All Forum Posts by: Bob Norton

@Scott Anderson It looks like a good rental opportunity.  Confirm the title status, check for other liens, and verify the amount of back taxes, plus confirm your rehab estimate.  There may be other issues with the house that wasn't obvious in a single walk-thru.

@Jason A. Yes, you can deduct all expenses related to your rental properties, including mortgage interest and depreciation, on Schedule E of your personal tax return.  If you are house hacking, then only a portion of the mortgage interest can be deducted and only a portion of the house can be depreciated.  

@Turner Schenzel You are cash flowing at $395 per month, or $197.5 per property. The tithe is a personal choice and not a rent expense that you would normally consider. However, I don't see anything for property management, so you can use the tithe amount as a surrogate. How much cash do you have invested in the properties? You show two mortgages, does this mean that you pulled most of your cash back out? If so, then I'd keep the properties. Depending upon how much cash you have invested, your ROI is probably acceptable. Rents increase over time, while the mortgage does not. I also recommend that you create a separate budget sheet for each property in the future, so that you can make sure each property is cash flowing acceptably.

@Matt Weeden If your banker can get you a HELOC at 85%, then that is an interesting option. After you renovate the house, you would be doing a refinance into your name and removing your Mother from the title. And since it is a refinance, the lender will lend up to a certain percentage of the appraised value of the home depending upon the loan program. To avoid PMI, that will be 80% of the appraised value. At 80% LTV, you would have to come out of pocket around $15k-$20k, depending upon refi costs, to refinance this home if the ARV is $315k. You could cover these funds by borrowing a higher percentage against the property, such as an 80% first mortgage and 10% HELOC. I recommending checking with a mortgage lender to find out what your refi options would be.

@John Patterson You could consider purchasing properties with owner financing, with private lenders looking for long-term interest income, or subject-to the existing mortgages. The banks will calculate your DTI using your credit report and your tax returns, so moving properties into trusts, but keeping the mortgages in your name will not change your DTI. Partnering with family might work and refinancing them out later will work (I call this a credit partner), but make sure that the property is quit claimed to your LLC soon after your purchase the property and that they understand the plan. As a CPA, I'm vehemently opposed to paying more taxes than required by law, so I recommend claiming all the expenses you are entitled to and paying less tax. After all, real estate is a great investment in part because it is a great tax shelter.

@Sigurd Panke You can wait until April 2021 to pay the tax as long as you have paid in the minimum amount of tax to avoid an underpayment penalty.  The minimum required amount is based on your prior year tax return.

I typically recommend that my clients make estimated tax payments to the IRS (and their state) for the minimum deposits required, and then set aside cash for any anticipated increase in tax, so that they can earn some interest.    

The IRS does not pay you interest for any estimated tax deposits that you make in excess of the minimum amount required.

Plus, you may come across a short term opportunity and need that cash. 

@Ryan Crabtree You sold the original land as an installment sale, so that was your taxable event.  You had a $20k capital gain on the land that will be spread over the life of the note (using the IRS pro rata formula).  By selling the note at a discount, it will reduce the amount of capital gain that you received from your installment sale.  You will be taxed on the balance of the capital gain in the year that you sell the note.

@Jim Burkett Yes, find a better deal.  Also, with a bond for deed the deed doesn't transfer until you pay it off.  You have to carefully structure a bond for deed so that you make sure the underlying note is being paid (ie use an escrow company to collect the bond payments from you and to make the mortgage payments, taxes, and insurance before sending any cash to the seller.)

@Tony Bevilacqua  Sell now before the market crashes.  Then reinvest your equity into a better cash flowing property.  You may want to consider a 1031 exchange to avoid paying taxes on your gain.

@Michael Strobel Can you purchase it subject-to the existing mortgage and give the seller a note for his equity?  This way you would own the property and can improve it to make it rentable.