All Forum Posts by: Kyle J.

@Kenneth Dill  Property ownership information is public information in California and available from every county assessor's office for free, just not online.  

If you're curious, the reason they don't post it online is because of a law in this state that prohibits any state or local agency from posting certain elected and/or appointed officials home address on the internet without first obtaining their written permission.  They have no way to know who falls into the numerous positions protected by this law, and it would be too cumbersome to constantly update all of their addresses in the database even if they could track it.  So they just don't post anyone's address online.  But that doesn't mean it's not available. 

You can go into the assessor's office in person and view it.  Some assessor's offices will also let you call and get it over the phone, or by emailing them.  Just depends on how they prefer to handle the requests.  They have to make it available though, they just can't post it on the internet.  

Lastly, here's a bonus tip for you...check out an app called "Parceled".   As you're driving around and you come across these distressed properties, you can just pull up the map in the Parceled app, put the crosshairs over the property parcel that you're looking at, and it will actually give you the name AND mailing address for the property owner.  Pretty cool huh?

It's how the money was used (business purpose or personal use), not the source of the money (personal home or rental) that matters.  Hence the reason @Ashish Acharya referenced the IRS Interest Tracing rules.  

For example, if you did a cash out refi on Rental Property A and used the proceeds to buy Rental Property B, the interest would be tax deductible against Rental Property B (even though you did the cash out refi on Rental Property A).  

On the other hand, let's say you did a cash out refi on Rental Property A and used the proceeds to take your family on vacation or buy a nice new sports car, even though the proceeds originated from a rental property, the interest would actually NOT be tax deductible as a rental expense.

Make sense?

Here's a BP blog article with a little more info/clarification on the topic if it's helpful: 

Stop! Before You Refinance, Consider These Tax Traps & Opportunities   

Personally, I would question the advice of anyone who told me to 1099 someone for the profit AND the return of their original principal.  Even if issuing a 1099 was appropriate (i.e. in a scenario where you were actually paying a lender interest in the course of your trade or business), why would you 1099 them for the return of their own money?

Perhaps try testing that advice though to see if it makes sense by looking at the actual IRS form and instructions.  Now, there are actually quite a few different "1099" forms, so you'll need to be clear on which one you (or your accountant) are talking about.  Since you previously said that you considered this a "loan", I'm going to assume that you're actually referring to the 1099-INT form and would likely report the return of the profits as "interest income".  Where/how on this form would you even report the return of the principal?

I'm just using completely made up numbers, but if your family member invested $100k with you and got back $125k after the deal was done ($100k return of their initial investment + $25k from the profit split), surely your accountant can't mean for you to report $125k as "interest income" for this person on a 1099-INT form.  I know if I was your investor, I wouldn't want to receive that form.

Anyway, I think you get my point.  The tax pros above who do this sort of thing for a living gave you better (specific) advice than I can.  I just wanted you to try to help you see it from a different perspective. 

Good luck, and congrats on MAKING a profit on your spec build project.   At least you have a good problem to have (figuring out how to report a profit, rather than a loss).  :)
 

@Trevor Tanner There's still a few Sacramento area REIA groups hosting virtual meetups. Check the Meetup app for groups like NorCal Real Estate Investment Association, Sacramento's Real Estate and Investment Club (CCWB), and the West Sacramento Real Estate Investor Meetup.

@Carlos Ptriawan  Whenever I've had a failed inspection, it's usually for something very minor, like gutters need to be cleaned, fix a door weatherstripping, a crack in the ceiling needs to be patched, etc.  I've also had failed inspections for things that are solely the tenant responsibility, like overgrown grass/weeds in the backyard (tenant is responsible for the yard/landscaping per the lease).  I honestly think the inspector just wants to find SOMETHING to list or they feel like they're not doing their job.

They're pretty flexible on the timeline for repairs though.  Usually, they'll even allow me to self-certify that they've been done.  If they decide (for whatever reason) that a re-inspection is necessary, that appointment is generally scheduled 21-30 days out. I'm never present for it though (or the initial inspection for that matter).

Keep in mind that, although the Section 8 program is a federal program, it's administered at the county level by the local Housing Authority offices so I imagine your experience could vary somewhat.

And one final comment, even if a particular repair item is determined to be the "tenant responsibility", they do have some motivation to fix it because - if the Housing Authority were to stop payment - it doesn't mean "free rent".  Quite the contrary.  The lease agreement is a contract between you and the tenant.  If the Housing Authority were to stop payment, the tenant would still owe you the rent.  They just wouldn't have the Housing Authority paying a part of it.  And they don't want that.  So it's in their best interest to make sure those payments keep coming.

@Juan Carlos  No such thing as "that's the way it works everywhere" when it comes to real estate.  There's just to much variation between state-to-state, and even within local markets in the same state.  Plus, everything can be negotiated. 

As one example, in your area, you say real estate commissions are 6%. In mine, 5% is more common. Also, I've typically seen closing costs split 50/50 between the buyer/seller in normal retail (non-distressed, MLS) sales. However, in off-market/distressed sales where the buyer is often getting the property at a good discount already, I've often seen the buyer willing to pay 100% of closing costs. Point is, everything is negotiable.

And then you have the issue of what the closing costs even consist of.  Could be escrow fees, attorney fees (except my state doesn't even use attorneys so there's another variation), transfer tax, loan origination fees (wait, what if you're buying with cash?), etc. 

Point is, there's no such thing as "that's how it works everywhere".  

@Robert N. You really can't use percentages to accurately estimate anything (i.e. closing costs, repairs, CapEx, etc) when you're dealing with these extremely inexpensive properties. Take repairs/CapEx for example. If you need to replace a 40-gallon water heater, or a 3-ton AC unit, it's likely going to cost you the same whether the house is a $40k house or a $200k house. It's not like some contractor is going to come along and say "Well my normal price is $5k for this AC unit, but since you only paid $40k for the house I'll only charge you $2k."

Same thing with these loan costs.  Most of them are just fixed costs regardless of the loan amount (except points, which are obviously a percentage of the total loan amount).  This is why they can seem so high relative to the total loan amount on these micro loan amounts (and one of the reasons many lenders won't even bother doing them). 

With that being said, I took a look at some of the individual charges, and some of them do seem a little high (i.e. processing fee, underwriting fee, etc).  However, not totally out of line.  Ultimately though, you may be limited in terms of not having a lot of options to shop a loan like this around.  You don't mention what market you're in, but I know where I'm at I wouldn't even be able to find ONE lender to do a loan this small much less MANY to shop around closing costs with.  So perhaps just consider yourself lucky that you did find one willing to even fund the deal because I've personally read countless posts on here from other users who weren't able to find lenders to do that.  And now just do what you need to do to close the deal. 

Good luck.

@Rick Martin Very interesting post. Like you, I also started with rentals and then gravitated towards more passive investing (private lending). I still have my rentals though and foresee doing both (at least for a while) because they each have their pros and cons. 

The rentals are definitely more active and honestly can sometimes be a headache, but I get so many benefits (e.g. cash flow, appreciation, tax benefits, etc). 

With the private lending, you basically just have the monthly cash flow (interest payments) for a benefit, but I like how extremely passive it is. 

I’m curious...your average annual returns are nearly identical between the two different scenarios, but the rental scenario obviously requires much more work/time/headache to obtain those returns. So do you see yourself possibly gravitating more towards passive investing (like syndication) in the future? Or continuing to do a mix of both?

@Iqbal Z.  The law is clear on this and the Housing Authority is correct.  90 days notice is required when terminating the tenancy (or failing to renew the lease) of a Section 8 tenant in California. Here’s a link to the actual law:

California Civil code Section 1954.535

@Lyndon Moore I’ve sold (and bought) houses without ever physically going into the title company. It’s not necessary.