All Forum Posts by: David M.

@Angel G.

Some of it is experience with real estate transactions, and your market.  I had one newbie investor I had to explain what was a septic system and what was oil heat.  The attorney review period was entirely foreign.  You can't necessarily prove that you know the entire process, and certainly can't know how to handle every situation (that what "professional" are for, right?).  But, do you know anything about "after" you find a property you are interested in?

Also, having your specific criteria for the real estate investor to help you.  Are you interested in dealing with septics --- I have no idea what your market has...  What about oil heat?  How "bad" of a home can your financing handle (I am hoping you will have a mortgage pre-approval some simliar Proof of Funds)?  Specifically, what towns are you interested in?  I've had investors say that they are "interested in whatever makes money."  While that's a fine "starting" statement, you need to get down to some sort of brass tacks.  Also, if the agent can't follow you, maybe its not the correct agent for you, although that depends on what you are expecting of your agent.

Maybe if you gave some sample numbers of properties you looked at.  I've had potential clients who really don't have their act together in figuring out the numbers.  One client was using Zillow which said that potential rental amount was $2600 / mo.  Well, nothing in that town has rented in the past year for more than $1800 /mo, and the house I was showing to them was NOT a potential for $1800 /mo in that town.  So, just actually know your stuff... or if you don't, make sure you find out from your agent.  In the example I just gave, I was able to walk through the potential investor's calculations to show his flaws (there was more than one).  But, he hasn't screwed that up again and wasted my time on "non-starters."

Hope this makes sense and helps.

@Brian sohmers

@Paolo F.

You need to Google something along lines of “Active Real Estate Professional IRS” for irs regs on how you can considered active to take any and all of your passive deductions as active. One stickler is your business and trade has to be more than half of your income. So, if you have some other non real estate full time job it could be tough to qualify

Also, flipping is considered active income because you will be in a “Dealer” status. You can’t claim the profits as capital gains. It is ordinary income also subject to self employment tax

@Walmsley Gedeon

I haven’t had to do an eviction here for over a decade. I don’t think I needed it for an eviction... but honestly the eviction was handled by my attorney... sorry I couldn’t of more assistance

@Jessie Randolph

lines of credit

Basically, your financing..

@Meghan Cheek

Wait.. as a Realtor I’ve shown numerous fixer uppers and flips to the same sets of clients (non-investors). Invariably, one of the couples says how great these flipped properties are and too bad they can never move fast enough to get them, while these perfectly priced by to live in fixer upper are terrible “this or that” is no good. Yet, the flipped homes looked like the fixer uppers originally — no imagination

I think you said you were doing rentals? In my opinion it still applies.

You could pull the listing and re-list to try to erase the history... but I think showing the construction phase isn’t necessarily worth your time

@Walmsley Gedeon

Those forms should be available from the municipality. If we are talking about the same forms, they are filed with the municipality. It’s a State law enforced/administrated at the local level

@Bruce Thomsen

Re read your post — sorry working on a phone here..

Sorry, no good advice if they want a PoF just even to show.  Is this a fsbo? I know owners do that because they are trying to pre-qualify buyers.  Here is probably one legitimate reason to have a Realtor since we are fiduciaries.  But, while you try not to “show your hand” with how much buying power you have, ultimately you can’t control it such as when buying with cash.  So you have to show them a bank statement.  I guess in your case you show several bank statements.  Let’s face it, with cash you are almost always going to show overwhelming sufficient capital when doing investment deals.   cash buyers can “always bid higher.”  Financed buyers tend to hide their top approval amount to hide their true buying power...

I think I’m rambling again.  Sorry it’s late for me

@Bruce Thomsen

Oh...  this is sounding more like you have a legal question than a financing question.  Either connect with me so we can take offline (mind you, I’m not a cpa or attorney nor have done or structured deals with outside investors) or see if this helps:

What is your business structure or operating agreement?  Are your investors “silent partners” (yeah there is a legal term for it) with no say in the operation of the partnership (assuming you have a partnership)?  Or do they have the authority to determine investment decisions and you are hired as a manager?  Bottom line:  which party(ies) is actually running this endeavor?

If you have operational control of the business venture, then they should send in their funds to capitalize you and now you have a bank statement showing your PoF

If “they” have control of the venture, I would think you would have to present to them each deal for their decision to proceed.  Interesting you statement looking at 3+ MF.  I am ASSUMING it’s national standard that 1-4 family units are considered residential which is regulated as opposed to commercial.  For sure, residential you can’t/shouldn’t legally be making offers if you can’t back it up, ie you don’t have the funds.  It’s that joke about “writing checks your body can’t cash...”

If you were doing a MUCH bigger deal, I could understand.  I believe the stalemate is broken as under due diligence your financing is determined as it is also dependent on the terms of the deal.  Again, this is for multi-million deals.  I don’t think your 3+ MF counts unless you are doing 3+ with a really big ‘plus sign.’

Let’s face it.  It’s a waste of everybody’s time and energy if you don’t have the funds/financing to do the deal.

also, did you say what sort of investing you are doing?  Is your strategy that wide open?  Honestly, then perhaps you need to get a few different loan products pre-approved

but I think I’m rambling.  It sounds like this is a business structure issue, and perhaps somewhat tied to the type of investing you are doing.

Am I making any sense?

@Todd Rasmussen

@John Fitch

Just clarification. With a LLC, you don't exactly "control" when the profits are distributed to you. For tax purposes, remember a LLC is a pass-thru entity so when it comes time to file your taxes, you'll be paying on the profit. If you want to "access" your funds, you do an "owners draw" (as opposed to a contribution), and transfer funds from the LLC's bank account to your personal bank account. You don't take a salary or distribution. A C Corp does that, and for absolute clarification I am assuming you don't have a LLC taxes as a C Corp.

@Elana Greer

@Justin Windham

Yes, solo 401k contributions need to have active earnings. Was thinking of more flexible accounting.  I saw OP showed as broker so must have some amount of income.  Take a little more from “business income” and use the passive income to supplement...