All Forum Posts by: Bill B.

I assume not an owner occupant loan where Dodd-Frank would kick in. 

Other than that it’s hard to see a limit lower than what credit cards charge. 

If you use an attorney to write up the contract I assume they would know?

A simplified version of how I would explain your situation.

1) if it was a rental first it’s always prorated taxes due. Buy a new property, rent it out for a year and then move in for 19 years as your primary. it’s 95% tax free (19/20ths) it doesn’t matter you passed the 2 of 5 years rule  

2) if there’s any rental activity before the 5 year look back period, it’s pro-rated. You buy a new primary , live in it for 8 years. Then you rent it out for 2 years before moving back in to it for 10 years. That’s 90% tax exempt (18/20ths) because there’s rental activity before the 5 year look back period. 

You’re only guaranteed 100% tax free (up to limits) if it’s your primary first and you sell before the 3 year anniversary of it not being your primary home. 

If Micahel corrects anything I said, believe him, he’s an expert. I’m just trying to explain what I believe would occur in your situation. Your CPA should 100% agree with him. 

Unfortunately you don’t understand the 2nd home equity tax benefit. There isn’t any. As soon as you rent it out you’re paying the same tax as an investment property. The only advantage you could can have is a primary home loan and move in to it immediately without ever renting it out. 

Ps. The loan type has nothing to do with the taxes owed. It only affects down payments and rates. They are affected by what you tell the lender you plan to do with it. The taxes are affected by what you tell the ors you actually did with it. 

Pps. Once a property is a rental first you max out at a partial exemption. If you use a primary home loan, a second home loan, an investment loan, or any other type of loan it doesn’t matter. If it’s a rental for 5 years and you move in to it for 2 years you get about 30% capital gains tax free (2/7ths) (you still owe 100% depreciation recapture.), live there for 5 years and you get 50% tax free. (5/10ths)

A few things you may or may not have already thought of…

Plenty of parking for all the tenants (figure 2 cars each) plus all patients? Neither will be happy if there’s no where to park. Is covered parking/garages expected in your market? I didn’t see it listed in your profile or post so do you need snow removal? (Much easier with empty medical parking lot than full residential lot, especially if there’s no where to move them to.)

Plenty of sound separation? (Patients don’t want to hear tenants and tenants don’t want to hear medical/dental equipment. 

Plan to have an elevator or only offer less desirable stair access? (At least for elderly, kids/pets, mobility challenged and moving furniture in and out.)

Nearby place for kids to play and pets to poo? (Preferably without walking through the parking lot.)

Additional utility costs? (More service and many more meters.)

That’s all the easy ones I can think of. Good luck. 

1) Too bad you’re not married…$50k incentive to get married  :-)

Anyway.

2) Sell every time you think about it. Save $50k in taxes and then double your cashflow with a government guaranteed bank CD. 
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Yes, you can still reinvest in real estate but you don’t have to.  Not to beat your current returns.  And that’s before you pay the $50k penalty for keeping it. Heck, if you’ve lived in your new home 2 years turn it in to a rental and buy a new primwry with all your new cash. If not, put the cash in the bank until you hit 2 years and repeat. Well done. 

I assume this deal has been shown/advertised to existing experienced MHP owners in your area and they don’t want the deal. Even with their experience and systems already in place. You need to pay 10% less than the people who are “good at it already”.  If the seller is stuck on their price. Take your price plus a reasonable market interest rate and figure out the payment. Then figure out what terms it would take to make their price the same payment. 

You’re afraid of losing money month to month. Imagine having to pay someone 5-10% commissions to find a buyer at 10-20% less than you paid. That’s how you lose real money. Especially if you don’t have the money to bring to the table, so you can’t sell. 

99% of the time an owner occupant is going to pay you a higher amount than an investor/landlord, so it probably won’t come up. 

I never even considered it until I did my first one in January. Let me tell you why.

They put down 25% ($150k)

There’s a 5 year balloon. (The shortest allowed under Dodd-Frank for owner-occ)

They’re paying 7% (Barely a consideration. But I was going to put the money in the bank anyway as I didn’t need it.)

They are paying for professional loan servicing 

And most importantly. They offered $10k over asking, zero repairs, zero appraisal, AND, they were my only offer in 45 days. 

Even with what I hope will be a positive and risk free experience, it will only be a complete lack of other offers that would ever make me consider it again. If you have other offers go that way. Otherwise get at least 20-25% down as you still owe all closings costs (likely 8-10%) so 10-15% down won’t cut it. 

It may also depend if they are paid per hour or per job. I can tell you first hand that the people building new houses in my sub-division are here 7 days a week. And if you start talking about roofers the nails guns start darn close to 7am and run until sunset. Certainly it’s not the same guys working all those hours. But work’s getting done. 

But I think the biggest companies and the smallest companies run different shifts than a solid “get the job done middle of the road sized contractor”. Honestly, If you like the timeline it doesn’t matter if they work 1 or 7 days a week. Just get a timeline before they start. If it’s 3 months or 12 weeks. Get a 3 week, 6 week, 9 week “goal”/were on track estimate from the contractor. If they want to get paid more often get those goals written down at that interval and pay when that works completed. Don’t get too far ahead!

The time and cost estimate accuracy is way more important to me than the work schedule. The only way I’ll know they’re way behind before it’s too late is if they told me where they’d be at that time. 

I assume you talked to previous customers and looked at their work. 

The Vegas version I looked in to a decade ago took a 50% Managment and doubled the monthly HOA fee if you spent more than 2 weeks there. (Or it wasn't available for them to rent out for more than 2 weeks in any given year.) They basically wanted to rent out hotel rooms you paid for. (The platinum off the strip next to Ellis island.)

Ps. I looked it up to see if anything changed. The HOA fees are $720-$1,700 and it's "only" an extra $750/mo fee, not necessarily double, if you live there. And you can do that for 60 days per year now. I couldn't find a definitive management fee.

It’s like a condo at MGM except you can never convert it to a primary residence. So you lose 80% of your buyers. That does help keep the price down, a little, but that’s because it keeps the appreciation down. 

What’s your current living situation? (Rent/own/monthly payment?)

The easiest way to make close to a $2k/mo difference in your life is to cut expenses $1,500 ($2k after taxes) by finding something you can buy for anywhere near your rent. And then (or step 1 if you already own.) find a friend/relative/co-worker, or two you like to rent a room from you. 2 people paying $750/mo each is pretty close to your goal in one step.

If you rent or the thing you own is too small to do that get your friend to help you fix up a “dump” you can get cheap but feel comfortable living in day 1. (Cosmetic dump not safety/mechanical dump.)

Before it had a name the first place I bought cost me about $1,500/mo and I had 3 work friends pay me $750/mo each. I was moving out of my parents place and had never paid rent. I didn’t like the idea of it, so I came up with that plan instead. While I was only making $750/mo, not $2,000. I wasn’t paying any rent. You can do this. It’s not hard, it’s just feels glacially slow. 

As a side benefit I dated and eventually married my neighbor’s HS friend. (Even though neither knew until she pulled up my house one day…) :-)