Good morning!

I’m really hoping you guys can give me some guidance. Here is my situation.

- I’m 62 years old and have 300k to invest.

- I don’t have tax returns, so a conventional loan isn’t going to work (as I understand it).

- My first priority to to purchase a home for myself in the smoky mountains. I plan to rent out a portion of this home as a STR.

- After that I'd like to purchase addt'l STR properties.

My questions -

1) It sounds like my only option is to pay cash for this first home. If I do that then:

- How difficult will it be to do a cash out refinance without tax returns?

- How long do I have to wait?

- How often can I do this for new properties?

2) Should I worry about forming an LLC at this juncture or wait until I own several properties?

3) You guys know so much more than me. What are other options?

Thanks so much!

Have you been in a situation to not have to file tax returns? Or have you just been not filing tax returns?

How can you not file tax returns?  Even people that are incarcerated on a local, state or federal level have to file.

Originally posted by @Paul Sandhu :

How can you not file tax returns?  Even people that are incarcerated on a local, state or federal level have to file.

 If you make less than the standard deduction you don't need to file. 

Originally posted by @Natalie Kolodij :

Have you been in a situation to not have to file tax returns? Or have you just been not filing tax returns?

I’ve been semi retired So tax returns show minimal Net income. I should revise my original Post to clarify but can’t figure out how to.  

Originally posted by @Paul Sandhu :

How can you not file tax returns?  Even people that are incarcerated on a local, state or federal level have to file.

 I’ve been semi retired So tax returns show minimal Net income. I should revise my original Post to clarify but can’t figure out how to.

@Renee Chase there are tons of programs out there that you can qualify for based on the rental income of the property.  Typically these programs require 25% down and the rent on the property must be higher than the mortgage payment including taxes and insurance.

Originally posted by @Renee Chase :

Good morning!

I’m really hoping you guys can give me some guidance. Here is my situation.

- I’m 62 years old and have 300k to invest.

- I don’t have tax returns, so a conventional loan isn’t going to work (as I understand it).

- My first priority to to purchase a home for myself in the smoky mountains. I plan to rent out a portion of this home as a STR.

- After that I'd like to purchase addt'l STR properties.

My questions -

1) It sounds like my only option is to pay cash for this first home. If I do that then:

- How difficult will it be to do a cash out refinance without tax returns?

- How long do I have to wait?

- How often can I do this for new properties?

2) Should I worry about forming an LLC at this juncture or wait until I own several properties?

3) You guys know so much more than me. What are other options?

Thanks so much!

 Hi Renee,

If you income has been below the IRS filing threshold amount for some time, and the $300,000 has fallen to you tax free (like a one time thing in your life) it might be smart to NOT take a big risk with it, and pay cash for the house and live off the rental income (and pay tax on that income if you have to).

If you start breaking the $300,000 up as down payments on several places, and take out loans out and things go bad, you could lose the additional homes, and the bank will get the $300,000 you used as down payments leaving you with nothing.

Somebody once said pigs get fat hogs get slaughtered, and that's something that someone with history lower income should think about.

But if you want to borrow, and can find a lender then go for it. Just remember all of these real estate deals don't always last long term for everyone. Some people do lose.

Plus homes in the Smokey Mountains go for $300,000--WOW...Old String Bean would be rolling over in his grave (and get a load of these sparkle suits!) https://www.youtube.com/watch?v=bROzrYQhPE4

Good Luck!

@Scott Mac

That’s exactly my situation. I inherited this money and really want to be smart with it and grow it. I understand the risks but also understand that without risk there is no reward. Thanks so much!

@Melvin List

I’m assuming you’re referring to commercial loans?

@Scott Mac

And I love the string bean sparkle suits. Lol.

@Renee Chase just found the following on the Internet

In the last few years, national lenders who specialize in lending to real estate investors have popped up. They are not banks but rather funds or companies that specialize in investor loans only. They have higher rates than most banks but do not worry as much about debt-to-income ratios or credit scores. They are more concerned about the property being a good rental and making money.

I have seen rates on rental properties as low as 5% with some of the bigger lenders. I have even seen 30 year fixed rate loans being offered. I am in the process of refinancing one of my properties to a 30 year fixed rate loan with one of these lenders. They will usually lend from 70% to 80% of the purchase price or value.

@Don Konipol

Thank you! I’ve pulled up similar info so I know there are options. So glad you found one that is working for you!

I would echo Scott Mac about being careful. It's easy to verbally say that you understand the risk. The "no risk, no reward" is true, but it is also tossed around by some of us (including me) in a way that sounds "bold and brave". The reality is that losing the money you inherited probably can't be replaced.

If you chose to go forward with guests or tenants, then I suggest you speak to a Tennessee attorney to set up an LLC. I don't practice there so I'm not familiar with the laws there. But, LLCs, generally speaking, provide some degree of protection. You will also want liability insurance.

Seriously, give some thought to your own abilities and experience. Real estate investing sounds like buying stocks or shares in a company. In actuality, you are starting a business. It can be more complicated (once you have jumped into the industry) than it appears watching podcasts and reading forums.

I don't mean to sound negative or like I'm throwing cold water on your dreams. However, I have observed several clients over the years blow through 401Ks and inherited funds late in life. It's sad.

My thought is to find some local attorneys and C.P.A.s to help you take a hard look at what you will be getting into. It's a lot less expensive to spend a little on professional fees to find solid answers. Good luck to you!

FYI - I have to make clear that I am not giving legal advice to you. My comments are investor based.

Originally posted by @Renee Chase :

Good morning!

I’m really hoping you guys can give me some guidance. Here is my situation.

- I’m 62 years old and have 300k to invest.

- I don’t have tax returns, so a conventional loan isn’t going to work (as I understand it).

- My first priority to to purchase a home for myself in the smoky mountains. I plan to rent out a portion of this home as a STR.

- After that I'd like to purchase addt'l STR properties.

My questions -

1) It sounds like my only option is to pay cash for this first home. If I do that then:

- How difficult will it be to do a cash out refinance without tax returns?

- How long do I have to wait?

- How often can I do this for new properties?

2) Should I worry about forming an LLC at this juncture or wait until I own several properties?

3) You guys know so much more than me. What are other options?

Thanks so much!

 One option is to get a credit partner. We do this all the time for hotels for example. There's no reason you can't do it for a bigger deal.

You can have the credit partner puts up the downpayment and qualify for the loan. Then you after he/she closed on the property, the property then gets transferred to a land trust with the CP as the Trustee and you and the CP as equal beneficial interest in the trust. In exchange for this, the CP can be paid back the downpayment plus a percentage of the cashflow every month.

Having said this, I am not an attorney so consult a real estate attorney licensed in your state to ensure the above set up can work in your state.

@Steve Buckman

You guys are amazing and are echoing what I’ve already thought to myself.

I’m not a novice at starting and owning businesses, as I’ve been self-employed most of my adult life. I’ve made and lost more money than I want to remember (ugh), been in the rat race and got caught up in the “Gotta Have More” mentality and lifestyle. I finally burned out and really slowed it down and simplified my lifestyle a few years ago.

My savings, plus buying and selling along the way to make a few dollars here and there, have kept me very comfortable the last few years. But I have no substantial reportable income right now because of my minimalist lifestyle.

Being a financial advisor for several years, I definitely understand the game that we play to grow our money, the risks involved. I have not been a real estate investor though, other than my own homes, So I do appreciate the words of caution you gentlemen are giving me.

You are completely right when you say that once this money is gone it will never be recovered; I am keeping that uppermost in my mind. There are so many things to consider.

Thanks again!

@Renee Chase I would reach out to local banks and check into commercial loan options. If the bank is writing the loan, they are not subject to typical mortgage lending guidelines. Assuming you have good credit and a healthy down payment, you will find a bank who will work with you.

Avoid paying all cash, because leverage is where you get power in real estate.

I would suggest while you decide what to do with the money, place the funds in FDIC insured high yield savings accounts, so you can earn 1.9% with no risk. Keep living your minimalist life style and only withdraw for down payments.

You should chat with @Avery Carl about STR. She has good experience in your chosen market with STR.

@Joe Splitrock If you want to be hands on then consider purchasing a few properties for cash. If you want to be more passive hop on to someone else’s deal with syndication. You get all the perks without the work! All the best.

Originally posted by @Marc M. :

@Joe Splitrock If you want to be hands on then consider purchasing a few properties for cash. If you want to be more passive hop on to someone else’s deal with syndication. You get all the perks without the work! All the best.

 I wouldn't say all the perks. You are passive in a syndication whereas I am active in my rental business. That means I have tax benefits. Also by using leverage, instead of paying all cash, I can get a higher rate of return than a syndication. So syndication is less work, but not the same perks. You also have no control in a syndication, which could be good for some people, but I am a control freak, haha. 

My concern on syndication today is that CAP rates have compressed so much that I don't believe it is possible for syndications to keep getting the same returns. They can show you 3, 5 or 10 year historic performance on other deals and project that to the future. I just think that is getting harder to deliver.

All that being said, in her case, syndication may be a good option since it is way more passive.

Don't just jump into the short-term rental game with you no experience because you think it is the thing to do. You are 62. There's nothing wrong with getting commercial loan or two on a small apartment building and making reliable rent without the many risks that come with short-term rentals.

Hi @Renee Chase , what @Ken Latchers said. With that kind of cashola you could get into some great cash flowing multi family that is a lot more passive than a STR.

We decided to rent our lake house after we bought it and it has been great for us, but it is more work. I love it personally. It helps me stay busy with my disability. I love the interaction with the guests, but sometimes I think a nice 4 plex or small apartment would be a pretty nice thing to have.

Remember once you get into the place you will have to fix up anything that needs it as well as fully furnish and stock it for vacation rentals. That add cost and time.

We started with a blank slate and it took almost a year getting it ready to rent to guests. It is amazing how much stuff you have to buy to finish it for vacationers, let alone fixing the deck railing, replacing appliances etc.

Hey @Renee Chase !  Congrats on the inheritance and especially on wanting to do something smart with it!  

You've gotten lots of great feedback here, though I think @Parker Borofsky can definitely add something to the lending conversation, so I want to focus on something else you said: 

My first priority to to purchase a home for myself in the smoky mountains. I plan to rent out a portion of this home as a STR.

While I'm a fan of the house-hacking model, I am sorry to say this is not likely to do so well in the Smokies.  I own four cabins here, and most guests are not going to be interested in a house-share, they'll want a cabin to themselves or otherwise they'll get a hotel/condo.  If you particularly want to live here, it's possible you may find some success doing something a little more mid-term, having a comfortable furnished place for business travelers in town for awhile to stay (I had a traveling nurse approach me once about renting my cabin for her 13-week stay, and there's many seasonal workers in town).  There's definitely a housing shortage for those staying much longer than a week!  But for an overnight rental style, I don't think you'll find much demand for a shared space.  

@Renee Chase we spoke a little earlier today, and I was not able to come up with much - but I may have an idea now - sometimes it happens later LOL.  Fannie Mae/Freddie Mac will not allow projected rental income (or existing rental income) to be used from a primary home unless it's a 2-4 unit property or one that has an accessory unit. If you are able to find a 2 unit property or one with an accessory unit, you could then use the projected rent income to offset the PITI of the new mortgage payment. Then there is still the challenge of showing monthly income for debt to income ratio. For this, with the sum of money you have, you should be able to use asset dissipation as income. Asset dissipation works like this: when purchasing a primary or second home with 20% down, Freddie allows total assets (some restrictions on type of assets/age/etc) minus cash to close to be divided by 240 months to get a monthly "income" number. For example, if you use $60K of the $300K for the purchase, you would be left with $240K/240 months = $1000/month effective income that can be used. It may be a challenge, but with that combo depending on monthly debts and credit, you should be able to qualify.

@Renee Chase

I’m based in the Knoxville area and have been investing in this area for years. It’s a great region! PM me and I’d be happy to share some of my East TN investing stories.

TN and NC are beautiful, but not cheap as they were when I lived there, a hundred years ago. Not sure how far $300K will go. 

Be careful with that money. There are a lot of people pushing REI as easy and sure money, but it ain't the case. Some people win out, a lot of people lose their shirts.

Better talk to real lenders and lawyers, not just us. To use rental income to get a loan you will probably have to show rental experience, maybe two years of renting. 

Might look at the area around Boone NC if you want to see beautiful country with access to a college town and all that that implies. Prices right in Boone are probably through the roof at the moment.