All Forum Posts by: Joe Splitrock

Correct, shouldn't need CPA this year. Just keep all your receipts and description of purpose behind expense, if not obvious. For example if you had to travel out of state to acquire the property, have details on business meeting that took place during travel. You want to document business purpose of everything you do. I would also recommend reading NOLO Every Landlords Tax Deduction. This is an excellent book to learn more about taxes. Kind of a boring book, but good to read, even if you are working with a CPA. You still need to be properly educated on taxes, so you know what questions to ask. Congratulations on your first deal!

Quote from @Jason Cook:

Hello, I am a recently new investor as I purchase my first primary home two years ago and am currently housing hacking it. I am considering moving but still within the Raleigh area. I was wondering if I would be able to purchase a new home for a low down payment of 3.5% or anything below 20% if I keep my first home and turn it into a rental while moving into the new home?

I have heard that in order to get a low down payment I would need proof and reason to move such as a change in job.

It sounds like you have FHA right now? You can move and get a conventional mortgage, which has options as low as 3% down, so no need for FHA. It sounds like what you are getting at is the FHA rule. You can only have one FHA at a time, so you need to either refinance your existing into conventional or get conventional for your new property.

This is fairly difficult for a small landlord to do on your own, but many payment processing services will report to credit bureaus. We use Apartmentsdotcom for rent collection and they have an option for the tenant to opt into reporting. Setting up to directly report to the bureau requires larger volume of transactions than you likely have as a small landlord.

Quote from @Santosh Bobbili:

Hello Everyone,

I recently bought a rental property using HELOC from my primary residence as a down payment. Is the interest paid on HELOC tax deductible?

Appreciate your response.

Thanks,

Sai

Deductibility follows use of funds. That means interest is deductible based on what it is used for, not what the loan is secured against. If you used that HELOC money to buy a boat, it would not be deductible. If you got a HELOC against a rental and bought a boat, it would not be deductible. Since the interest was used to buy a rental property, it is deductible against that rental property. Be careful if you use your HELOC for different purchases that you split the interest to the appropriate use. For example if you borrowed $100,000 on your HELOC, $80,000 for a rental property and $20,000 for a personal boat, only 80% of the interest would be deductible.

Quote from @Alex Hohenstein:

Hello everyone!

I was wondering if anyone else has had or is having this issue while using the Google Voice app on their iPhone.

I set up a Google Voice number on my laptop. I then downloaded the Google Voice app on my iPhone 12 and attempted to sign in using the same Gmail account. Upon signing in on my phone, it prompted me to choose a new Google Voice number. I tried restarting the app several times, but it kept doing that. I finally just chose a new number and entered in my cell phone to complete the set up. I received an error saying this number (my cell phone) is already in use with a different Google Voice number (you're not allowed to have 2 Google Voice numbers using the same primary cell phone number). I tried using Google Voice from Safari on my iPhone and it worked, but I would like to utilize the app for obvious reasons. 

Any advice?? Thanks in advance! 

 It sounds like the app has you logged into the wrong Google account. Do you have more than one Google account? I have Google Voice on my iPhone for many years and never had any issue. 

Quote from @Puja Devi:

@Joe Splitrock Joe, if I closed on a property on 12/31/2021 (that's what is on the deed) but the loan didn't fully close until the new year, when can I claim my closing costs i.e. property taxes, insurance, mortgage interest? Obviously didn't have any rental income in 2021 but the closing costs were paid for by 12/30/2021, not to mention a few other smaller real estate related costs throughout the year prior to purchasing. 

These expenses will be on your 2022 taxes, since you had no income in 2021. It sounds like this your first rental property, is that correct?

Also be aware that some closing costs are capitalized and added to basis for depreciation. You really want a tax professional to walk you through this, especially if it is your first property. 

As far as expenses prior to purchasing, if it was your first property, then you fall into startup expense rules. There are limits to what you can deduct and how it is deducted. Once you own your first property that is generating revenue, subsequent expenses can be expensed in a normal manner. 
https://www.nolo.com/legal-enc....
You are not loosing out on anything. Even if an expense is dated in 2021, it can still be claimed for your 2022 taxes. You do need to understand how to claim the expense though. That could be start up, normal expense or depreciated. 

Quote from @Anthony Aaron:

Hello Landlords,

I’m an aspiring landlord who lives in an expensive area and at this moment a multi family unit it out of budget. I’m now looking at Single Family Homes that have a full basement that I might have to potentially add a kitchen to. Just looking for a ball park figure for anyone who’s been in a similar situation. Wanting to know what’s the figure you or someone you know paid to have a kitchen added to your basement?

Thanks

 First step is check with the zoning planning office and see if this is even allowed. Converting single to multifamily is not within zoning in most areas. You will also need to check with insurance because kitchens increase fire hazard. You will want two forms of egress in the space. Actual cost to add will depend on many factors, including plumbing, electrical, hood venting, etc. It could be very difficult to run drains and may even include opening the floor or upstairs walls to run vent stacks. Cabinets, counter tops, flooring and appliances can easily run you $10,000 or more. Of course it depends on size and quality.

Quote from @Allen Lopez:

Hello, 

I have a sfh in a large lot that I would like to convert/build onto a 4plex. Has anyone ever done this? 

Any recommendations on how to approach this?

Any steps to check and get this done? Was hoping to refinance and use that to grow the property. 

Any help would be greatly appropriated.

Thank you 

This is highly regulated by local zoning. First thing you should do is call your zoning/planning office to find out if the property is zoned for multifamily. You may have to change zoning, which follows a process where you post notice and go before the zoning board. Neighbors have a chance to oppose, etc. Some areas allow one or two ADU without special zoning changes. Either way, it will require a permit to get the work done. Conversions present many challenges because things like wiring and plumbing are run for a single property. Every situation is unique. I wouldn't spend much time thinking about it before you call the zoning/planning office.

There are three major types of loans:

Conventional conforming loans are personal loans that are backed by Fannie Mae and Freddie Mac. They are offered by mortgage companies and banks. The conforming aspect means they meet underwriting standards to be sold on the secondary market. They are viewed as the most secure type of loans, which means they have better terms. These are similar to the type of loan you get for a personal residence, but there is an investment property version. There are restrictions on these loans. For example, 1-4 unit properties only. Down payment will generally be 20-25%. They have cash reserve requirements. The interest rate is generally about .5-1% higher than an owner occupied property, but still generally lower interest compared to a commercial loan. Loan types within this class are commonly 15, 20 or 30 year fixed loans. There are also ARM loan options. You are restricted to 10 financed properties with these type of loans, which includes personal residence.

Commercial loans can be personal (sole proprietor) or business entity loans. They can also be business entity loans with a personal guarantee. These loans are bank written and will generally carry a higher interest rate than conventional loans. There is less restrictions and these type of loans are usually based more on property performance. It is common for these loans to be 5 year rate term with 20 year amortization on the payment, although there are longer term fixed rate options offered by some banks. These are really a true business loan type product, so they are not limited to 1-4 unit properties. You are also not limited to a quantity of loans.

Private or hard money lending is also an option. These are alternate loan products that are not offered by banks. You will usually pay higher fees or interest rates, but they may offer more flexibility. They are good for short term financing or situations where you can't qualify for tradition conventional or commercial type loans. 

That is a high level overview. In reality there are many different loan products in all these categories. A good starting point is meeting with a couple local banks to assess your personal situation. If you don't fit into a traditional product, then move on to private or hard money options. 

Quote from @David P.:

@Joe Splitrock When the Washroom was remodeled that leak was fixed 7 months pass by and never mentioned that the tube drains slow

I don't understand what you are trying to say. If the leak was fixed 7 months ago, when did the draino leak and cause damage? It sounds to me like this was never properly repaired. A slow drain can be a clog, but can also be caused by improper plumbing. You need a proper vent stack piping or the drain will drain slowly. Is it possible the real problem here is substandard repair work?