All Forum Posts by: Bill B.

If you put the minimum of 25% down, that’s $125k. Do you have $125k?  If so, and you get a reasonable 7% loan on the $375k your payment will be $2496/mo. So as long as your insurance, property taxes, property management, utilities maintenance, repairs, vacancy, and capex come to $4/mo or less you’ll be fine. And if they all add up to zero, you’ll earn 0.038% on your money  

Or you could put the $125k in the bank and earn a government guaranteed $520/mo. I know which one I would take out of those two choices.  Now you see why the seller is selling. He can put your money in the bank and earn $2,100/mo instead of $4 or less. 

It’s been asked monthly, if not weekly. You can click on the magnifying glass in the upper corner to see the last 2000 posts. 

TLDR: Bad idea for your personal home. Horrible idea for a rental. They want you to wait a few days to send someone out to look at it then come back in a few days to try part #1. A few days later part #2, etc. Then you pay your deductible. After you paid for a hotel for your tenants for the last week while the ac, the heat or the water heater was broken.  The warranty company is the money making business. So short of buying it when you know something is failing it’s going to cost more than not having one. 

The ONLY warranty I’ve ever found to be worth anything are the $5/mo warranties through utility companies. They are money losers paid for by the utility rates. 

You could also get a line of credit for about $150k (you should be able to borrow 75% of the value.)

The reason I suggest this is…

1) you save $40-$60k in selling costs. 
2) you have a lower blended interest rate (2/3rds at 3.25% and 1/3rd at 7 or 8% instead of the whole $500k at 7 or 8%) saving you another $1k/mo in interest. 
3) you only pay interest on that $150k when you actually use it, not from day 1  

Unless you hate this property, or want to buy something you can’t afford without selling, that would be my plan. The new property has to make $50k plus $12k/yr more than the existing property just to break even. That’s best case. 

Check with your CPA if you instantly owe the depreciation recapture if you gift it to your son. Even if not immediately then your son would owe it when he sells, so no advantage to this strategy. 

I believe you were right he would inherit your cost basis, so he would owe capital gains. Did you pay cash for this house so there’s no loan to pay off when you gift him the house?

This seems like a lot of work to save 15% of $35k in taxes (Less than $5k.) especially if you have transfer taxes or title insurance, or you convert your long term 15% rate in to your son’s regular income tax bracket.

I hate paying taxes as much as the next guy but this lemon isn’t worth squeezing. Just consider the rent you saved buying the place as part of the profit plus any/all the write offs you’ve had for 3 years. 

I second the @Dave Foster recommendation. I used him last year for mine. While I am just a stranger on the internet. You are going to most likely have a stranger hang on to several hundred thousand of your dollars. So everything you can do to avoid a scam or a shady character is worth something. 

The rules are as you stated. 45 days to identify up to 3 properties you might buy, 180 days to close. You must spend more than your net selling price. (Loan balance, purchase price, etc etc don’t matter.). You must reinvest all “cash” you receive ($’s above current loan balance.). 

What I did was after my sale was under contract and I was down to a couple weeks from closing I started shopping seriously and had my replacement under contract a couple days before my sale closed. That was I was able to close my replacement before the 45 days had even passed. (So if the deal fell through I would have time to list 3 other properties I might buy.)

Good luck. 1031’s are an insane tax advantage and Dave is very good at what he does. 

I can imagine your next post. “How come my tenant was awarded my property as compensation after they were injured falling out of a 20 foot tree I told them they had to trim?”

Landscaping by a tenant should NEVER include a ladder, not even a 6 footer. Or any specialized tools. 

This is probably something you should just add to the rent for your next tenant.  I can’t believe you found a renter with a lawnmower and the desire to mow. I don’t even let my tenants take care of our pools. You just advertise that free pool/landscaping is included. 

Why wouldn’t you get an umbrella insurance policy instead? You are AT LEAST 10X more likely to do something personally to get yourself sued than your property is. (Car accident, dog bite, pool drowning, whatever.) If you are sued the person who gets your money and your property won’t care how you were holding it. In fact. I would go so far to say in that less than 10% time when your property causes the lawsuit, you’re going to get sued personally as well. Obviously anything that happens on your property was at least partially yoru fault. 

What’s the difference between 4 figures and 5 figures being locked up for 30 days until you close? It goes towards your downpayment. So you are literally losing one month’s interest. 

There’s a pretty easy way around this in 90% of the cases. If they want $10k, and you only want $5k. Tell them you agree the $5k is theirs, non-refundable to you. This proves you plan to close. Otherwise, as others have said you’re basically advertising you don’t plan to close. 

I've put down $20k EMD on $200k properties. What do I care, it's going to be the downpayment in 30 days and I get the deal over someone offering more but wants to put down $5k. It's 100% refundable if you find a problem so you're waving a huge red flag when you fight and die on this hill.

Are the properties empty or worst case on MTM leases you can end in 30 days?

You’re going to get a lower selling price for occupied properties just as you will get an even lower price for selling a portfolio of homes. (They both shrink your pool or buyers and combining them really shrinks the pool.)

Assuming you don’t plan to do a 1031 exchange you’ll also pay higher taxes if you can’t spread them over two calendar years, but not much. 

I’d list them each empty and individually. If you pool them you’ll be “guessing” at each individual value. Good luck. 

How would the bank even know the gross pay amount?

I don’t like it. 

Does your application ask what their work position is? Is it a position they could keep if they were in a different state than their employer? (Or maybe it’s big enough to have a TX branch?) Call them and verify employee status/account paychecks drawn on?

If you don’t want to hire a PM to manage your property I would at least hire one to do the screening.  Otherwise you have to pass.