All Forum Posts by: Adam D Rinehart

I'm not a tax professional so I can't give you advice on that topic. All I can do is let you know what I've previously done and let you draw your own conclusions from it.

Your example isn't very good for a few reasons. First, if a property costs you $5k/month and can only bring in $6k/month, you're paying too much are charging too little. Second, Principal is usually the lowest amount of what you pay in PI and the interest is 100% deductible. Taxes and insurance are deductible as well and so are your cleaning and management fees. So your $2k assumption is wayyyy too low. Next, assuming your $4k/month income number is correct that would give you $48k/year in income. This is before you take your standard depreciation deduction and since this a STR I'm assuming it's fully furnished. In that case you can also take bonus depreciation and accelerate 100% of those costs into the first year, further decreasing your tax liability. This also doesn't take into the fact that if you make less than $150k/year in W2 wages you can safe harbor up to $25k in rental income tax free. It also doesn't consider if you or your spouse can qualify as a real estate professional in which your active losses (income taxes) can offset passive gains (rental income).

Yes, you need a new lender. Seeing as how you can rent out your personal home, or ANY home you own for up to 2 weeks and not have to pay any taxes on that rental income, I see no reason why you would be forced into a separate loan product with inferior terms.  

I used assurance financial out of Baton Rouge.

I'm not qualified to answer that question. My instinct says no though. However, it does sound like something that might be possible with one LLC using a blanket loan that encompasses all of your properties so your drawing off all of your equity, not just a single property. Please take that with a grain of salt on accuracy though, I'm not a CPA or mortgage broker.

Correct, you would be using a commercial loan product but that has a few advantages. The first I mentioned above with taking the loan out of your personal name but you can also do business lines of credit much easier than HELOCs on an investment property. You are also correct in that the cash flow could suffer a bit with higher interest rates unless you plan for that higher rate to begin with. Also, the hard or private money used to buy investment properties is almost always more expensive than commercial loans. 
Personally, the hit to cash flow is a short term problem since rents will rise over time and I accept that as a trade off for large chunks of equity coming back to me either as additional reserves or money to buy more property. 

Oscar,

Most big tech companies are staying in and around Austin. I mean hell, Tesla just opened up there for the CyberTruck. I imagine it has a lot to do with the political access to the Capitol as well as a fresh set of new grads with UT Austin and other universities not far away either. My dad used to work for TI but they moved headquarters to Dallas many years ago. There really isn't that much cloud computing tech here besides an HP campus that opened up recently. Obviously there are no shortages of O&G companies, both exploration/production and transmission, and we have one of the largest manufacturing facilities in the country with Daikin about 30 miles out of town. Aerospace still has NASA but I don't think there's a big presence from Boeing or Lockheed Martin. The airlines (Southwest and American) have their HQ in Dallas but still have Houston as a hub. The healthcare industry is huge here with the Texas Medical Center just a few minutes from downtown that is anchored by the world renowned cancer center at M.D. Anderson. All in all, a very diverse job market but I wouldn't call it a leading tech city.

I've got an LLC that's about a year old now and a strong personal credit score with a much longer history. I can get conventional mortgages relatively easy and cheap, but I've found that it gets much harder after 5 purchases. To keep below this threshold and keep my personal DTI ratio down I always refinance the properties into the LLC so that the company is on the deed AND the note. Just because you put the deed in the LLC's name does not remove the mortgage from your personal name and credit report.

I invest locally here in Houston and even as a small, part time investor I can find plenty of worthwhile deals. There are a ton of revitalizations happening due to the number of QOZ's in and around the Greater Houston Metro Area.

This is in 5th Ward

@Vijaianand Thirunageswaram

@Vijaianand Thirunageswaram thank you for your confirmation of the material prices being a driving cost factor at the moment. The thing is, I plan on keeping this tri-plex so a higher build cost would mean less equity pull out on the refinance which isn't the worst thing in the world. That being said, would you be interested in taking a look at building this one? The way I've set it up is that it's a duplex connected to a SFH with a firewall separating them but it looks like it could be a single family house, albeit a very large one. Take a look and let me know what you think about taking it on. Or anyone else reading this for that matter.