How the STR Loophole Helps W-2 Earners Cut Taxes With Real Estate | Rob Nardelli

Rob Nardelli (00:00)
You hold on to these assets for three to five to 10 to 15 years. Yeah. And Dylan, that is how you build generational wealth. All due respect to our own careers that we’ve had or are currently going through. If you can buy a property and it can make you money, just a even a little bit of money, and you put that money aside and you buy another property, and so on and so forth.

you are going to have success that a career can only set you up for. It can’t do it on its own. Real estate can if you invest in the right places, in the right opportunities.

Dylan Silver (01:03)
Hey folks, welcome back to the show. Today we’re joined by Rob Nardelli, the president and CEO of Select Properties, a short-term rental investment firm giving investors access to vacation rentals. Rob, thanks for joining us here today.

Rob Nardelli (01:18)
Thanks, Dylan. Really appreciate you having me on. Fan of the podcast, fan of the show.

Dylan Silver (01:21)
What types of deals are coming across your desk these days?

Rob Nardelli (01:25)
So these days, I would say 2025 was a big change for folks in the short-term rental industry and a change for the better. we’re pivoting and still keeping the fund, right? The limited partnership is still going strong. Have a house in the Poconos that we bought into last year. what it opened up my eyes to was the STR loophole, which I was able to take full advantage of, which really is

Kind of a big government’s way of allowing the mom and pop short-term rental owners to be able to take advantage of real estate professional tax benefits, specifically 100% depreciation in year one. So what does that mean? By this loophole, you andor I, Dylan, can now go buy a home and we can depreciate the building. You can’t depreciate dirt.

As much as we may want us to. but you can depreciate 100% of the land in year one. So let me give you a very high level example. Let’s say we buy a million dollar home that we’re going to short term rental. It’s going to make us hundreds and hundreds of thousands of dollars in gross revenue and profit. But in year one, we get to have what’s called and known as a paper loss, which allows for folks to be able to benefit of 100% of the building’s net worth. So using that example of a million dollar home.

Usually about twenty-two to twenty-nine percent. so let’s say twenty-five percent for a conservative estimate, depending on the region and the location and the state. 25% of a million dollars is $250,000. So, Dylan, let’s say you’re a W-2 income earner who makes $350K basin bonus, W-2 taxable. W-two is the highest form of tax for almost all people. so you would crush.

Your taxes that you paid by 250 just on the house alone, not even a dollar on improvements or anything else. And your 350 gets crushed down to 150. But Dylan, you’re already paying taxes in every paycheck, right? You see that right. Maybe you curse at how much it is that’s going out. So you’ve already paid that. So at the end of the year, when you file your taxes, a little added benefit for you you will be getting a refund check from the IRS.

Based on that amount, assuming in this exercise that it was 250K, that is well over $100,000 in savings that you will get back in less than the first year, right? So if we did it today, you would get that in six months. right. You put 250K down, or 200K down as a 20% deposit, and you’re getting over 100K back in less than six months. and all done legally. I talked to six different CPAs because I didn’t believe it myself. So when you ask me what deals are on my desk, we’re looking at short-term rentals.

And some of the up-and-coming markets, some of the established markets, and all the deals that I’m looking at right now are all focused on how middle to high income workers can capitalize on that tax benefit.

Dylan Silver (03:53)
Wanna highlight one of the important pieces in this, which is you need a good real estate tax person, right? Because you can have the cost seg done, but then to be able to effectively write it off and recoup your W-2 taxes that you’ve already paid into, it requires you to have a sophisticated tax setup. I’ve actually spoken on through this show with a number of

people that would probably describe themselves as Henry’s, this high earner, not rich yet avatar. you have a young doctor, right? And they

Rob Nardelli (04:22)
Henry. Yeah, exactly.

Dylan Silver (04:24)
taking advantage of these strategies. And people sometimes look at this and say, Well, how much cash flow is this producing? But they’re looking at it from a totally different perspective. They’re looking at it like, well, cash flow aside.

Look at how much money I’m getting back a and effectively paying very little i in taxes compared to what I would have been, which would have been substantial.

Rob Nardelli (04:47)
Yeah, no, that that’s exactly right. and you nailed it on the head, right? The cost segregation study is the key tool that you need. And you have to work with your CPA. I will do this once. I may do this more times on this on this episode. I am not an accountant. I’m not even a lawyer either. So talk to your accountant about the STR loophole. And quite frankly, I prefer and recommend that folks and potential investors bring their CPA on a call and let’s talk through it with them.

even my own CPA was not aware of this benefit until we had one of many conversations about this. because it’s new. Not everyone knows about this, right? And to your point, if you’re a Henry and you’re very good at your profession, if you’re a doctor, then you know things that I will never even dream to know of in my lifetime. But when it comes to real estate and improving not only your net worth, but creating a machine, a vehicle that can lead to generational wealth.

That’s the thing that I can help you with and other Henries like yourself.

Dylan Silver (05:39)
you mentioned the conversation with your CPA. I think a lot of folks encounter this where they feel like they’ve outgrown their CPA and what does that look like? Do I have to find the new CPA? Well, I have this existing relationship and good rapport with my current CPA. Do I convince them?

Rob Nardelli (05:53)
No convincing needed. I will point you to multiple websites that have confirmed this. and again, I did the same thing myself, Dylan, working with my own CPA, who I trusted and have known since I was three years old. so it’s one of those situations where we had an exploratory that turned into an educational conversation. he did all the research, dug in and said, No, not only is this absolutely accurate, Rob, I have other

folks that I work with that would be interested in this, right? They had a very successful year this year. They know that the tax bill has come due and they would love to use a vehicle like this. Again, you have the paper losses in year one, but the goal is to have a profitable business, as you mentioned. and the homes I’m looking at, I specialize in the four to six bedroom plus categories. And the markets we’re looking at, it’s 200K plus in gross revenue. Now if we were to buy a house today, you’re not gonna hit that this year, right? You’re gonna have a big paper loss.

But that can help you crush your W twos. You get that hundred K plus check back from the IRS. And you know what we’re gonna do with that check, Dylan, right?

Dylan Silver (06:48)
Yeah, put it into the next one.

Rob Nardelli (06:49)
We’re gonna go buy another house. and as long as this legislation stays, I think if you’re not looking at it, I’m not saying everyone, this is meant for everybody, but if you’re not looking into it and at least researching it and putting that on the scales of the other opportunities where you could invest, you’re not doing yourself justice. so just look at it. If you’re curious, that’s all I need.

Dylan Silver (07:07)
i a way for and this is a really big stretch here, so be bear with me here while I make this analogy. But when you look at like the Burr method and being able to rinse and repeat, there’s an element of that here, right? If you’re making a handful of acquisitions a year and if you’re saying, I don’t need to do dozens, but if I got one additional home per year, I am able to then recoup that against my taxes, get that money back, and then

rinse and repeat that into the next one and the entire time, of course I’m managing these properties and collecting the rent stays, that’s a win and a way for this to be sustainable long term.

Rob Nardelli (07:42)
Is exactly right, Dylan. and don’t take my word for it. I work closely with developers, senior commercial real estate executives, and they have described it to me as it becomes an unstoppable force. You have these properties, and it’s three very simple value props. I just walked you through the active depreciation, that’s the big difference. That’s the STR loophole cost segregation study.

Logging the hours, minimum of 100 and more than anyone else, up to 500 hours. And then it doesn’t matter how much time people are spending at your place. You then get the active depreciation. 100,000 plus in the example we just gave. It can be more. it can be up to 500,000 if you file jointly. So there is a lot of runway here. the second value prompt, cash flow. That’s how I got into it. I’m a former banker from JP Morgan and other major financial institutions. Cash flow has always been my game.

And finding those profitable businesses is what I do and what I have been doing for multiple decades now in the real estate game. So when you have those two things and then you add the benefit, you mentioned burr, right? Rinse and repeat. And hold if you can, now this becomes I have three homes within my fleet. I want to make that to the fund where we can talk about 25 homes in the next five years at a minimum, that you get that net.

Asset appreciation over time, whether it’s select strategies, single asset exposure, well, I’ll work with you as your partner to build your home, your dream secondary home. Or if you want to be a part of the Select Properties Limited Partnership Fund, and have your percentage of the overall fund, these assets will continue to grow over time spent. And we do have, and that’s why we have minimums in terms of time on the fund side, it’s a five-year minimum hold.

and on the strategy side, which is the single asset, that’s a three-year minimum hold. You hold on to these assets for three to five to 10 to 15 years. Yeah. And Dylan, that is how you build generational wealth. All due respect to our own careers that we’ve had or are currently going through. If you can buy a property and it can make you money, just a even a little bit of money, and you put that money aside and you buy another property, and so on and so forth.

you are going to have success that a career can only set you up for. It can’t do it on its own. Real estate can if you invest in the right places, in the right opportunities.

Dylan Silver (10:30)
I wanna ask you about folks who may be looking for their first short term rental. I’m sure you have lots of folks who are reaching out to you in past conversations where this is the case. They’re not sure.

should they be looking on market, right? Or should they be looking off market, right? Then there may need to be some value add that needs to be done, but there could also be greater margins. They might have equity faster. Which markets should they be buying in? Should they be buying in areas, that are known vacation destinations with lots of competition, or maybe some, secondary or tertiary markets that are still good vacation destinations, but maybe more locally known. for that first time short term rental.

investor, what does that conversation look like?

Rob Nardelli (11:11)
Great question, Dylan. I’m glad you asked. the on market or off market, I’ve done both. And I will say that I have had better deals off market as a whole, but that’s you got to build relationship with real estate brokers. You need to get in the markets and I can work through and coach folks of where the right markets are.

Off-market or on market, you can have success either way. And I just don’t sometimes people get very intimidated. I know I did when I first got in there in the first house. We mentioned Nashville before, Dylan. Our first house is in Nashville, Tennessee. A nice little northern New Jersey boy coming down south, finding the dollar goes a lot further down there. this is pre-2017 or pre-2018 time period, which is a great time to be buying in Nashville.

When you build those relationships with folks, that will spread. And then you will begin to make a name for yourself. You’ll build these relationships and people will constantly come back to you and say, Hey, I got a deal for you. And that doesn’t mean you have to buy, but it sets you up for greater opportunity than just what’s on the market. So don’t get overly intimidated. My first deal was on market.

working closely with someone who went on to become one of my best of friends and was at our wedding in Italy with my wife and I three years ago, we just celebrated our three year anniversary. And that relationship was all public. We actually ended up being in a house that was physically falling apart. we had to get out of that contract. So, I learned so much along the way. And the only way you do that is by putting your big kid pants on, your big kid boots on, and just plowing forward.

and when you have that mindset, then it just becomes getting to know the right folks and being able to get placed into the right markets. And that stuff at a minimum I can help coach people on. and if they want to do it on their own, I’m all about that empowerment.

Dylan Silver (12:48)
There’s a lot of folks. you talked about New Jersey and I’m in North Jersey. We talked about that in the green room. A lot of folks who may be looking at buying in markets where they don’t have familiarity, where they don’t have boots on the ground, where they don’t understand what the market looks like and e even what expectations are. if you’re looking at homes in certain markets, you might be looking at homes that are sitting for a while and that could be unheard of in other markets, right? And so what do you do in those

Circumstances, what kind of offers can you make and what’s reasonable when folks are looking at acquisitions in on market or off-market, but in another state, there’s a level of complexity there. And my thinking is that if you’re going to do that, you need to partner with someone like yourself, or at least have someone who’s got some experience, because out of state adds a lot of complications.

Rob Nardelli (14:10)
That you’re exactly right. It’s the tail two cities, right? It’s the best of times, it’s the worst at times. It’s the same country. And I look at this stuff daily when I get the updates from Zillow and other areas, Red Fund, et cetera, is that you’ll see in Northern Jersey in particular, because you mentioned it, is astronomical how much like post-COVID, it just keeps ramping. where other homes, like in Florida, for example, California.

and even Asheville, as rates have kind of stayed high, prices go low. Northern New Jersey is an anomaly. We really again tail of two cities. I’m looking at zero homes for short-term rental opportunities in northern New Jersey. Again, big shout out to the hometown. they outlawed Airbnb’s like in the 2010s or early 2000s. So I guess you got to pick your response and answer your second point.

You do need to have guidance. building relationships is super important. But if you’re looking at this massive problem, just like how do I even get started? Don’t look at this massive abyss. Just find the first step, which is reaching out to someone like myself, having that 30 minute one on one coaching seminar. and then, going out there. There’s a lot of folks out there on the internet. I’d say be careful because with any industry, there’s gonna be scammers out there too. But there are a lot of good people.

that I’ve met along the way that I’ve formed strategic partnerships with to help me, whether it’s property managers, whether it’s construction folks, whether it’s folks who can actually help you find that right property. There are coaches that are not, hundreds of thousands of dollars to get it done. so I would implore you to explore careful exploration on the internet and social media. But having said that, you want to start talking to folks who’ve done it before. If it’s your first deal, you’re gonna be a newbie.

Just like anything else, you’re not gonna be perfect at it, right? So get from others who have experience with this, learn from them. If you can try to partner with them in any way, right, either through your investment or through your hustle, right? Your time or your money. Those are the best ways to start talking to folks. and then I am also a big fan of using air DNA, which is the industry standard for understanding where the right spots are. They’re not perfect either, no one is.

but if it’s good enough for the investors who lend to short-term rental owners, it’s good enough for me as a foundational knowledge to find out where these right spots are.

Dylan Silver (16:15)
Let’s talk about marketing a short-term rental, especially in the launch period, right? So you’ve purchased a property, maybe you you’ve done some value add to it, and the property looks great. You’re going to launch. What do people have to get right when they’re launching and then in those first couple of months with their property being live?

Rob Nardelli (16:32)
Okay. first you should be amenitizing it. I’ll use my first two homes, which was Nashville, brand new home, never been lived in before, and Palm Springs. and they were a year apart, And these two homes, one was totally turnkey. Someone had already two sellers ago had totally gut renoed. and it was

All the furniture came with it. and I don’t always think that that’s great, but at this time I was still, I think, just getting to my 30s, did not have a tremendous net worth. and when you got a brand new home, even the washer and dryer, you gotta buy everything. So I had some good friends that helped me. we use things like even Facebook Marketplace, go to the right places, see if there’s any clearance sales.

Like you can go to West Elm, depending on where you are, there might be some really good things that someone had in their store for two weeks and then said, Hey, I don’t want this rug. these are like these are the real dark arts, as I call it, of the of the SDR world of finding out how to do things on a very tiny budget. and then in Palm Springs, I had a much bigger budget and I was able to find a turnkey home. we did a little bit of changes, and then ultimately I ended up

Turning that garage into a 1920s speakeasy with a with a secret door and passage to get you in. And also turned our little side lawn, which I affectionately re referred to as purgatory for pool toys, where they went to die, unused side lawn. And there was a loud HVAC unit. We just built this structure that contained the sound and put in a four-hole mini golf.

and then boom, where does everyone spend their time at the speakeasy and the mini golf? And yes, we built it so you can play at night too. So it depends on your budget, but I think you really need to focus on those markets. What amenities are gonna give you the biggest value? Hot tubs like the easy one, right? It costs roughly seven, eight grand for a good one. Installation, it’s gonna run you what, maybe 10, 12 grand, 15 max to put that in. And then the amount of money that you can make in the depending on the market.

It can be 30 to 50 grand more per year. So like that those are the types of amenities I’m talking about. You don’t have to turn your garage into 1920 speakeasy, but it did really well. So I think there are there are different ways for you to do that. The key here is research. You need to know your market. You need to know what homes are doing better. And you need to be able to find a way to do it even better than they are, whether that’s through your design. And that’s probably the kind of the foundation of it. And I didn’t

mention it till the very end and that’s because I’m very lucky. my wife happens to be a fashion designer for the most recognizable name in fashion across the planet. So I’ve outsourced that. Some might say, I punched above my weight class in terms of who I married and I would agree with that a hundred and ten percent.

Dylan Silver (19:02)
interesting that you mentioned this because pivoting here outside of the short-term rental space, I’ve seen in Florida and a market that I have particular interest in, maybe one day I’ll get licensed in Florida. I’ve seen in Florida, South Florida specifically, that there is a trend. I don’t know if this is happening anywhere else where you have branded multifamily housing. So someone could be living at like

the and I the Porsche building, or they could be at the Gucci building. And I’ve heard that, you don’t immediately associate brands like that with where you’re renting and where you’re living, but this has now become beyond, simply a place to live. It’s kind of a statement, it’s a little bit of a flex. I’m in,

This building over here that everyone knows that this designer brand.

Rob Nardelli (19:43)
So you see a lot of that and even corporates too, right? I think it’s OpenAI, who’s in one of like the coolest buildings in New York City, 100 old building, Google who went and did their thing down in Chelsea. and all these, new money. this is age old real estate, well before my time. new money always goes to where old money was. and that that’s I learned that expression out in the Hamptons, and it applies to everything.

so I agree with you that with real estate everyone wants and what’s the line from we work with the show? It’s not who you can see, it’s who can see you. so there’s all those different tips, tools that we have in real estate, and they do some of them do apply universally. I agree with you. Pippi.

Dylan Silver (20:23)
Getting back to designing your short-term stay, it seems like this idea of having a theme, the thing that comes to mind, I’m a Texas licensed realtor, right? If you’re in a college town, you could have a college theme, right? That’s probably gonna be booked and you could you could charge more on those weekends when the team is playing. But you also mentioned amenities, right? And really highlighting those amenities, right? And I think in many cases,

many cases actually. I’ve seen homes punch above their weight because of how it’s, the photos are done, because of how it’s highlighting the amenities. And you maybe drive by and it’s there’s a nice home, but then you see it online and you’re like, they did an unbelievable job of marketing this property.

Rob Nardelli (21:02)
Yeah, that’s exactly right. I’m a big fan of the experiential stays. and I do typically focus around families. in Nashville, I kind of learned a different school of thought there. being the bachelorette capital, I think the year that I bought the place, coincidentally. so whatever your target market is, you gotta know who that is, right? Whether it’s families or big group trips or both. it’s usually a mixture of the two. but you also have to have a theme.

and in Palm Springs, for example, every single one of the bedrooms, we have two main bedrooms, as well as two additional bedrooms. And each one of them has their own theme, right? We have the Marilyn Monroe room, we have the Sean Connery, James Bond room, Rat Pack and the Frank Sinatra room, etc. You gotta have a theme and it has to coordinate with who your target market is.

that’s when you get nanospecific. so that’s the microeconomics. The macro that you spoke of before is also pick your targets, right? Are you going to go for the top 100 skiing destinations in the United States, top 100 beach destinations, or as I mentioned before, the bachelor-bachelorette destinations. you have to start wide and then focus in as you go.

and that’s where the theme and amenities is super important. Another example, we bought a home in the Poknos, big large family setup. So we got a five bedroom that had recently been renovated. and then we enhanced that, took it to the next level. There’s a gigantic owner’s closet. And I was like, This is an LP. Like, I am not putting anything in there at all. I might have forgotten an extension cord, like that’s it. So instead, what we did.

Is you had the kids’ room right upstairs there. You had two common rooms, it’s all open floor. So there’s this noise. so we made this. and I was a CS Lewis kid growing up. so I created with the team this ability to open this gigantic wardrobe that’s just sitting there, like on the way to the bathroom. so you open the doors.

You push the fur coats to the side and you walk into the closet, which is this, Narnia room, where you have like these this little TV, all these little setups, books, shelves. so my nieces and nephews, when we do stay there over the holidays, I’m sure they’re gonna absolutely love it. and then that also gives you that ability for, if the guys want to watch the game and play some pool.

the moms want to watch the movie, and then the kids can watch Bluey up there in their secret little Narnia closet, which I’m sure would be great for imaginative games.

Dylan Silver (23:06)
Amazing, Narnia, I haven’t done a dive into Narnia, but you had me at Sean Connery because I just finished reading Ian Fleming’s kind of the origin story of Bond, Casino Royale, written in the fifties.

Rob Nardelli (23:16)
Yes.

Dylan Silver (23:17)
But if you haven’t read those books, my goodness, amazing reads, especially that first one. knee-jerk reaction here, Rob. when you see folks making mistakes.

As a short term rental investor, is there one thing that you see most commonly kind of the mistake most people make?

Rob Nardelli (23:33)
Yes, the biggest mistake folks make, and myself included early on. So there’s no judgment here. The biggest mistake is, the worst action is not wrong action. It’s no action. And you see a bunch of big numbers signing your life away. And that’s all true. The risk is real, but the analysis paralysis is the biggest issue. And it took me many years to be able to scale my business.

So it’s something that’s very near, dear, and personal to me. If you’re feeling unsure about what you’re doing, you’ve done all the research, you’ve done all the homework, and you’re just not sure, that’s okay. We’ve all been there. And you have to have it, whether it’s a personal life coach of yours, or reach out to Rob Nardelli at gmail.com, select properties.org. I’m happy to walk you through and help you believe that you can do this.

And why not us? Why can’t we be the people who have those big homes, generational wealth, being able to quit your day job, all those benefits start by taking the first step out the front door.

Dylan Silver (24:31)
Rob. Any new projects or activities you’re working on? Also anything you’d like to mention directly to our audience?

Rob Nardelli (24:36)
absolutely, Dylan. So the things I’m working on right now are specific markets in the destination cabins. having had one successful in the Poconos, we’re looking at some of the other markets in the Midwest, in the South, as well as Florida. there’s a lot of great buying opportunities for those that are willing and able to make that next step. and if you are,

I’m going to give you my cell phone number, which is 201-741-9471. If you want to have a human to human conversation in the digital AI world we work in, I’d be happy to talk to you about this. And if you’re one of those people that has been trying to find the motivation to take that first step, those are the conversations I look forward to having the most because we’ve all been there.

Dylan Silver (25:18)
Rob, thank you so much for your time today.