All Forum Posts by: Randy Rodenhouse

When I was starting out I did exactly that where I would buy a house and then leaving it for a while and turn around and rent that property and find another house to buy and lived in Matt for a few months and then kept that going until I had around 10 properties. The only downside is that it is a lot of moving. I would not worry too much about the mortgages as long as they are being covered by rental income.  Having a lot of equity in a house is really just locked up money that is not making any money. Just my opinion.

You may consider selling the house with owner financing with your lemonade the tenant headaches in the liability and you maintain ownership while collecting a consistent cash flow.  There are many people that cannot qualify for a bank loan but would love to buy a house.  I am typically looking for a 10% down payment.

I love buying houses subject to and I don't really worry about the due on sale clause (there are ways to reduce the risk of the bank calling it due and payable but nothing is 100%). However, another idea is to assumable themortgage. All government-backed loans, such as FHA and VA loans, are eligible for assumption, and millions of these mortgages are available. Not sure what type of loan your grandmother has but worth checking into.

You need to talk to the sellers current mortgage servicer to receive the approval to assume the mortgage. Generally, you are qualified to assume an FHA mortgage if you qualify for an FHA loan. The benefit is a lower interest (4.6%) rate versus a 7.5-8.0% in todays market.

I would advise not to since the current HELOC rates are typically price rate + (8.5% is price rate today) and has been going up. In my opinion the spread is not high enough sinse if your home equity line of credit (which is again based on the prime rate) goes up your margins are getting compressed. To get to 12% at PPR you have to hold for three years. So you have a time risk element here. So that is my two cents.

I wanted to mention that The Cares Act (passed during COVID) made it so you can carry the passive losses from depreciation back five years to income made in 2015 onward. That means if you had a lot of real estate gains in 2017, bought a property this year, and took a big loss through bonus depreciation, you can go back and amend your 2015 returns and get a tax refund for the taxes you paid back then.

Also, in The Cares Act, you can use the new depreciation guidelines to catch up on assets purchased in the last three years. Meaning if you purchased a property back in 2017 and didn’t do a cost seg study and accelerate depreciation, you can go back and do that and amend your returns. And you can carry these losses forward into eternity to offset future earnings if losses are remaining after you've wiped out all of your income.

Make sure to consult your CPA on these issues. This is not tax advice.

I typically do not include washer and dryer with my rentals. I have found that they break down and I'm constantly repairing them since they're not treated properly. If you do decide to get the washer and dryer than definitely want to charge additional rent for them to make back what you spent on the appliance  and for future maintenance. 

You don't want to sell a home that you own sub2 since you are deeding a property to someone without getting a mortgage to secure your position. I only buy houses Sub2 and not sell Sub2. A better option is to sell with owner financing or with land contract.

Typically, you would deed the property into a trust where the beneficiary is your LLC. You probably want to add some sort of disclosure having the seller stating that they understand that the loan will remain in their name. You would simply be making the underlying first mortgage (300k @ 3.375%) and the owner finance payment (100k@ 2%).

My question is why do you want to put so much down ($200k)?  What is your return on capital employed (ROCE)?  Make sure you calculate and see if worth doing.  

The problem with a HELOC is that the rates are 8.5%++ (usually prime plus a certain percent). It is expensive money to use for long term but may be used for short term. I have a HELOC and looking to convert it to an amortized fixed loan but rates are still around 7-8% depending on the term. You just have to run the math and make sure you return on that capital is higher than the rate you are paying on the capital.
   

I personally think it cost segregation on such a small property is a waste of money. 

A few very important notes:

No all losses from depreciation can offset active W2 or business income unless you are a "real estate professional". I'm a real estate professional because I mainly focus on my real estate company, so I can deduct these losses against my passive business income from other investments / ventures.

Remember  you will have to recapture that depreciation when you sell the property.  

Cost segregation studies don't always make sense. You aren't really "saving" on taxes, you are deferring taxes into the future. If you don't plan to hold a property for more than a few years, there is little reason to spend money on a study. If you can't use the losses because you're in a really low tax bracket then studies don't make sense either.

Make sure to consult your CPA on these issues.