All Forum Posts by: Ashton Karp

Using funds from your 401k can be accomplished in different ways. I am not a tax or retirement account advisor so please consult the necessary professionals.

You can withdraw the funds, pay the 10% penalty and then pay income taxes on the amount. You can calculate the % if you analyze which tax bracket you are in.
You also can borrow from your 401k. You can take a loan for up to 50% of your account balance, up to 50k annually. You pay the loan back, with realistic interest, to yourself. I believe the loan does not affect your DTI either.
You can also convert your 401k into a self directed IRA and then you can use the full amount to invest in real estate, no penalties or income taxes will be paid on qualified uses of the funds. I cannot expand much on that process but know it is a good tool if your 401k is well funded.

I have a great group of CPAs I work with in my real estate business. If you want I can shoot you their info for you to have a consultation with them.

1 Vote

Vancouver, Washington

Have you discussed your financing capabilities with a lender? The current RE market allows opportunity for closing costs to be covered by sellers and if you qualify you can get a DPA (down payment assistance) loan and purchase the home with minimal out of pocket. Done right you’ll only need to be paying for the inspection. The question is if you are financially capable of carrying a mortgage, so I would talk with a lender. If you need one I have a few that are licensed in Cali.

1 Vote

San Diego, California

Quote from @Michael Plaks:

Quote from @Mike Wilson:

I know that as a landlord manager of my properties I can deduct at a rate of $0.56/mile the cost to drive to my rentals as long as I keep good records and for certain approved activities such as collecting rent; going to make repairs, etc. However, I'm looking a purchasing a fixer-upper that will take lots of trips and is about an hour away. Would be about $40/round trip in expenses if allowed. I am thinking that I can only expense after the place is being rented and expenses against rental income. Can someone tell me if I have a valid expense I can collect during the rehab period?

While @Ashton Karp is correct in principle, there's a key piece missing in his understanding. You need to be in business for any business deductions to kick in. So we need to determine whether or not you're already in business as a landlord.

For your very first rental property, you're not in business until your property is ready and available for rent. In other words, until the rehab is finished. All expenses incurred during this "pre-business" period, including driving expenses, are added up and added to the cost (tax basis) of this first property. It ends up slowly depreciated and not immediately deducted. Once the property is ready - then you can start deducting mileage and other expenses.

Is this “in business” rule part of the reasoning for being unable to deduct expenses from a flip until the home has sold, leaving potential costs one year and deductions the next if the project is started in the former year and not sold until the latter?

0 Votes

Tulsa, Oklahoma

Quote from @Todd Barnes:

How do you come up with the Annualized return? What is the calculation, and what are the #'s used?

The annualized return of a property is a metric to show your projected equity in a property over different points in ownership, in proportion to your down payment and other acquisition costs. The graph is particularly helpful in showing visually how your equity grows exponentially due to compound growth.
The metrics are typically loan amount (decreases over time), property value (increases over time), cashflow (increases over time), and selling costs. Tax implications of passive income, depreciation, capital gains, etc are not regarded in this process.
The formula is complex and a calculator should realistically be used. Investopedia will give you the formula needed if you so desire.

1 Vote

Tacoma, Washington

From a purchase loan perspective, with any conforming mortgage you are not going to be allowed to have your down payment be anything but guaranteed funds that are verified as yours or a gift from a family member.
In other words, in order for this to legally work your parents would need to give you the funds required and a signed note saying they are not expecting repayment of the funds and that it is a gift. I believe you can receive monetary gifts from family members without needing to pay income tax but I would ask a CPA for your clarification.
Other options are VA loans (0% down required), DPA programs, 3.5% FHA loans, or low downpayment conventional loans.
I am not sure where you are shopping for a home but in my market you can get closing costs covered by sellers and in conjunction with a DPA program, you can purchase a home with no money out of pocket.
Let me know if you have any follow up questions and best of luck!

0 Votes

Quote from @Daniel Moore:

I currently have $130k in equity in my first family home. It's a 3 bed and 1.5 bath about 2k sqft we bought 6 years ago. I am making a family room (addition on the back of the home with its own separate basement) into a 4th bed and a small office below the family room into a 5th bedroom. Just need to add closets. This should increase the equity. Goal is to pull as much equity out of the home

I currently have $5k in saving with my wife and I make about $95k together, and 4 kids to care for. We are pretty much debt free except mortgage.

What direction would you all recommend I go when I pull out the equity. Pay cash for my 1st house and then pull a mortgage on my second? Want to purchase 2 investment properties in 2023 using this equity.

I'm currently reading David Greene's book BRRRR and a few chapters in. Im sure I will get some answers on this question as I keep on reading.

Thank you in advance for your knowledge and support.

When you pull equity out of your home you will have a few options.
You can refinance your current mortgage for a higher balance loan, called a cash-out refinance and pocket the difference of the loan due plus fees and loan amount. In the current mortgage markets conditions, this is not effective for most consumers because you would be giving up a relatively low interest rate for a higher one. This is a circumstance you should analyze from your specific situation.
The second option will be to get a second lien, or second mortgage. This can be in the form of a HELOC, a line of credit that you can continuously repay and draw from, or a Home Equity Loan, a loan that is amortized for a certain period of time that you cannot continuously draw from but typically has slightly lower rates.
If you are purchasing an investment property then you will typically need at least a 20% down payment. If you instead purchase another primary residence and use your current primary as a rental then you will be able to access that equity and need much lower of a down payment (5% or less depending on the program), leaving you much more liquid for further value add or other opportunities.
Let me know if you would like to discuss any of these options in further detail and best of luck out there!

0 Votes

Detroit, Michigan

Quote from @Amby Bhagtani:

For people who are on a W2 what would be the best way to negate W2 income (including stocks?)? Is this possible with long term multi family real estate?

My understanding is that depreciation losses are capped at 25k for offsetting earned income unless you qualify as a real estate professional, then you aren’t capped and can use those passive losses to lower your earned income tax liability. I’m sure someone else can qualify and elaborate on that.

2 Votes

Quote from @James Dainard:

Hey BP Community!!

I've been getting a lot of questions over on my Instagram and I wanted to make sure I shared the answers with you all as well!

The question we got recently was, if you're starting out and are looking to buy a duplex, should you buy it in your name or should you buy it under an LLC?

There are always multiple ways to answer every question in real estate. If you're starting out, you probably want to go with a 3.5% FHA loan if you can afford the monthly just because it's going to be the highest leverage position that will jumpstart your investing.

Answer one: Highest leverage

If you're looking to get yourself into a high-leverage position to get a jumpstart on your investment you're going to want to take the property down in your own name. This will allow you to go get conventional financing through Fannie or Freddie with as low as 3.5% down. We saw a lot of this back when money was cheap, it's not working as much now that the cost of money has nearly doubled.

Answer two: Highest cashflow

If you're looking to maximize your cashflow, you probably want to put more money down and get the property under an LLC. This is the safe, stable option. A lower leveraged position will make you more bankable and make it easier for you to go on to the next deal.

Keep in mind that putting a property into an LLC is about liability control. I will often close a property in my name then transfer it into an LLC. Make sure you talk with your lender to confirm that you won't trigger a due on sale clause by doing this.

Hope that helps! Thanks for reading and best of luck out there!

Follow up question to this, for accounting purposes.
Lets say I purchase a SFR under my name with conventional financing then quit claim into my LLC for liability reasons. The mortgage is under my personal name but will still be paid from my business account. Would the mortgage interest still be a qualified expense? Could there be a commingling situation since the mortgage is still under my personal name?

Thank you

0 Votes

Seattle, Washington

Quote from @Mike Wilson:

My understanding is that any miles put on your vehicle for any business activity is an expense. Picking up materials for your property? Write off. Dropping off materials or installing them yourself? Write off. Driving to meet with contractors? Write off. If your business for this property is a loss due to no income (not rented yet) then you should be able to carry over that loss to the next year or potentially offset other income. Talk to your CPA for your specific circumstance.

0 Votes

Tulsa, Oklahoma

Quote from @Don Konipol:

Quote from @Ashton Karp:

I am finishing my first year as a real estate agent and am hitting a block with follow ups on leads. I focus my business on door knocking, cold calling, and my sphere, with the intent of purchasing physically distressed property when I am in a stronger capital position.
The amount of qualified leads that I am coming across is fairly high but I am having trouble getting responses from a lot of them. I will verify the correct contact information so I know I am reaching out to the correct individuals and I will even have responses that show interest in selling or purchasing. A lot of these leads go ghost after one or two interactions, if they respond at all.
When this happens what is the general response I should have? Should I continue to reach out regularly in different ways (email, phone, knock on their door, etc.), leave them alone, refer to someone else or other?
When I do reach out my touches range from “just checking in” to applicable market updates or explaining I only need a few minutes of their time to discuss XYZ.
Any help or advice in regards to these situations would be helpful. I can provide specific examples of prospects if needed to clarify my situation.

Thank you!

I’m not sure you’re creating a sustainable sales funnel. I think you may need to automate responses based on trial and error. A quicker way to determine how to create the sales funnel is to hire a free lance marketer, specializing in lead generation for real estate agents, allow him access to your data, and have him produce the sales funnel process for you. In fact, you can combine this with an SEO expert, and for relatively few dollars create a powerful and profitable “persona” whereby you have potential listing leads contact you. The most successful sales people have funnels systems producing INBOUND leads, so that they don’t have to engage in cold calling, door knocking etc. Second preferable method would be OUTBOUND marketing utilizing direct mail, cold call agencies, etc. so that your time is spent talking with Qualified” leads. Doing it all yourself is trading $500/hr time for $10/hour time. If you don’t change your approach I’m afraid you will continue to struggle.

This is solid advice for sure. I have been working on my google/Zillow/Facebook pages to increase my inbound leads but I definitely put more effort and money into outbound lead sources. I will change my priorities. When it comes to hiring call centers, I don’t think my current business position will support it. I’ve got more time than deals at the moment and don’t feel like I’m in a position to leverage others yet.

0 Votes

All Forum Posts by: Ashton Karp

Ashton Karp has started 8 posts and replied 40 times.

Post: tax implications on a 401k early withdrawal

Post: Saving for down payment

Post: Mileage expense - can I expense during rehab?

Post: Trying to figure out how the Annualized return is calculated

Post: HELOC vs Cash Out Refinance and Tax Ramifications

Post: 1st Future investment Property - Advise

Post: Offset W2 with depreciation

Post: Buying in your name vs buying under an LLC

Post: Mileage expense - can I expense during rehab?

Post: Prospect follow up when being ignored