All Forum Posts by: Brendan H.

One advantage to buying props with foundation issues, is you weed out lots of the competition. Many people opt out at the first hint of a crack.  Those buyers may drive up the price if the house has no issues. But with them gone, now you have a better shot at getting the property at a better value.  
In your specific situation, get it under contract and get some quotes on repair costs.  With the previous 3 buyers backing out, you have some leverage as the Buyer now. 

I would recommend using it for short term plays. HELOCs are variable rates, so with the rising interest rates, the HELOC payment will continue to rise. So, you could use it as part of a BRRRR strategy. Use it to buy a property with cash, then ReFi and get most of your money back and pay back your HELOC, as you won't pay interest on the amount you pay back. Then go do it again.

Or, use it for the rehab portion. Buy a property with a loan, then use your HELOC to do the remodel work. After you remodel, ReFi and get some or all of that money back, and pay back your HELOC, until it's time to strike again.

Debt consolidation is also smart. The more consumer debt you have (at high interest rates), the tougher it can be to start investing. 

good luck!

Also kind of depends on your overall goals / strategy. If you're trying to live off cashflow, then you definitely need to be more conservative in factoring in the CapEx, because those costs will arise. If you have solid W-2 income, and can absorb some additional costs at some point with your own cash, and real estate is your way of building wealth over the long run, then maybe it's okay to roll the dice on a growth / equity play. A lot of investors say only purchase if the cashflow makes sense, but if you're in it for the long haul, then sometimes a growth market will beat a cashflow market. Just need to be able to cover those costs either way when they arise.

You’re The Man, Dave! Thank you!  

Thanks for the input! How does debt servicing play into the equation? Does the IRS care about debt, as long as it is a move-up in value, and both are on title? The spouse would need to sign the Deed of Trust in order to give security interest over to the lender.

Clients just sold a property & are 1031 Exchanging to a new property.

Both the husband and wife were on the title, and the loan, of the relinquished property.

They will both be on the title of the new property.

However, is the wife required to be on the new loan as well? Or can she remain off the loan?

They would prefer to keep her off the loan if it doesn’t impact the 1031X.

Thank you!

@Yixue Zhao

Congratulations!

@Dave Foster

Thanks for the inputs!

So if paying taxes is one of their big concerns, are there any creative solutions? Particularly to ease the depreciation recapture hit? Trying to find more of a win win so they remain interested in selling .

A friend recommended paying a higher interest rate for a couple years. Maybe something along those lines could make up for some of the depreciation recapture?

Or maybe we could:

A) put more cash down to cover more of the depreciation recapture for them (although their cap gains tax would increase).

B) if putting more cash down, maybe we could lower the purchase price / loan value?

Their main concerns are a big tax hit, as well as monthly cashflow.

Any other ideas to put this deal together??

@Chris Seveney

I am also reading about depreciation recapture. It appears as though it could be an immediate tax on the recapture. Any CPA’s available to explain this portion, please?

So let’s say they bought for 400K, 17yrs ago. If they are depreciating on the 27.5yr plan, then they depreciated 14.5K per year. Over 17yrs that is approx 250K.

The way I am reading it, they would need to pay immediate cap gains on the 250K depreciation recapture. So approx 37K (based on 15% tax rate) assuming their joint income is below 496K for the year.

Does this sound accurate?

Any other strategies to consider if I want to buy the property, but the Sellers are concerned with taxes?

Thanks again!

@Yixue Zhao

Wayne (above) is correct. Seller is not obligated to cover the difference. It basically comes down to negotiating and if the 5K gap (in this example) is still a gap, then both parties walk away.