All Forum Posts by: Dan Schwartz

@Will Triplett you have to ask a lender for a quote because it will vary from place to place, and the closing costs will include prepaids that are unique to your property (daily interest, taxes, insurance).  If the property is in CA, contact @Chris Mason.

@Daniel Tisdale you'll get a different opinion from every person who replies. One fact, though, is that the deductibility of your expenses does not change whether your property is in an LLC or not. If you hold it personally, you report your income and expenses on Schedule E. If you put it in an LLC, you report the same income and expenses on the form appropriate to the method by which you elected to be taxed (1040, 1065, or 1120/1120S).

@Christopher Licciardi reading again not late at night, I see that I assumed this was a rental property.  That’s why I wondered what additional cash outlays there would be, aside from those paid from the rental income.  I doubt that a partnership is right for a non-income property, but I still think a lawyer would be good to make sure you’ve set it up properly for each of your kids.  

@Alex Verdugo lots to unpack there.  The lenders I’ve worked with have all pulled credit just before close to make sure that there were no new inquiries since their pull at the start of the process.  Any inquiries, either at the start of or during the process had to be explained.  You have every right to shop, and shopping requires multiple parties pulling credit.  I’ve had to submit a letter of explanation to underwriting each time to disclose why the pulls were taken and affirm that no new debt was incurred because of them.  Maybe there’s a way you could thread this needle, but my suggestion would be to choose a lender and work with that one on as many properties as you can.  If they have all of the business, they’ll find a way (if it’s possible) to pull that off.  You wouldn’t want to lose all three loans at the last minute because all three underwriters denied issuing closing documents based on what you did or were doing.  Also, a quadplex qualifies for conventional financing, so you shouldn’t need to combine various loans for that.  Just get one loan on it.  Good luck. 

@Walter Duffy between the Trump tax cuts and today’s interest rates, are there still any tax benefits to owning a primary home?  Maybe in some areas, I guess.  

You mention “equity;” are you suggesting that there is also debt on the home?  How will the debt be handled when they gift you the home?

Check to see if giving you the home will trigger gift taxes for you or your parents.  If so, you might consider setting up an installment sale from them to you, where the annual principal and interest payments are under the annual gift tax exclusion (which is fairly high if the “us” in your comment means that two or more of you will take title).   

These are just ideas. Check with a professional to make sure you do this right.  

She put up the down payment...who got the loan for the remainder?  What further capital contributions do you foresee?

You can split this any way you want, but it sounds to me like you should write up a partnership agreement and assign a certain percentage of the equity and profits to each of you as separate property.  That will help with the heirs.  Explain your goals to a good business lawyer, and he or she should be able to offer advice.  But the attorney will likely also represent only one of you, your second wife, or the partnership itself, since you are acting as three different entities with conflicting interests (namely your heirs).  This route would also require that you file a 1065 partnership return each year.  

A good business and/or estate planning attorney should help you with this.  Hopefully this gives you some ideas, which may or may lead to where you ultimately wind up.  
 

@Sean Dezoysa will the expenses also come directly from your account?  Will you give the property management company access to that account so they can pay the expenses they incur on your behalf directly?  Or should they be extending credit to you and wait for you to reimburse them for the expenses they incur on your behalf, since the income isn’t first flowing through them?

Off the top of my head, I can’t think of a management relationship in any industry where the manager does the work and allows the client to receive the payment directly.  There could be one I’m not thinking of.  I wouldn’t agree to these terms, but maybe someone would.  

Also, it seems like you are asking for a custom payment date tied to the tenant’s payday.  Which the tenant has to disclose, agree to, and update should he or she change jobs.  And the management company would need to handle this custom arrangement on top of their normal systems which call for rent on the first of the month.  Again, I’d pass on this, but perhaps others wouldn’t.  

@Paige Hill since you are using a management company, ask them for a sample monthly statement and see what you want to track, and how. 

Excel or Google Docs should be more than sufficient for this, since the management company should be doing the heavy lifting here.  

@Ciji Masser I’m not a truck guy, but I’m super curious how you move 6 people in either of your trucks.  

That aside, I’ll add to a good sharing thread:

1) get as much, if not all, of the existing debt on one spouse.  A mortgage would be hard to move, but a car loan - especially on something only 45 days old - should not be hard to refinance.  

2) you need capital, but you also need DTI room for cheap conventional financing. If your DTI is already 30% and lenders might take you to 45% or so, you don't have much DTI left. You can only take on a debt payment that is 50% of the sum of your current debt payments.

3) when analyzing properties, consider the metric that 75% of your rent should cover PITI and HOA. You'll get to a point where lenders will be able to effectively zero out your investment mortgages by applying discounted rent against your PITIA. This is a great situation and means that you are now financially limited only by the capital you have to put 20% or more down on the next deal. When you are working with a lender on your first purchase, talk about this with him or her so that you understand exactly how they will handle this (there are or were rules for new landlords that I don't remember clearly)

4) unless you are diving into this full time, taking down a deal or more per month (or at least a number of deals per year), be patient.  Save your cash flow for an emergency repair.  Raise rents when you are able to. Let appreciation do its work.  I’m glad that there have been shares on this thread from people who have done it slowly, as the more-typical sharing is just how fast one got so big.  If that’s your goal, great, but understand that’s an entirely different commitment then building a small-but-growing portfolio over time. 

Good luck!

@JJ Espinoza if you have income to go with your good credit, could you get a first lien line of credit (sometimes available up to 90% on primary homes)? The line would likely be interest-only for the first 5-10 years, which covers your time horizon, and would very likely come in quite a bit lower than a HML. 4% for primary homes is not uncommon; sometimes it's even less. You don't say whether you have a mortgage, but you could have an initial draw from the line that pays off that mortgage. Dial until you find what you're looking for.