All Forum Posts by: Jay Gray

Btw, right now the most of the cash gets locked up for 6-12 mos at ~1.5% anyway, so this isn't much different. Well, volatility and risk aside... lol.

Depending on the mix of changes to the market or industry, it could be a painful holding period.

I think in this case I would do a FHA loan... seems like the most reasonable deal on the block for primary residence?

I realize each lender will be different, but they'll probably stick to the guidelines of the FHA for the most part?

6 month cash lockup is fine for my primary. I the market is going to tank a bit more during that time anyway... which is why I want REO at deep discount (cushion) - my lease is almost up and I need to move closer to work.

As suggested here, I'll also look at straight fix-and-flip purchases where I would just buy->fix->sell then pay gains using an S-corp or something. A couple of my retired family members are very handy & have expressed interest in this, so will try with my primary first and see how it goes :)

Thanks all for the information so far!

Ok, I found some information on non-arms length transactions and dealing with FHA ... I just want to be sure we all know the specifics so we don't discourage anyone (like me!) with misinformation ;)

I thought the topic warranted its own thread:
http://www.biggerpockets.com/forums/16-reos/topics/52843-identity-of-interest-transactions-aka-non-arms-length-transactions-

Long story short... unless the rules of changed considerably since 2003 (very possible), then it seems that if family member purchases home, then I lease and occupy for 6 months on formal lease, then buy with stated intent of primary residence.... all good. maximum LTV (3.5% down?) !@#%$ Awesome :)

(Current as of ~2003.... I'm searching for any updates to this & will post what I find)

For reference, in regards to FHA loans purchasing property from relatives or other similar situations...

Non-Arms Length Transactions:

Non-Arm Length Transactions, or as FHA refers to them as Identity-of-Interest Transactions on principal residences are restricted to a maximum loan-to-value of 85%. Identity-of-Interest is defined as a transaction between family members, business partners or other business affiliates. However, maximum financing above 85% LTV is permissible under the following circumstances:

• A family member purchasing another family member’s principal residence.


• An employee of a builder purchasing one of the builder’s new homes or models as a principal residence.


• A current tenant purchasing the property that he or she has rented for at least 6 months predating the sales contract.


• A lease or other written evidence must be submitted verifying occupancy.


• Sales by corporations that transfer employees out of an area, purchase the transferred employee’s home and then resell to another employee.

If a property being sold from one family member to another is the seller's investment property, the maximum mortgage is the lesser of either:

• 85% of the sum of the appraised value plus the allowable percentage of closing costs OR


• 97/95/90% of the sales price plus or minus required adjustments including the allowable closing costs.

"Buy with FHA loan...."

With the REO gem's I don't think you're going to have time to buy (initially?) with a FHA (and ideally it should need just enough rehab to where nobody will finance it?).

I have cash - I want to use it for leverage to get the best possible discount.

I need to investigate the specific details of the "arms length" requirements. So far I haven't found much. If violation of this is something that can truly get you blacklisted from lenders, then the specifics should be well documented.

Yeah... I looked into HELOC's. Forget about it... interest rates are super high. I think the only/best way for any deal I'm going to live in is to have someone else buy, then rehab, then get the loan. A bit discouraging there.

Another thing to note -- I've never purchased a home. Are "First time buyer" discounts counted out once I've been a 100% cash homeowner, or does it really mean "First time borrower" and I would be able to get discounts there at some point in the future still?

Just want to be cautious not to leave any money on the table and do this right.

Outside of the owner occupied scenario, if it were being sold to a new buyer (and if I were to do this a few times a year), what would be the best structure to minimize taxes on gains?

Thanks for the tips!

So I realized there could be some instant capital gains here (see example below) -- how do you guys structure things to minimize tax liabilities?

Example:

ARV: 250,000
Bank List: 225,000
Offer accepted: 175,000 (.70*ARV)
Rehab materials: 10,000 (+my labor)
Total invested $185,000

So, assuming this is something I want to keep & live in a couple years, I would "Own" it 100% from the cash purchase, but I would want to finance it (or would this be REfinancing at this point??) quickly after rehab in order to get my capital back to work with.

So if after its rehabilitated its worth $250k... I would finance (and sell it to myself??) from $185k invested and have a $65k capital gain? ... is that even legal? Sorry, see topic. Newbie questions.

I would need another 20% cash down to finance as well?

Hey all....

I'm just starting out. I'm basically just looking to get bigger pockets :)

Northern California based, I do not currently own any property & have zero debt. I have about $500k cash liquid + 100k/year++ job.

I come from a family of DIY'ers, and a couple of my family members are retired (who are very handy) are interested in helping rehab houses. Mostly for something to do... lucky me! I'm also looking for something for myself to buy and occupy.


Any hard learned tips or words of caution for the cash buying newbies here?

Also, I've noticed there are many bank sites out there that list their REO's.... are there any good (free or pay) sites out there that routinely aggregate this data? If not, I'll put something together soon (programmer!) ;)

Thanks in advance for any tips!