All Forum Posts by: Andy Thoman

Andy, you're correct. Some states and counties may impose these fees/taxes; however, they are minimal and normally less than a percent. For Wisconsin, the current transfer tax rate is 0.3%. That would mean in your scenario on the refi for $100K, a transfer tax of $300 would be imposed.

Just curious. How did you find what Wisconsin's tax is? I couldn't find that info.

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Originally posted by @Frank Palomino:

I believe everyone else has covered your questions well. So I will stick to the tax side.

The refinance and any cash the bank gives you does not trigger any tax implications. The taxes are triggered on the sale of the property. In some cases it can be beneficial to defer the taxes with a Sec 1031 exchange. This depends on the amount of the gain and your tax situation. I would advise talking with your CPA to determine what would benefit you the most.

Best of luck!

I read that some states have a tax transfer fee that sometimes imposes a tax on refinances. Have you ever heard of this? I can't find much more info about it aside from the fact that some states or countys might impose one.

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Originally posted by @John Leavelle:

Howdy @Andy Thoman

If you are considering using a HELOC as part of the BRRRR strategy then you need not be as concerned about the 10 years. You will use the funds as part of the acquisition and/rehab phase. Then get a cash-out Refinance loan to pay it off along with any other debts associated with the deal. Keep reusing the HELOC until the 10 years are up. Guess what!? Then you get a new HELOC and start all over.

Isn't this risky? What if rehab costs too much or if the house doesn't rent? I assume maybe that risk has more to do with whether one finds a "good" deal or not.

What is the risk in this? If you cannot pay the HELOC off, then can they foreclose on your house?

Also, why would I want to use a HELOC instead of a refinance initially? Are there any benefits of the HELOC over the refinance?

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Originally posted by @Bob Okenwa:

Hi Andy, hopefully I can help explain things for you a bit.

What are interest rates usually like compared to traditional residential mortgages?

Rates are credit and bank-dependent, but I've seen a lot of HELOCs for around 4-6%.

What is the difference between refi and heloc and other options

Refinance creates a brand new loan while a HELOC is basically a big credit card with your house as collateral. By that I mean you can reuse the funds over and over, but the interest rate is variable while the rate on a refinance is typically fixed

Are refi loans just new mortgage loans (aka, do they have similar interest rates do any other traditional mortgage)?

If I understand a refinance and HELOC correctly... a refinance pays off my previous loan gives me a new one (which I could potentially gain more cash for or a better interest rate? A HELOC will just give me a second loan on top of my mortgage?

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Originally posted by @Brie Schmidt:

@Andy Thoman - A HELOC is a line of credit against the equity in the house. Think of it like a savings account, you get a debit card and a checkbook and you can pull out as little or as much money as you want up to the approved amount. Every month you get a bill for the interest on the money you pulled out. So if you pull out $10k one month, $10k the next month, and put back $5k the next month all three months will be billed differently. These loans are typically interest only and for 10 years. So if you pull out the full balance on day one and make the minimum payments, after 10 years you owe the full balance back. Rates are usually variable and change based on a spread over the current interest rate.

A refi is a 30 year fixed rate note. You payment is spread over 30 years for the $50k already on it plus what you take out. You will have a fixed monthly payment that includes interest and principal paydown, so after the loan ends you have paid it down and don't owe anything.

Your tax implications depends on what you do with the money.

I'm not sure if I understand the HELOC.
Say I take out a HELOC and I have 30k of equity. Then I could spend anywhere between 0-30k? And (typically) for the first 10 years, I only pay interest. Then after the 10 years, I'd pay the principle? How long do I have to pay that principle off? Is the full amount due at the 10 year mark? Do I then start paying interest+principle? Or do I misunderstand; is it more like a 10 year mortgage?

You say tax implications depends on what I do?
If I just hold it in a savings account (not that I would do that)?
If I take it and invest it in a rental, do I have any tax implications?
What if my house is appraised for more now than it was before? Is that income, or is that only income when I sell?

For example, in the BRRRR method. If I refi a house and gain 30k from a bank and use that as a downpayment for another house, do I have any sort of income tax? Do I never have income tax until I sell (aside from rental income of course)?

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So I don't really understand the whole Refi and HELOC situation... I have a few questions.

What are interest rates usually like compared to traditional residential mortgages?

What is the difference between refi and heloc and other options?

Are there taxes on this?

Let me use an example:

Say I own a house that is worth 100k(It was worth 80k before I fixed it), I owe 50k on it. Right now, my understanding is that I have 30k equity. But if I refinance it and got it appraised for 100k, I'd have 50k equity and the bank would give me 20k? Is that how it would work? Would I get taxed on that 20k?

If I don't think I could appraise it for higher so I just did a HELOC instead of appraising it? Then I could go back to 20% down? So I could go down to 16k equity and have the bank pay me 14k? Do I get taxed on that 14k?

In addition to these scenarios, are there costs do to these deals? Closing costs/appraisal costs, etc.?

Lets take scenario 2 as my situation. Would it be worth it for me to pull 14k out to invest in a rental? Is this dangerous even if I keep 20% in my property? what are the pros and cons?

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All Forum Posts by: Andy Thoman

Andy Thoman has started 12 posts and replied 26 times.

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