All Forum Posts by: Guy Yoes

Thank you!

Hoping a RE CPA can help answer this question. I have my SFRs in an LLC. but not in a "company" as I don't qualify as a RE Pro. Currently, our rental income is counted as passive income and flows into our regular (w2)) income and(claimed on schedule E). In past, we used a HELOC to buy, rehab and maintain our SFRs. We could take the interest as a deduction.

From recent articles on the new tax laws, this interest would not be allowed in 2018 as it is not "tied" to the rental property. Is this still allowed if I show the HELOC funds were used on the rental property? What if I took out a HELOC Line of credit and then "loaned " it to the LLC (with appropriate paperwork) which would pay back the loan with interest. Would that be a Red Flag?

I can pull 150K in equity from my properties via a commercial loan but it has higher interest rates, $2000.00 in fees and 4-6 weeks processing time. I could use some interested to offset the income from the rentals, but I don't want to pay more interest than necessary as it effects the bottom line.

thanks for any comments or suggestions! 

@Jaime Brame

Great Idea. I have a few people I use for services, but it would be great to have list of vetted service providers.  I'll send what I have via PM.  

@Carl Fischer

Thank you Carl, but as I posted, I do have an SDIRA in which I currently hole notes. I was buying property with the funds but was concerned about managing those properties while at the same time managing my personal ones. To avoid issues, I sold the SDIRA properties and bought notes.

I'm looking at using the equity in my personal properties to buy notes instead of other properties. At our stage of life (retirement), we like the mobility of notes and fewer properties to manage. 

@Thomas S.

The fees for buying a house with cash is definitely cheaper than financing. How is paying higher closing fees to finance than sit a few years for it to appreciate and then refinancing (more fees) to access the equity of the property be the best route? Being highly leveraged in RE with low cash reserves or easy access to equity caused problems for a lot of people several years ago. I'm sure some people built an RE empire with only 30K seed money. I started REI when I was 50 and didn't have the time to risk failing and starting over.

However, after following some of your posts to my comments, I looked at what I could do with that "dead" equity.

I ran the numbers for buying additional rentals or other investments with that equity. I am looking at using it to house hack a quad or buy first position notes. This would be a step up in my REI's. I would not be able to do this without the current equity in my properties.

Sometimes we don't know what we don't know. Thank you for the comments (even though they were a bit abrasive). You got my entrepreneurial juices flowing again.  

I am looking at a piece of land located 3 blocks from the high school is an up and coming suburb. The land was a farm and is cleared and level. There are some C+/B  homes in the area. The land is just outside of the city limits, so I'm thinking of building a quad and house hacking it. The land has city water running by it, but no sewer, electric or gas.

Question: would I have to pay to have the utilities run to the property or would it be the responsibility of the utility companies, the city or both? The cost of paying to lay sewer lines could be a deal breaker. The sewer line ends about 2 blocks from the property.

I'm sure this area will be developed in coming years. I could buy the property and hold until someone else builds in the area, but I could lose the zoning option for building a quad or duplexes.

Thank you for any comments.

I think it depends on where you are at in life. I'm 56 and just retired so my plan was different than most. 12 years ago I remarried (no debt) and we bought a house for 200K with 30K down. We paid the house off in 5 years. We saved up for 2 years and bought an SFR for 93K cash. We added the $900.00 rent to our house payment (we kept paying the mortgage costs to ourselves to buy the rental). In a little over a year, we had enough to buy a second house and pay cash (much cheaper than financing). Together they cash flowed $1200.00 a month after all costs. We spent some time learning the RE game and traveled some. We bought our third property this past summer and again paid cash.

Being debt free may not be the best way to invest in RE, but I sure sleep well at night. We learned the RE game overtime with little risk and grew at a pace we were comfortable with moving. We made mistakes, but with a few properties, they were easier to fix.

All three properties are cash flowing VERY well and have appreciated between 20-30 percent.

My wife will retire in 2 years and we will cash out and move to notes only. We will relocate to a nice lake near the grandkids. Not sure what the wife will do, but I'll be fishing.

@Carl Fischer

The notes are first position with a reputable firm I have worked with and currently have notes.

This to me is the less risky. My thought is I could re-invest some equity I have and make some income from without taking on the risk of buying to flip and be over extended. As i said, less upside but less risk.

thanks for your comment.

@Franklin Romine

Thank you for the reply. I would do it with a HELOC on my residence, but would lose the tax credits for this year.

I posted about this concept earlier. However, I now have more information. I am re posting so it doesn't die as an old post. Thanks for any and all comments.

I am considering taking a loan from my bank to finance another note. My goal is to use my equity in a rental property to increase income.

I talked with the bank, No loan or appraisal fees. The difference would be about 2% between int. paid and int. earned.

After talking to the note people and bank here’s is what I have:

Loan from bank 6.8% interest/ interest from note 9%

5 year loan for 75K @ $1480.00 per month / total paid for loan $88,800.00 total int. $13,800.00

5 year note for 75K @562.50 per month int. only / after 5 years $33750 int. + 75000 principal = $108,750. Difference $19,950.00.

My monthly rent from my properties would be $1500.00 after taxes and ins. This would pay the monthly loan cost.

The interest would decline over the 5 years and the note would pay the same.

I could deduct the interest to offset taxes but would have more taxable income.

Is this feasible or would it be a wash and not worth the effort?

Option 2

Take the loan and buy a house to flip. Short term loan and more return but more risk (IMHO). I have never flipped!

Any thoughts.