All Forum Posts by: Jeff Takle

You would also probably gain the benefit of a tax audit unless the house was donated to a well known charity!

I suppose you may squeak out a little more value by donating the house at FMV--they get a donation equivalent to the selling price of the home, AND you get the tax write-off at 25% (or tax rate) of the value (unless there are specific rules about this. Check with an attorney).

However, if you're looking for a way to get a tax benefit by donating your house to a charity that will then rent it back to you, or to family members, or provide some other benefit back to you, then you're asking for an audit and it's likely not legal. Who knows, there might be a wrinkle there but I'd find a tax attorney or a real estate attorney and ask them about it. If it does work, please post back here; there would be a lot of interested folks. There have been several threads about charitable contributions, non-profit companies, etc. at BiggerPockets. Lots of people trying to be creative, which is great!

Two cents.

I would be shocked if there were a single property in all of DC or Boston that meets the investing model of gross rent income x 100 = purchase price. I would be surprised if you could find one that x 300 meets purchase price. Does that mean there are no good rental investments on the East Coast? Maybe so. But I wonder if that isn't a metric that works in Ohio and Texas, but isn't the best one to use for other parts of the country.

Detchu, about getting your taxes back. Please remember that you didn't MAKE any money there, you just overpaid the IRS. Getting money back is no deal. It would be better to owe $12,000 in taxes because you made $255,000 next year instead of making $155,000 and getting $12,000 back! All properties provide tax benefits. Reducing your taxes by $100 through rental loss only saves you +$28 in tax benefit (@28% tax rate). But, increasing your rental gains by $100 nets you +$72...which is better than $28. Better to make more money.

My thoughts on dumping the properties...do you invest as a full time profession? Can you absorb the rental losses and cash flows? Do you have reason to believe these properties will appreciate soon? Real estate is traditionally a long term investment and if you don't need to free up cash for more deals (b/c you're not doing this full time), and you're able to absorb the cash flows, then you should run the Internal Rate of Return and Return on Investment ratios. If they return better than doing stocks, mutual funds, or your other options, it might be worth it to keep the properties around for a while. :whistle:

IMHO letters from banks are utterly worthless. They would only mean something if you've already been approved for a specific loan, for a specific amount, for the specific property in question. Underwriters (as far as I know) won't do a full work up if you don't have a specific property since it costs them money to do so.

Whether you put no cash down, or go "all cash" depends on what you're trying to get out of the deal and what you're going to do with the property. And, how long you want to keep it. And how many properties you want to have altogether.

-tb

Spam is not neat. :protest:

To add a little more info, there are several considerations when weighing a contract from a potential buyer, one of which is net proceeds and another is likelhood to close the deal. Here are two very simplified example contracts:

Contract A:
Sales price = $100,000
Buyer finances $100,000
Net to seller = $100,000

Contract B:
Sales price = $100,000
Buyer finances $10,000 and pays $90,000 cash
Net to seller = $100,000

You are right in that both "net" the seller the same amount of money. However, I KNOW that the person on Contract B with 90k in cash can make the closing date (they're much less dependent on a lender and the property will ABSOLUTELY appraise for at least the 10k being financed)--and I know that they are VERY unlikely to wiggle out of a contract because they "couldn't get financing." However, the person with Contract A may have bad credit and got a pre-qualification letter from a lender who hasn't really done much due diligence on them yet (nobody needs to when they kick out those useless letters) and when it goes to underwriting, the bank may say no deal. Buyer may have lied to them about employment status or income, or debt, or assets, etc. That means the deal can fall through, closing dates slip, and headaches dealing with contracts.

Rest assured, your Realtor gets NO BENEFIT from you putting more money down other than some assurance that you in fact can afford the place you're trying to buy. Far from trying to screw you, they are trying to help you make reasonable offers and not waste your, or their, time. In fact, some would argue to use a strategy for putting the maximum amount you can down on a purchase agreement; then worst case (assuming you have a financing clause in the sales contract), once you secure a ratified contract, you can change your financing terms as long as it doesn't negatively impact the seller. Your Realtor should be your teammate in getting the home you want; if you don't trust their advice, don't use them. If you're not going to listen to their advice; don't use them. Good ones can save you a LOT of effort, stress, and money.

-Takleberry

Just a very short rant here, but I can't help myself. Just finished my taxes and it came to 136 printed pages! That is absolutely NO exaggeration. That's a book. Uncle Sam is requiring his citizens to write a book for him every year instead of doing something productive. The last few days I've been stumped, wondering, why is it that a citizen in good standing, with years of military service in support of the country, with a master's level education, cannot even figure out with any certainty HOW TO OBEY THE LAW? It's not that I'm trying to find ways around the law; I can't even figure out what the law wants me to do!!! Used 2 accountants and TurboTax and go 3 entirely different answers.

Something's wrong.

:protest:

I've also got to imagine that it makes the property IMPOSSIBLE to get rid of if you want to dispose of it. Probably makes for terrible showing to prospective buyers and you'd be pressed to find someone else who's eager to take that situation on.

I agree, if you could get a HUGE rent premium, maybe you could make it work out well enough.

http://www.thelpa.com/lpa/lllaw.html

Doesn't have much on Arkansas law, but the best answer is to find your state legal code dealing with Landlord-tenant issues and read the code directly. That's better than taking what is legal advice from someone you don't know.

Good luck.

You may want to check out this thread:

http://www.biggerpockets.com/forums/viewtopic.php?t=2430

or search the site for other LLC questions. This has been covered a couple of times.

1) You can rent them out. When you go for your next mortgage, the bank will count 75% of that income against your debt-to-imcome ratio. If you're able to get rents at 125% mortgage 9PITI really) then you are more or less zeroed out.

2) Seller financing. Buy a place, fix it up a bit, then do seller financing. You still hold the deed as the mortgagee, but then again you don't really own the property then either.

3) Find funding from secondary lenders/funny money. See the alternative financing forums in the index of this site.

4) Build up your equity and/or 1031 Exchange until you can buy a place with almost all cash or all cash. If you have that in an LLC, then I suppose it wouldn't hurt if you asked for more money.

I could be wrong but I don't know of any benefit in terms of getting a bank loan b/c your stuff is in an LLC. Banks aren't that sloppy generally--and, if you don't want to commit mortgage fraud, that's probably the deal.