All Forum Posts by: David M.

@Calgary Smith

I THINK what you are looking for is the following:

The two LLC's need to have an agreement/contract. The Title LLC needs to hire the Mgt LLC as a Property Manager. Now, the Mgt LLC can lease out the property.

You just need to make sure whether your Mgt LLC needs license, and be sure to get it insurance since its operating as a business.

Consult a qualified professional...

@Lynn McGeein Loan programs can already add to cover closing expenses such as fees --- seller concessions.  However, for the seller to net the agreed price, the price has to go up in which case you can run into the issue of the property not appraising.

I think the fundamental issue is this requires a more sophisticated buyer and seller (especially to have a graduated commission scheme which is common in commercial).  However, fundamentally that's pretty difficult.

@Llewelyn A. I wonder about that... With the advent of zillow, etc... Buyers see all the listings, so its not up to the agent to be the sole "finder" of listings. With the MLS currenlty required to show the buyer's agent compensation, my clients could see my potential compensation. Its sort of funny --- they considered the ramifications to my pay if they found that they liked a house.

However, I wonder if we will have more dual agency type transactions.  The buyer's get to save on the commission.  They potentially stumble through the transaction while the listing agent tries to keep it on track for free.  The listing agent may still have increased compensation from the seller if the commission was variable.  With so many buyers thinking agents suck or are out to screw them, this just eliminates the buyer's agent role...

@JD Martin

I read a while ago how the avg/median loan was somthing like 7% down. Its a continuing trend over decades. People don't have the cash to put down more money. Now, they have to put up more money at closing to pay for their realtor? Its going to be like a FSBO as now the buyers will want to recoup that cost via the price of the home.

Investors can talk trash about agents all they want... Its the regular consumer that buys/sells a handful, at most, homes in their lifetime. Many of them, even after a few transactions, still need an agent to help them through the transaction process. I am guessing before the "buyer's agent" was created (around 2000 I hear...), i can see how agents got a bad reputation, and not just because they are sales. The average buyer has no idea how to conduct a transaction, especially if they move from market to market / state to state.

In my market, buyers aren't used to signing anything with a buyer's agent. Now with a mixed compensation system??? I don't get it: I've been reading that the MLS' will no longer be allowed to show the commission. So, how does one know if the buyer has to compensate, be it full or partial, their agent? Are offers now give a range contingent on if the seller is offering a split for the agent?

If we move away from a commission payment system, it puts a serious crimp on the agent / client relationship. Pay by the showing? Pay by the hour? I know Redfin loves this since this is part of their model. I find it rather impersonal, and basically trains new consumers to see agents as just doorpeople, and the advice/transaction is done through a national call center.

@Cesar Jimenez

Agree with above.  Get the owner out and convert the basement back just enough so its not a additional unit.  Yes, interestingly in NJ the stove is required for a home (no other appliances are required).  That should help.  As @Russell Brazil mentioned, the easist way it to make the basement continous with one of the other units -- removed a lock from a door.

Good luck.

@Mason Vitalis

Oh, where to begin...

Sale of a flipped/rehabbed property is considered by the IRS as dealing in inventory.  So, the profits (generically, sales price minus cost basis or prucahse price) are taxed as ordinary income also subject to self employment tax.

Sale of an investment property, i.e. one that was rented, is considered capital gains.

It is your intent of the property that signifies which taxation applies.  You can take 2+ years to rehab a property.  Its still dealing in inventory.  However, if you rehab a property, rent it out, and say in a 1.5yr you decide to sell, its an investment.  Your intent should be to rent the property as an investment, not to change its taxation.

"Reinvesting" the funds doesn't change taxation.  Neither does the amount of loan that you have on the property.  Again, your profit is the sales price minus your cost basis.  What you do with your money is your business, except the IRS wants its percentage of the profit (well, less any other deductions that apply).

Don't forget that investment properties have to take depreciation.  Even if you didn't take depreciation on your tax return, you will still have to pay that back up to 25%.  So, while "they" "sell" you on the benefits of depreciation, its really a tax deferrment.  

This is all Federal taxation.  Usually, the states follow pretty closely.

Hope this helps.  Happy to chat.  Good luck.

@Jason P.

What is the term of the loan?

Just to put it out there:  why take the risk on somebody you don't know, and I am dubious if you know how to underwrite them?  Why not just outright sell and reinvest your money --- in whatever asset?

I know for seller financing its commonly said that if the borrower defaults, you just get the house back..  But, that's after going through foreclosure.... And interestingly, in any other situation one would be wary of the condition of the property...

I guess back to your OP..  You could still list it as it should give you the breadth of all offers.  The listing would say that seller financing is available.

Just make sure to get Note attorney involved in preparing your docs.

Good luck.

@Stephen Dispensa I think it will directly/indirectly affect investors because of pricing...  Not saying I have a perfect crystal ball on this, but we need to see how this ruling will affect the industry, especially buyers.

I read a while ago how the avg/median loan was somthing like 7% down. Its a continuing trend over decades. People don't have the cash to put down more money. Now, they have to put up more money at closing to pay for their realtor? Its going to be like a FSBO as now the buyers will want to recoup that cost via the price of the home.

Investors can talk trash about agents all they want...  Its the regular consumer that buys/sells a handful, at most, homes in their lifetime.  Many of them, even after a few transactions, still need an agent to help them through the transaction process.  I am guessing before the "buyer's agent" was created (around 2000 I hear...), i can see how agents got a bad reputation, and not just because they are sales.  The average buyer has no idea how to conduct a transaction, especially if they move from market to market / state to state.

If we move away from a commission payment system, it puts a serious crimp on the agent / client relationship.  Pay by the showing?  Pay by the hour?  I know Redfin loves this since this is part of their model.  I find it rather impersonal, and basically trains new consumers to see agents as just doorpeople, and the advice/transaction is done through a national call center.

@Henry Sims

The more professional way would be to have Note and Mortgage document drafted by an attorney.  You can try via these associations:  AAPL and/or NPLA

You guys execute the docs, i.e. sign them.  Then, have the lien record.  

Formally, you'd use a closing agent, such as an attorney or the closing dept of a Title company. Your friend would send the funds to the agent, when the docs are signed, the funds are released to your LLC, or whatever entity is taking the Note. I suppose if you were being really friendly about it, I guess the funds could be sent directly to the entity taking the Note.

Remember, your friend is now the lender.  So, treat it like any other loan, except you personally know the "bank/lender."

Hope that helps.  Good luck.

@Michael Masters I don't know what you are doing honestly...

Note:  please confirm that you are calculating your gain correctly:  Just to be sure since many people mess this up: you figured your profit as your net sales minus your cost basis (basically your purchase price plus your capital improvements), correct?

The left side of your screen shot is moot.  If you have 2.1mil in long term capital gains, and you take it in 2 halves, you'll still be taxed at 20% with today's tax code (good of you to include NIIT).  The total tax is $420k spread over 2 years.  As I said, I've never done an installment sale, so there is probably some additional accounting stuff for how the tax liability is applied across the two years.

Don't forget to also add up your depreciation.  That will get taxed/recovered at up to 25% as well.

 @Account Closed Oh, then sounds like you are good to go...  Then go ahead and handle the listing and transaction yourself.  Hopefully, you can find a good buyer that doesn't have an agent or willing to go at it without an agent.

Take care.