Rental Property Investor · San Francisco, CA · Member since 2017 · 207 posts · 138 votes
Hi guys!
I was lucky enough to get that EIDL money but the loan docs are a bit sensitive. I am wondering what are some of the tricks RE investors are handling their money so they are creative enough to abide by the rules. You are not suppose to just take it and put down on buying another house so how are people creatively funneling their money to be legit. I own Multi and SFR and Air BnBs so i started a separate bank account and i work with PMs. Now what?
I was lucky enough to get that EIDL money but the loan docs are a bit sensitive. I am wondering what are some of the tricks RE investors are handling their money so they are creative enough to abide by the rules. You are not suppose to just take it and put down on buying another house so how are people creatively funneling their money to be legit. I own Multi and SFR and Air BnBs so i started a separate bank account and i work with PMs. Now what?
I think that really needs to be answered by a CPA, accountant, enrolled agent, or 1031 exchange pro. They seem to track these kinds of things. I suspect that if you asked something like "does the EIDL affect my taxes, can I deduct it" or "can I use EIDL in conjunction with a 1031 exchange" or " does EIDL reduce my write offs" one or more will chime in.
Investor · Columbus, OH · Member since 2017 · 861 posts · 1k+ votes
6y
The loan is supposed to be for any economic damage you have from the disaster, if you are intending to "funnel" and "be creative" with "tricks," remember the terms do state you can be subject to an audit of your books, I don't think it would be a good idea for anyone to reply here under real names with ideas on how to get around the terms of the loan.
That said, its very unclear and there is no direction at this time, this is all new territory. Lots of speculation and guessing here on other threads..... I am keeping mine in case I actually need it, we are not out of the woods economically yet. I am hoping there is clearer guidance from the SBA on how we can use this money, or at least read some horror stories about what NOT to do.... so if the creativity blows up please let us know, hahaha :)
HOWEVER --- Here's a case that is completely 100% real and my current situation: Before the virus stuff, I bid on and won a sheriff sale, put the 5k down and had was working towards a non-conforming mortgage on another free and clear property to pay for the new acquisition. COVID hits, non-conforming mortgage disappears due to the economic disaster. Can I use this loan to pay for the new aquisition? I think I have a solid case but "local landlord buys house with disaster loan" sure isn't a good headline. The foreclosure courts are still closed so I don't even know when the sale will continue, so I may not even need it if non-qm comes back..
Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
6y
FWIW I applied for EIDL for 25% of my net rent collected last year as a guess as to my uncollectable rent this year due to covid. Well... My losses so far are far less then my guess. So just as well I didnt get my loan but I and a bunch of us small time landlords here in GA in my network did get $1k ACHed into my business account given on my loan app. No email from SBA, and its been 6-7 weeks since the deposit. My losses will far exceed $1k so I'll be in compliance with EIDL I suspect, but whos to know the SBA has not contacted me and if like PPP the terms will probably have been changed post applying. (LOL!!)
Yes the daily news about audits of the PPP program and long term tainting of one's business who got PPP is an interesting issue and damned if you do and damned if you don't situation. My EIDL $1k i guess could also turn into a royal mess of paper work all for a lousy $1k that I hope in the process of messy paperwork I will be afforded an op to return it (if it comes to a messy end all for $1k).
This mess has indeed turned into blind alleys where you make the turn then wham you're stuck in quick sand when it was initially advertised as "milk and honey to save your business and employees jobs". I'm not complaining or being sarchastic, just regurgitating bits of the daily news that adds up to; this all doesn't make any sense if they really where wanting to save jobs and businesses.
Only sharing my story for folks to hear another tinny story re EIDL and indeed getting $1k advance, but zero comm from SBA, nor any of my peers getting any comm either.
I was lucky enough to get that EIDL money but the loan docs are a bit sensitive. I am wondering what are some of the tricks RE investors are handling their money so they are creative enough to abide by the rules. You are not suppose to just take it and put down on buying another house so how are people creatively funneling their money to be legit. I own Multi and SFR and Air BnBs so i started a separate bank account and i work with PMs. Now what?
I think that really needs to be answered by a CPA, accountant, enrolled agent, or 1031 exchange pro. They seem to track these kinds of things. I suspect that if you asked something like "does the EIDL affect my taxes, can I deduct it" or "can I use EIDL in conjunction with a 1031 exchange" or " does EIDL reduce my write offs" one or more will chime in.
Rental Property Investor · San Francisco, CA · Member since 2017 · 207 posts · 138 votes
6y
Yeah. Reaching out to my accountant and will update with his recommendations. One is not suppose to use this money to acquire real property and real estate is real. However, as RE investors i think that should be operating expenses. I was also in a refinancing situation until a fire accident happened in one of my unit during appraisal. Yeah really. Then Covid hit and everything came to a halt. My contractor still can’t complete his work and the time ran out on my conventional offer. So no more money to go buy more deals. But then i got this EIDL money and really can’t use it to get another deal. This situation is so dam if you take it and dam if you don’t touch this money. Hmmmmm....
Rental Property Investor · New York City, NY · Member since 2016 · 49 posts · 36 votes
6y
Has anyone seen guidance on EIDL collateral and the ability to sell?
1 — Would SBA prevent you from selling any of the properties if you accept the EIDL? Apparently SBA has to approve the sale of any property, but not sure if that includes real estate.
2 — Could a UCC lien on this business prevent you from obtaining future any mortgages on additional investment properties? Apparently the SBA places a UCC lien on your property as collateral for an EIDL >$25K, but not certain if that includes lien(s) on real estate.
Rental Property Investor · San Francisco, CA · Member since 2017 · 207 posts · 138 votes
6y
@Scott Starrett thanks for your response. I will have a talk with my CPA tomorrow but it is pretty set in stone traditionally that the EIDL is to get you by helping businesses through a disaster via only for operating costs. They don’t allow businesses to buy fix assets. In my opinion all are vague but they see RE as fix assets.
Rental Property Investor · New York City, NY · Member since 2016 · 49 posts · 36 votes
6y
@Angela Yan
Ok thank you so much! And yes, I understand that it is for operating expenses, not for purchasing other assets or real estate. The EIDL might be used for payroll expenses or maintenance expenses, especially if rents collapse after unemployment runs out.
If you do accept the EIDL, I’m concerned that (outside of this loan), it may be difficult or impossible to obtain financing while there is a UCC lien on your business.