All Forum Posts by: Kim Gibson

Shop mortgage brokers.  They don't offer all products that may be available.  So shop around and get some Information on what loan products they are knowledgable of and have access too.  Every broker will have different ways of being compensated.  The loan officer usually gets 1% and their brokerage will get the other 2%.  Then they will add on "fees" to get more money.  It is confusing and the barrier to entry in the loan officer world does not seem to be very high, so use your best judgement and talk to a few.  

The rumor is buyers who are using an FHA loan will be overlooked if there are multiple offers.

I went the old school route on my first home,  rent a few years to save up cash (basement apartment, cheap rent, did laundry by hand...). Saved up the 20% and waited for the right one to show up.  Looking back we had an opportunity to buy a condo or townhome pretty cheap, in a class b- neighborhood.  I was hesitant, in my mind I wanted the American dream.  The three bed 2 bath detached home with fenced in backyard.  I should have jumped on that opportunity- it was $50,000 for a 3 bd 2 ba condo in West Valley City, 10 years ago.  Would have been a great way to save some cash for a bigger home and end up with a little rental....

Watch the mortgage PMI, on an FHA I believe you have to refinance to a different loan product to get that to go away. When you close on the property you are responsible to all the little quirks and failures. ( Broken kitchen faucet on day 2 of owning our home). All the equipment needed to maintain a home ( lawn mower and trimmer...). Home ownership has lots of surprises.

Another problem I have seen is in the "finished" basements.  Check if permits were pulled to do the work, or if it was home owner finished.  Home owners are notorious for cutting corners.  

A HELOC is like a credit card, the credit limit is typically 80% of the equity in your home. The interest is typically an adjustable rate. The bank will give you an account and a debit card or checks and you can make draws on the account up to your credit limit for the first 10 years. You pay interest only on the amount you spend. You can pay any or all of the borrowed amount back any time and then borrow it all again, just like a credit card. At the end of 10 years the funds get locked and you cannot borrow anymore. I you don't pay off the balance or close the HELOC the payments of principle + interest begin. Amortized over 10 years.

A Home Equity Loan is a fixed loan for a shorter period, typically 7-15 years.  It's like a mini mortgage.  You may have to pay closing costs/ loan origination fees/ appraisal fees.  

Start with your local bank. They can teach you about their HELOC and Home Equity loan options. All the ones close to me beat out the mortgage broker on rates and had a great introductory rate. . I would only use a HELOC as a means to get you quick cash to purchase an investment property. As a downpayment or as a cash purchase. Then refinance as quickly as possible, typically within the first two years. Get a mortgage broker lined up before you purchase and tell them what your refinance plans are. They should be able to tell you if it is even possible in your current situation. There are so many "loan products" available now that shopping around and doing your own research is a good idea.

A word of caution. If you default on the HELOC the bank will take your parents home. When that 10 year interest only period ends the principle + interest payment could kill your cash flow and be financially devastating. Be super careful about borrowing against assets you actually live in. Have a plan of when and how it will get paid back.

Sounds like the ownership issue will solve your capital gains problem.  You will probably end up holding this property for a while.  If you need the capital out of it then that lender may be an option.  I wonder if you could somehow rent out the acreage/ horse property.  Make the property work for you.   I looked into tax sales but decided against them as a flipping option due to the title insurance/ resale issue.   You can look at this as "paying your tuition" and really mastering the tax sale by going thru the process.  Good Luck.

When you set up an LLC you can elect to run it as a corporation. When you elect to run it as an S-Corp there are tax benefits. As a single owner S-Corp you can elect to take a "reasonable salary" meaning from the profits of your business you would take a salary less than the gross profits and would pay Self-Employment taxes out of that salary. Currently you are paying Self-Employment tax on 100% of your profits instead of the "salary."

For example

Scenario 1- Self Employed Filer

say you made $100,000 gross profits in your business.  As a Self-Employed filer you would pay 15% or $15,000 to Uncle Sam in just self employment taxes( social security, medicare...) Then you would pay Income taxes on the $100,000 in whatever tax bracket you are in after deductions.  

Scenario 2- LLC set up as an S-Corp

Your Llc made $100,000 gross profits.  A reasonable salary for the work you have performed for the business is $40,000.  From that salary you will pay Uncle Sam the Self-Employment taxes at 15% of $40,000. Your SE taxes will be $6,000.  The other $60,000 of profits can be taken from the business as a "draw" and will not be taxed SE taxes.  You will still pay income taxes on the full $100,000 at whatever tax bracket you are in.

So the savings is in the SE taxes (social security, medicare...). In the above example the savings is $9,000.

Setting up an LLC will cost money,( Im in Utah and I just paid $2500 to set up the LLC thru a CPA who did the state and federal filings) You will also have to set up payroll to "pay" yourself ( my payroll company costs me $75 per month) and to have the CPA file the taxes for my S-Corp will cost me $1,200 next year ( and corporations tax day is in March, not April). You will have to set up a business account at your bank and get local and state business licenses if you don't already have them.

I don't know any specific Texas rules for setting up an LLC and taxation, but I believe the federal filing process will be similar. An LLC set up as an S-Corp has tax benefits and and LLC has asset protection benefits.

I did my transfer thru a title agent, I am in Utah so it might be different for you in Washington.  Call a title agent and ask.

The midwest has "affordable" houses.  Do your homework, find an area that has job growth.  I dont know if they will appreciate much, but if you are looking for cash flow then that is where you should start.  I think Indiana has a decent  market.  You can also look at places where you have family or friends.  They can give you an idea of an area's market.  My dad owns rentals in Illinois, that is where he lives.  Evictions are difficult and go thru the courts, so keep that in mind.  Also many people are moving out of that state, which means jobs are going elsewhere.  My sister lives there too, she and I bought our houses around the same time.  Mine has more than doubled in value over the last 8 years( I live in Utah) while hers has not increased at all.  She lives in the Metro St Louis area.  

Check the bigger pockets market analysis, I think they have some recommended cities to look into.  Good Luck.

I went to my states Realtors board and found the REPC (Real Estate Purchase Contract) that the agents use.  I write to the owners, if they respond we talk numbers.  I make an offer, if they accept then I send over the contract using a docu service.  When its all signed I send it to the title company and they take over from their, coordinating signing of document, title insurance and transference of monies.   No agent needed.  

@Matthew Ranucci I recently talked to my lender as I had similar question. He said yes, they can do a HELOC on an investment property. I can get you his contact info if you want it. I look at a HELOC as a short term strategy, to get you the funds for down payment and renovation expenses, then refinance into a locked rate. As far as I know HELOCs are adjustable, so right now it is a great rate, but if the fed decides to raise the prime rate then you should look into locking down a lower rate.

I called a property manager in the area, i live in a small town so there are not very many PMs.  He was able to give me an idea of what is renting and what is not and at what price.