All Forum Posts by: Ash Hegde

DSCR loans are more expensive (rate and fees) than conventional but they do have some advantages mentioned. You can do one in an LLC, the seasoning period can be shorter (3 months - I have heard of even shorter but do not have a lender that does), and it ignores your personal income - relying on the rents vs mortgage payment to qualify instead.

If you are looking to expand your portfolio, you generally don't want to make additional principal payments, as you'll want that cash to go towards the next investment. 

@Ray Hage invests and helps people in that area. 

HELOC's are meant to be used for a short term. As mentioned, some lenders allow you to lock a portion of your balance and convert it to a fixed rate. Not all HELOC's will have that option. For major improvements that will take a long time to pay down, a home equity loan likely would have been better.

Some people do use them for investing, but usually for something like a flip or a BRRRR, where they intend to get cash out of the property and pay the HELOC off quickly.

Is this for a BRRRR property - are you planning to hold it and rent it out after purchase and rehab? Hard money loans are meant to be short term and have higher rates than other loans. You will want to refinance to a conventional or DSCR loan as soon as possible after rehabbing the property and getting a renter in. Different loans have different refinance requirements, conventional may require you to own the property for a year before a cash-out refinance but you might be able to get a DSCR loan after only 3 months. A DSCR loan does have higher rates and fees than conventional, though.

I believe you can elect out of the installment method by reporting the full gain on the current year (then using the exclusion). From the IRS website, it also looks like the exclusion can be used if reported on the installment method, though this seems like a lot of extra work over many years if you qualify for the full exclusion and can just report it on the first return.

IRS Topic 701: If you sold your home under a contract that provides for all or part of the selling price to be paid in a later year, you made an installment sale. If you have an installment sale, report the sale under the installment method unless you elect out. Even if you use the installment method to defer some of the gain, the exclusion of gain under Section 121 remains available.

I'd agree with Jennifer. You are also less likely to get good offers on something that is not complete (those are the type of houses investors look for to lowball). I would either go for the quick sale without investing time and money now, or finish the rehab process before selling it. 

Hey Vincen, welcome to the forums. There are so many great people and resources here, feel free to ask anything! 

Matt's answer puts you on the right track. You current debt does not figure into your gain at all. You will also have depreciation recapture for the time it was a rental property which is treated as ordinary income (up to a maximum of 25%).  If you only planned on selling if your tax would be zero here, then you should hold. 

You should open a business account, you want your LLC to operate separately from you, including finances.

Welcome! Always good to have a GC contact in the area.