All Forum Posts by: Andy D.

Hi,

my UT real estate attorney is not able to support me with the particular topic of land trusts. I am looking for someone who is knowledgeable in that specific area. Properties are (so far) located in Utah but this will expand to other states. Also, LLCs are part of the picture. Does anyone here have any pointers? Feel free to also contact me via PM. Thanks!

Find a good mortgage broker. Also, if you're worried about closing cost eating your available cash, see if you can put them into your monthly payment. Will cost you, but it's bearable for an investment property, especially of you don't keep it forever/30 years. At least this is how I have done it a few times. YMMV.

I think your question should probably be phrased somewhat differently. Because: yes, you should definitely have one or more properties "in mind". Absolutely. Rummaging around without a goal will get you nowhere, especially when trying to involve other people.

What you probably really wanted to ask was (correct me if I'm wrong): "is a pre-approval specific to a certain property?"

Having read through the above posts, my early reaction was to only reply "you want something, so you need to give something" (the latter being only a pre-approval that requires a credit check). That statement I still want to make. ;-)

Then you asked the above question and I wanted to chime in to say: was never required for me. Then again, I don't use banks/bankers. I always go to a location/state specific mortgage broker, as "normal" banks with their onerous rules and, typically, very uneducated staff apparently are not able to work with my situation. Ok, I don't need them, moving on and using actually knowledgeable and willing resources, then, ha! Every broker I worked with was great, and I always got my loans. AND: pretty much immediately pre-approved, with a certain limit and no restriction to a specific property.

But yes, they did pull my credit. So?? It's part of the game. Look at it as a cost for participating; you do need to pay for the movies or the delivered pizza too! : -) . And you do need to meet the parameters/requirements. Obviously. If you do not, please, simply don't bother these people as they will not accommodate you. Why should they, really. You cannot (successfully and legally) shop without money. Ultimately it's rally that simple...

Good luck!

 THAT I didn't know! Thanks for sharing. Makes it even less of a "problem" that way.

@Rick Bassett Good point. But I understand @Thomas Williamson as such that he very clearly defines when which portion is late. That's easy enough to do. To be more precise or very obvious one could even make the figures for the 2 payments not the same: say total rent is $1050. If $550 is not paid by the 15th it's late. If $500 is not paid by the end of the months it's late. With this there shouldn't be any doubt if and when which amount is late.

The problem I do see with this is that, technically, you are doubling your chances of rent being late as there are now 2 payments of which each one can be late. Also, personally, I would find this much more involved with respect to tracking everything. Now if you're on autopilot there with a professional setup that checks for incoming payments etc then that's probably not an issue. I, however, do everything manually so I'm busy enough at the beginning of the months and really do not want to be busy again some 2 weeks later and then again busy some 1 week later and so on for this topic. I want to focus on other things then. ;-)

While I see Thomas' point this would not work for me, at least not as a general approach. It could, however, be the solution for the one "problematic" tenant I currently have. Will need to think about this.

As you, Thomas, are not charging late fees: What do you do if a tenant is indeed (partially) late? Immediately give notice? Maybe we should start a new topic, really?!

Lastly, regarding the mortgage payments becoming an issue with such a 2-payment setup: one should probably have enough liquidity lying around to handle 1 if not 2 of those, should rent be late (actually, many banks will require 6 months reserve!). Because you will potentially anyway have the same issue then if tenant is supposed to be paying in full once but does not. This should really not be an issue affecting Thomas' approach as far as I can see.

@Thomas Williamson Interesting. The only benefit I see with doing this, though, is that people might have a problem paying the entire rent (= larger amount) at the beginning. This way they can spread it out, especially if they should get paid twice a month, and situations like that. Then again, why would you rent to someone who does not seem to make enough money (in time) to pay the full rent amount? Is it a low income area? Then this would make sense to me. Otherwise I'm skeptical. Because: if people have the income and can't manage their money to pay rent on the agreed date then I'm not really seeing them doing so on the 2nd agreed date... But it seems to work for you. Again, interesting approach!

Indeed, recaptured depreciation is treated as income rather than capital gain. In other words: it reduces your capital gain but the amount of that reduction is then taxed as income. There is no free lunch...

So why do it? As with everything business: the less money you pay now, the more you have to invest now. Also, you might now be in a higher tax bracket because of a good job, rental income etc. That might change in the future when you are retired, for instance. So yes, you will always have to pay taxes (even with a 1031 at some point) but it is in the future with a hopefully lower tax rate compared to now.

These are the benefits I'm currently seeing. Maybe there is even more to it that I'm currently missing. Others will surely chime in.

This is probably one of the most difficult topics around a tenant/landlord relationship. You should immediately check with your lawyer on how to proceed on this one. Most likely you can't even evict at this point, depending on how the tenant went about this. Also, this is very much dependent on local (state) law. Again, have your lawyer assist you. This is a legal topic that requires a professional to avoid (costly) mistakes.

@Steve Vaughan Relax, man. ;-) Made a typo that you thankfully pointed out. With respect to your opinion: that's your opinion and maybe the correct way to go in your situation. You don't know mine so I would hold back on judging what I do on my end for myself. I pointed out the facts which are true for me and didn't say that this is the (only) way to go.

Again, the situation for investment properties are (typically) different compared to a personal residence as @Thomas S. has also pointed out. In addition, when a place is sold the mortgage will (typically) be paid off anyway. But maybe you hold all your properties indefinitely, who knows.

@Jay Hinrichs I agree with you that the older one gets the less debt one probably wants to have simply because of the hassle involved with either getting a loan or otherwise with having to keep track of everything, make all these payments on time, have a more complicated tax return, etc. etc. But I guess at that point you are done actively building your wealth via expansion. You are now purely collection the fruits of all the trees you have planted and which are now fully grown. And fruits are by then bigger, more fruity, due to not having grown in the shade of a mortgage payment...

Now since there are obviously different opinions on this topic I guess it's now up to the OP to decide what he wants to do. Good luck.

@Steve S. Others have basically said/repeated what I had already written above. With you being in the 28/33% bracket, my guess is that any (continued!) deduction from a mortgage payment will do you more good than paying off the loan, assuming your interest rate on that is reasonable. If not, you could also refinance. Again, all depends on your situation. Also, we are talking about investment properties. Owner occupied would be a totally different story!

Also, just for the record: increasing the monthly payment to the lender will not increase your deductions as regards taxes. Because you are making a payment on the principle, not the interest (with the latter being the part that you can deduct in that regard). As a matter of fact, the portion allocated to the interest will decrease every month as you are paying down the principle which means a smaller amount owed = less interest due. The less interest paid, the fewer deductions on your schedule D for that line.

I personally don't care about the "sleeping well" part when it comes to debt. Well, I do care very much about sleeping well, but I sleep just fine with hundreds of thousands of dollars in debt. Why? Because it's "good" debt. It has something against it (aka collateral), especially as I have 30%+ equity in all my properties which should - barring the end of the world - enable me to get rid of all debt if need be . More so, this debt allows me to make me money. @Samantha Klein has correctly described that principle. And this is the way how people make money: use other people's money to make you money. Have you ever looked at the principle how a bank really makes money? Hint: contrary to common belief it's not the fees. ;-)