then you're not like rifling through all these different links that may or may not be helpful.
[00:25:06] Speaker C: It's. Yeah, it really is helpful.
[00:25:10] Speaker B: Even my mom, my Boomer mom was like, hey, can you. What is chat? How do you chat GPT something? Show me how to do that.
[00:25:18] Speaker C: Oh, that's so cute. I'm actually in this military spouse group. My husband's retired from the military, but I'm still in this military spouse group. I saw this morning someone post a screenshot, and she's like, I went on my boyfriend's chat GPT and he asked chat GPT how to tell my girlfriend I cheated on her.
Oh, my gosh. It's going to be the new, like, way to stop people.
[00:25:41] Speaker B: Oh, man, that's so terrible.
But, yeah, I've thought about that. Like, I don't ever want to ask it anything personal about, like, my home address or anything, like, financial, because I just don't know. I'm sure there's all kinds of things in place for this to never, like, leak or whatever. But I. I do think about one day, you know, is someone gonna, like, at the beginning of chat GPT where. Where that you could. The first few times, people were, like, creating fake voices, like, taking someone's voice from the Internet. I worry about that. Where they, like, called and said, hey, we have your kid. And they took their kid's voice from the Internet, and it sounded like they had their kid. Like, that stuff scares me to death.
So.
But they didn't have their kid. They were just catfishing to get them to give them money. But that's terrifying.
[00:26:33] Speaker C: I know I'm still, like, really nice to my chat gbt. My team makes fun of me because I'm always like, can you please do this? Or thank you. And they're like, why are you so nice to it? I'm like, I don't know. I feel like it's going to take over the world, and I don't want it to be mean to me.
[00:26:45] Speaker B: I noticed that yesterday I did something and I was like, oh, sorry. I meant blah, blah, blah.
Yeah, you don't have to apologize to it.
All right, so, Barbara, we're coming to the last three questions of the show that we ask all of our guests. But first, is there anything about your story or industry that you feel like our listeners would benefit from hearing that we haven't covered?
[00:27:12] Speaker C: Knowing your numbers can, like, change your life. So many, especially real estate investors, don't know the profitability of their properties. And you could be leaking so much money just because you're not tracking it. So just like, you need to track your rep hours, you also need to be really tracking your income and expenses every single month because how do you know what tax plan to use if you don't even know what your profits are?
[00:27:42] Speaker B: That is very true. And so many people don't, they just slap it up there and forget about it.
Very good advice. All right, now I'm going to ask you for some more advice. Question number one, what advice would you give 20 year old Barbara?
[00:27:56] Speaker C: Oh my gosh, start sooner.
Like I didn't start my business till I was 30, I didn't start investing in real estate till I was 32.
And so I would just like learn as much as I can from other entrepreneurs and investors and start earlier.
[00:28:13] Speaker B: Good advice. And number two, what advice would you give a new investor who's looking to get into short term rental Investing today in 2025?
[00:28:23] Speaker C: Buy in a market that you'll actually enjoy visiting.
Because I think so much people focus on the numbers and the profits and how much money it's going to make. But there's also this like not just return on investment but your return on energy.
And if you enjoy visiting your short term rentals, you can use them as like little mini vacations where you're actually repairing and fixing the properties. But you know, like I love 30A so if, if I wanted to buy a short term rental it would be on 30A and I know it's saturated, but I love visiting there.
[00:28:59] Speaker B: Hey, I live here. I, I've got three here. I just bought another one last month on 30A.
[00:29:05] Speaker C: Great.
[00:29:06] Speaker B: Nothing is saturated if you're doing it right. It doesn't matter how many other rentals are out there if you are managing it right and doing things the right way.
So I, I probably might buy another one every year. So I'm not a saturated market. Doesn't scare me. But I there because the reason they get saturated is because there's so much demand. But you just have to make sure that you stand apart from the competition which typically like if you go look at pull up 20 listings in 38, 17 of them are going to be garbage. Like on some big major property management company that's been around since the 80s. That sucks.
So it's not the number of listings, it's the quality of your listing. So come on and buy in 38.
[00:29:49] Speaker C: Send me some properties.
[00:29:51] Speaker B: Yeah, I will, I will for sure.
And last question.
What is your favorite book that's impacted your mindset?
[00:29:59] Speaker C: Ooh, Rich AF by Amanda Francis. Okay, I love her. She's so bougie. She's just like completely herself, doesn't care what anyone else thinks. And her way of going about, like, money mindset just really vibed with me. And I took her, like, money course.
But her book, for like 10, 20 bucks will change your life.
[00:30:23] Speaker B: Oh, I will have to check that out. I have not heard of that one. All right. And very important question, probably the most important one of the show, if our listeners want to follow you, how can they do that?
[00:30:34] Speaker C: Yeah. I hang out most on Instagram, our tax coach. And we drop daily tips and tricks on how to save money in taxes and with real estate investing.
[00:30:44] Speaker B: All right. And I am at the Avery Carl and at the Short term Shop. Thank you guys very much for listening. And we'll see you next week.
Sam.
