All Forum Posts by: Jack B.

I had a lady with a Section 8 voucher ask if the house had "granite counters" and "stainless appliances".

I said, "You're on welfare and you demand stainless and granite?"

She then "lectured" me that Section 8 is not welfare. I asked her where she thinks the money comes from and she replied, "The government. They make it."

Whatever.

I'm for sure living off my properties.  They make more than I'd ever need to spend.  I have no w2 income as I don't have a 'job'.  And the properties are not profitable on paper.

Let me give you a quick example of how that can be:  Let's say you buy a $1m property, and spend $200k fixing it up.  On paper you've lost $200k (well, not really as some will be capex, thus written off over time, and maybe the property made some income to offset the $200k of improvements, but there will also be depreciation that lowers income, so for now just roll with it for the example).

Now I get it appraised for $2m because I've fixed some issues, and it's clean and nice, better NOI, etc.

Because I think logically, I think "Cool, I bought it for $1m, put in $200k, it's worth $2m, I just made $800k!".  But really you didn't "make" anything (to the IRS).  You simply increased your net worth by $800k but really you took a paper income loss of that $200k

So how do you feed yourself?  Well you can refinance.  A new bank lends you $1.6m on your $2m building.  That $200k of improvements is paid back as is your $1m purchase price.  You now have $400k in the bank that you didn't have before.  But it's not income -- it's a loan.

So do a lot of that, over and over.

You end up with tons of equity, tons of cash in the bank, tons of "future" (IRS taxable) income (when you stop buying more and doing this).   Yet on your tax returns you look like a worse-than-homeless guy with huge losses.  

Traditional banks that just do conforming loans can't ever lend to you since they are forced by the government to only consider IRS taxable income for the purposes of seeing what you make (the government does this to encourage people to take less write offs, but they say the rules are to "protect" people against "predatory lending" (no such thing -- only predatory borrowers IMO).  Where as in commercial land, when you talk to an actual lender who has a brain, they can see that you're doing just fine.   So I can get a 80% loan on a $4m property no problem.  But refi one of my original $100k homes?  Impossible.  And that's fine with me. 

Hey Krista,

Here is a good link and a two minute read that will give you all the information you need to know

 I hate to be the one to reply "no, I don't" as if I don't know, I just won't answer.  But since I'm quoted, then I'll chime in.

No, I don't know of any banks that do this  :)   I'd suspect most local banks will do it for the traditional W2 income 9-5'ers out there.   Since I have no hope of those loans, I don't really consider them.  When I have a lot of equity, and I need it, I just refinance (which I can do on a commercial property even if there is no chance in hell of doing it on a 1-4 family)

Sorry that's not a lot of help.