I am afraid my credit & complex tax situation is a death sentence

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I am afraid my credit & complex tax situation is a death sentence

Harry Karambizi
Atlanta, GA · Member since 2017 · 4 posts · 0 votes

Hi! New to BiggerPockets! I was an airbnb investor for a few years but my financial situation got really complicated. Now, I am in a great financial situation and am looking to start investing again. However, I really need guidance from the BP community in order to get started.

CREDIT:

I personally funded my small food business with my savings and money earned from part-time jobs. After 3 years, I maxed out my 3 credit cards, they eventually closed as well as both my business and my personal bank account. My credit is in the 400s. The business expenses were piling up and I ended up selling my condo and used the money to pay down all of my business equipment financing, pay off business debts, and school tuition. After school, I landed my first job as a web developer. My salary and affordable living is great but my credit is still poor and I only have an online bank account now.

TAXES:

This one is a doozy. I was so underwater, I have not filed my personal tax returns since 2015. I sold a home, used the profit to purchase a condo in cash and pay off my car. My business was barely making enough money to keep afloat and I have not paid Sales & Use to the State of Georgia for 2016 or 2017. I have kept documented records of all of my activity over the past 4 years, including my property sales. Since money from my airbnb was spent on my business, and money from home sale paid off my business debt, I feel like this situation is too complex for TurboTax or a trip to HR Block. Does anyone know how they would approach a situation like this?

At the moment, I imagine that I would most certainly have to work a trustworthy group in and established partnership in order to invest in properties. Has anyone had experience with doing this and using platforms like fundthatflip.com or Groundfloor.US?

Thank you in advance if anyone can help in any way. I'd hate to think that it is impossible to bounce back from the failure like the one I experienced.

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Joe P.
Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
8y

@Harry Karambizi you seem like a nice guy, so I want to be delicate in my response. I don't think, based on what you've told me, you're in any position to invest in anything (today).

Sadly, I cannot personally agree with what @John Franczyk said; I just can't suggest that someone focus on the deal when it appears that his financial situation is not in proper order. But this is just personal "gut feeling" and opinion -- I would hate to see you stretched and I see John provided his response prior to your response regarding your finances. I would certainly hope he would revise his recommendation to you based upon the info you provided.

You need to meet with a CPA immediately. @Amy Beth is 100% correct in her statement. You need to take care of your bills right away. I also agree with her that your credit score should not be your focus now.

It sounds like things are going to turn around for you soon whereby you can save more of your money, and more importantly, take care of this low hanging fruit. @Graham Lutz made a point to encourage you and I want to do the same. I haven't done a partnership (yet) and I wouldn't know the amount of due diligence required, but I hope someone would ask me about my assets, liabilities, income, credit score, etc. (I would certainly ask the same of them) so we can build a profile. Credit score and ability to pay bills isn't the end all/be all, but I would want to partner with someone who has the ability to contribute financially and with their time. Someone with boatloads of time but terrible financial profile is probably not someone I would look to invest with.

Again, I stated I am incredibly cautious and cagey. I just lost a deal because my spreadsheet numbers didn't look "perfect" and in reality, I could have added value to bring up the rents and make it perfect. I am by no means an expert and certainly take my advice with a grain of salt, but I think its vitally important to have a clean financial house before you start looking at others.

You have debt, you might have IRS issues, and your credit score is in the garbage bin. These are all long-term issues where you like the categorization or not. Your debt didn't appear out of the blue one day, your credit score didn't drop 400 points out of the blue one day, and you'll be nearly YEARS without filing your taxes. I think its great you look to the horizon, but you're doing it in while sitting in quicksand.

I wish you luck my friend, but if you are seeking my $.02, there is no question what needs to be done. Sweep your financial house ASAP.

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  • Joe P.
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    8y

    "Now, I am in a great financial situation and am looking to start investing again."

    • First, congrats! Glad to hear you say this.

    "The business expenses were piling up and I ended up selling my condo and used the money to pay down all of my business equipment financing, pay off business debts, and school tuition."

    • Is it a fair statement to say you no longer have ANY debt? What is your debt now? What is your income, your expenses, your "remainder" at the end of the month?

    My salary and affordable living is great but my credit is still poor and I only have an online bank account now."

    • OK, but why? Have you looked into credit rebuilding programs? What steps can you take to get out of the 400s? How long have you been living this good salary/affordable living life? See second question as this would help as well.

    "I have not filed my personal tax returns since 2015"

    • Why? It seems like you would owe money based on some of your statements? Without knowing much about that world, if you've kept "great records" wouldn't you be a candidate to be audited if you don't execute your personal tax returns?

    I'm the type of person who believes in a strong foundation to execute ANYTHING. This makes me overly cautious in many ways, but I prefer the term "calculated." If I'm going to cook a meal, I'm setting up everything before hand, making sure my knives are sharp, my recipe is clear, and I have the best ingredients. If I'm going to play soccer, I'm researching the field, observing players in warmups, ensuring I'm in the best possible shape to be successful, etc.

    When it comes to investing, you have to ask yourself if you are going to have a cement foundation up to the standards required in the state of Florida, or if you're going to have a house of cards. A bad credit score, not filing your taxes, etc., to me, signals someone who has a house of cards.

    I would be curious to know the answers to your questions, because we can then truly see how deep the water is. If this is just a matter of hiring a tax professional to square you up properly, you have no debt, and we can see that after your salary, affordable living, etc., you're able to save say, $500 per month, and have been able to do so for at least 3 to 6 months, then I think its easier to tell you how to proceed.

    If you've got debt, if you have tax issues, if you have no cash flow (not even property based, just salary, expenses, etc. on a positive side) then thanks for the post pal, but you know the answer to your questions, and you won't like the rest of the responses that might be forthcoming, and I hope to gosh you realize that.

    Give us some insight into the questions above and hopefully we can help.

    1Reply
  • Graham Lutz
    Norcross, GA · Member since 2018 · 36 posts · 10 votes
    8y

    Sounds like a KILLER story to tell when you start getting asked to be on podcasts and speak at conferences because of all your future success!

    I don't have much for you by way of real answers, but just want to encourage you to keep going.  We filed bankruptcy b/c of a business failure, I got a job as a software engineer, and we're just now back to a bit or normalcy.  All I can say is put one foot in front of the other.  Focus on making good decisions and start cleaning up your mess.  

    1Reply
  • John FranczykPro Member
    Wholesaler · Racine, WI · Member since 2015 · 143 posts · 84 votes
    8y

    I lost a boatload of money on a business venture that went south in 2011, before I got into real estate. My situation was not unlike yours. 

    Someone told me that a deal will always get funded if it's a good deal. Focus on the deal, and not on your personal credit. Hard money and private lenders will finance on the deal, not on your background. Get started that way, and keep working to get back on track.

    Send me a connect request if you want to compare notes on rebuilding credit scores, etc. I'm still not where I want to be, but I can see a way out of the tunnel. 

    2Reply
  • Harry Karambizi
    OP
    Atlanta, GA · Member since 2017 · 4 posts · 0 votes
    8y
    Originally posted by @Joe P.:

    "Now, I am in a great financial situation and am looking to start investing again."

    • First, congrats! Glad to hear you say this.

    "The business expenses were piling up and I ended up selling my condo and used the money to pay down all of my business equipment financing, pay off business debts, and school tuition."

    • Is it a fair statement to say you no longer have ANY debt? What is your debt now? What is your income, your expenses, your "remainder" at the end of the month?

    My salary and affordable living is great but my credit is still poor and I only have an online bank account now."

    • OK, but why? Have you looked into credit rebuilding programs? What steps can you take to get out of the 400s? How long have you been living this good salary/affordable living life? See second question as this would help as well.

    "I have not filed my personal tax returns since 2015"

    • Why? It seems like you would owe money based on some of your statements? Without knowing much about that world, if you've kept "great records" wouldn't you be a candidate to be audited if you don't execute your personal tax returns?

    I would be curious to know the answers to your questions, because we can then truly see how deep the water is. If this is just a matter of hiring a tax professional to square you up properly, you have no debt, and we can see that after your salary, affordable living, etc., you're able to save say, $500 per month, and have been able to do so for at least 3 to 6 months, then I think its easier to tell you how to proceed.

    If you've got debt, if you have tax issues, if you have no cash flow (not even property based, just salary, expenses, etc. on a positive side) then thanks for the post pal, but you know the answer to your questions, and you won't like the rest of the responses that might be forthcoming, and I hope to gosh you realize that.

    Give us some insight into the questions above and hopefully we can help.

    Hi Joe, 

    Thanks for your response. To answer some of your questions:

    • Unfortunately, I still have $10,000 in debt.
    • I have been working this new job for the past 90 days and I haven't had any remainder yet because I was paying large "amount due"s to avoid disruption of service or being sent to collections. 
    • My rent is 1/5th of my income and beginning next month, I will be able to keep half of my monthly income. 
    • I have not spoken to a consultant or a credit rebuild program, but I am very eager to now that I have income. 
    • My business expenses and operating my business monopolized my time. Each year flew by and I never met with a CPA to assist in filing taxes for the business or myself. I was so involved in searching for money and trying to stay above water. You are correct, I agree that I surely do owe money as I only had income from Airbnb rentals, my business, and bartending.

    My goal is rebuild credit, pay my debt (intelligently), and increase my monthly income. Now that I am in a better situation then I was, I hoped I could get guidance on what the best strategy is so I can make a plan to execute.

    0Reply
  • Nghi Le
    Investor / Lender · Seattle, WA · Member since 2014 · 1k+ posts · 730 votes
    8y

    I doubt the two platforms you mentioned would give you a loan (one of them I've borrowed from before). Almost every hard money lender (HML) I know has a minimum credit score, usually 660 or 600, but I've seen 550. I know a HML that would loan to ANY score (even under 500) with no requirements of tax returns, and your interest rate would be around 11%. But they require a 25% down payment, whereas the others can go down to 5%-10%.

    But I think your best bet is to partner with someone who doesn't have these problems.  You'll have more options this way.

    2Reply
  • Grace Yarber
    Property Manager · Seattle, WA · Member since 2015 · 4 posts · 1 vote
    8y

    I would highly recommend services I've used before who are the experts on your credit repair. They not only give you advise but also do all the actions items for you and contact agencies on your behalf. http://www.kidworthgroup.com/ Good luck.

    0Reply
  • Amy Beth
    Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes
    8y
    I would suggest focusing on hiring a CPA ASAP to work out the IRS situation. Owing the IRS is worse than any other debt in my opinion. Then focus on paying whatever you owe the IRS and make a commitment to not going into any more credit card debt. Try to just make minimum payments on all of your non IRS debts until you can pay off the IRS. I would not bother with worrying about a credit score right now. Once you are able to pay off the IRS and your other debts you can then evaluate what you want financially at that point and set priorities with your saving and other goals.
    2Reply
  • Joe P.
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    8y

    @Harry Karambizi you seem like a nice guy, so I want to be delicate in my response. I don't think, based on what you've told me, you're in any position to invest in anything (today).

    Sadly, I cannot personally agree with what @John Franczyk said; I just can't suggest that someone focus on the deal when it appears that his financial situation is not in proper order. But this is just personal "gut feeling" and opinion -- I would hate to see you stretched and I see John provided his response prior to your response regarding your finances. I would certainly hope he would revise his recommendation to you based upon the info you provided.

    You need to meet with a CPA immediately. @Amy Beth is 100% correct in her statement. You need to take care of your bills right away. I also agree with her that your credit score should not be your focus now.

    It sounds like things are going to turn around for you soon whereby you can save more of your money, and more importantly, take care of this low hanging fruit. @Graham Lutz made a point to encourage you and I want to do the same. I haven't done a partnership (yet) and I wouldn't know the amount of due diligence required, but I hope someone would ask me about my assets, liabilities, income, credit score, etc. (I would certainly ask the same of them) so we can build a profile. Credit score and ability to pay bills isn't the end all/be all, but I would want to partner with someone who has the ability to contribute financially and with their time. Someone with boatloads of time but terrible financial profile is probably not someone I would look to invest with.

    Again, I stated I am incredibly cautious and cagey. I just lost a deal because my spreadsheet numbers didn't look "perfect" and in reality, I could have added value to bring up the rents and make it perfect. I am by no means an expert and certainly take my advice with a grain of salt, but I think its vitally important to have a clean financial house before you start looking at others.

    You have debt, you might have IRS issues, and your credit score is in the garbage bin. These are all long-term issues where you like the categorization or not. Your debt didn't appear out of the blue one day, your credit score didn't drop 400 points out of the blue one day, and you'll be nearly YEARS without filing your taxes. I think its great you look to the horizon, but you're doing it in while sitting in quicksand.

    I wish you luck my friend, but if you are seeking my $.02, there is no question what needs to be done. Sweep your financial house ASAP.

    4Reply
  • Scott L.
    Investor · Flower Mound, TX · Member since 2017 · 182 posts · 198 votes
    8y

    If you lost so much money on your business, what makes you think you owe any income taxes? Seems like you would have a net loss. Sale of your home is usually tax free up to a gain of $250k. Get a CPA and catch up your filings, then work on your credit. 

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    the state payroll and sales tax is your weak link you can bounce back from the others.. but those are not discharable in BK.. they stick with you.. this is water under the bridge but it would have been better to pay the tax's you owed and BK the rest. and then start over.. be careful.. those are serious debts.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
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    2Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    8y

    @Harry Karambizi, Not PAYING taxes is a civil case, not FILING a personal tax return is a criminal felony.  Although to us who have gone through the sheer exhaustion of trying to keep a failing business alive not wanting to face the time, trouble and expense of filing a tax return is understandable, it is not so understandable to Federal authorities.

    At some point you reach a point of no return. I have known some people who lived 'off the grid'. To the IRS they didn't exist. Transactions were handled in cash. No credit or debit cards, no loans or mortgages, no bank accounts, LLC registered to other people. While they seemed to relish 'beating the system', I do believe that living that way means abandoning most avenues of legal wealth accumulation.

    Private Mortgage Financing Partners, LLC
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    3Reply
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