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All Forum Posts by: Sean McCluskey

Sean McCluskey has started 15 posts and replied 214 times.

Post: Do 401k Contributions Reduce Income for Mortgage DTI?

Sean McCluskeyPosted
  • Rental Property Investor
  • Newport Beach, CA
  • Posts 217
  • Votes 138

Hey BP!

I have about $10k of self employment income for the tax year 2019.

I want to have that income count towards my DTI for future BRRRR refi mortgages.

If I make a large contribution from that self employment profit into my Solo 401k account, will I still get "credit" for it on my loan application / from an underwriter, if they are reviewing my tax returns?

I'd like to avoid paying taxes on the income, but still get credit for the income when an underwriter is working on a loan file.

Thanks!

Post: Newbie: First Property in SoCal (local area) or Out of State?

Sean McCluskeyPosted
  • Rental Property Investor
  • Newport Beach, CA
  • Posts 217
  • Votes 138

@Account Closed I agree that the appreciation and rent growth are great here in Coastal SoCal.

I'm currently investing in BRRRRs in the midwest, with a thought in the back of my mind that each $40k of forced equity appreciation that I create in a BRRRR, and all of the cash I get out from my refis, could eventually be traded into purchases of rentals here in SoCal.

I'm taking that approach so far because I didn't want to tie up all of my capital in 1-2 negative cash flowing rentals here, and then be done for several years.

What has been your approach to this problem? Did you have tons of capital to start with, maybe from a HELOC on a primary? Did you have very high annual incomes to plow into down payments, or did you BRRRR (or semi-BRRRR) houses, managing to get mortgages despite negative cash flow by using your W2 income in DTI ratio? I'm working on those ideas and would love to hear any advice you have there.

Thanks!

Post: Interest rate of 5.75% on investment property???

Sean McCluskeyPosted
  • Rental Property Investor
  • Newport Beach, CA
  • Posts 217
  • Votes 138
Originally posted by @Nicholas Davis:

There are a lot of factors that come into play with determining what your rate is going to be. Take a look at this chart , I show this to my more high level clients that can grasp the concept of the different adjustments on a traditional mortgage.  

https://singlefamily.fanniemae.com/media/9391/display

You'll notice the difference between 20% down and 25% down on an investment property. The difference in adjustment points are ridiculous . 1.25% 

Hi Nicholas, am I reading this correctly if I say an investment property loan, at 79.99% LTV, would be 3.375% LLPA, and for 80.01% it would be 4.125%? And then you add the credit score LLPA, so for 740+ that would be +0.50% at 79.99% and +.25% at 80.01%? (Interesting that the credit score LLPA is highest at 75-80% LTV).

How do you then translate the LLPA (Loan Level Price Adjustments?) into quoted interest rates?

 Thanks!

Post: BRRRR Accounting for tax increases after rehab

Sean McCluskeyPosted
  • Rental Property Investor
  • Newport Beach, CA
  • Posts 217
  • Votes 138

@Michael Downs This is definitely a big piece that many newer investors don't account for. You'll want to find out the tax rate and tax appraisal standards for your market, and include that in your proforma.

For example, in Indianapolis where I'm investing, taxes on rentals are 2% of appraised value, and appraised value is technically updated every 4 years but it can actually increase to equal your purchase price much faster than that, so I build it into my numbers from the first month to make sure the deal will still cash flow.

Post: I’m 17 and don’t want to go to college

Sean McCluskeyPosted
  • Rental Property Investor
  • Newport Beach, CA
  • Posts 217
  • Votes 138

@Jeffrey Masessa I say do both, go to a state school and get your license while you're there. You can always decide to drop out after a couple years. But you can't really go back and apply 2 years after high school.

It's the most grown up decision, to keep all of your options open until you mature.

Post: MBA: Is it worth it?

Sean McCluskeyPosted
  • Rental Property Investor
  • Newport Beach, CA
  • Posts 217
  • Votes 138

@Brian Edwards I am glad the forum was supportive about this for once (people here are typically willing to advise dropping out of undergrad! Ugh!).

I have a top 5 MBA and I agree completely with the comments that top 30 is a good investment.

Go on the career services website for the schools you’re interested in and get the employer data, average salaries, etc, but MOST IMPORTANTLY: what percent of the class already has an offer before graduation? That’s the sign of the MBA being in demand from employers.

Post: How To: Cash out 1-4 unit Property

Sean McCluskeyPosted
  • Rental Property Investor
  • Newport Beach, CA
  • Posts 217
  • Votes 138

@Andrew Postell I have another question - do I need to make monthly mortgage payments to my LLC, in order for my future lender to refinance the loan?

I'm guessing the answer would be no, I just need to provide the filed-lien payoff amount when the future lender requests it?

Thanks!!

Post: Would you use 401K loan for mortgage pay down?

Sean McCluskeyPosted
  • Rental Property Investor
  • Newport Beach, CA
  • Posts 217
  • Votes 138

@Wayne Brown I think this is a cool strategy. However, my question is: do you need this rental property loan paid off for your DTI to qualify for another rental property loan? If not, your returns would be even higher if you took the 401k loan and used it as the down payment for a 2nd cash flowing rental.

Then use the cash flow from rental #2 to pay down the 401k loan.

Or, you could then use the cash flow from both rentals #1 and #2 to pay off the 401k loan quickly, and then take another one to pay off the HEL on rental #1.

Better velocity of money that way.

Post: How To: Cash out 1-4 unit Property

Sean McCluskeyPosted
  • Rental Property Investor
  • Newport Beach, CA
  • Posts 217
  • Votes 138

@Andrew Postell @Alexander Felice I have another question. Should I pay my escrow company $250 to draft an Escrow agreement to hold and disperse rehab funds? They mentioned that an alternative option is I can have another party hold the money and be listed on the closing statement as Payee.

My LLC will be the lender - can I just have my LLC be the payee of the escrow rehab cash as well?

Thanks!

Post: How To: Cash out 1-4 unit Property

Sean McCluskeyPosted
  • Rental Property Investor
  • Newport Beach, CA
  • Posts 217
  • Votes 138

@Andrew Postell Thank you so much!