All Forum Posts by: Cassie Chun

@Michael Borger

Thanks for the insight!

@David P.

It sounds like you are referring to the state and local tax (SALT) deduction which is capped at 10k. SALT is a part of an individuals itemized deductions (Schedule A) and is not related to the tax benefits/deductions you realize on investment property (Schedule E). This is just from personal experience as I am not a tax professional.

@Michael Duncan

Good to know! Thank you for the information.

Cesspools are relatively common in certain areas of Hawaii. I have a fix & flip property with a cesspool and the wastewater department will not approve/sign off on our building permit until the cesspool is upgraded to a septic system. If anyone has experience with this process I’d love to hear from you.

Some questions:

1. Is it possible to sell a house with septic plans drawn up by a licensed engineer but pass the tank installation onto the buyer? (Sell the house with an open permit)

2. Does it make more sense to pay the $20k to get the tank installed and then increase the list price to recoup that money? I’m just not sure how much a septic increases the value of a home that was previously on cesspool.

Any and all advice welcome. I’d be curious if any Hawaii real estate agents have thoughts on this.

We purchased a SFH in August 2019, fixed it up, and sold it in January 2020. It was never rented during the time we held it. My CPA reported depreciation on my Schedule C. She said we should depreciate the property because we will have to recapture that depreciation when we report the sale for 2020 whether or not we took the depreciation in 2019. She is not aware of anything in the tax law to say you can't depreciate this type of property. I didn't think you could or should depreciate fix and flip property (says everything I've read on google). Can anyone help me clarify this?

@Chris Mason

Thanks for the insight!

I just learned of this yesterday so here is a brief explanation for those who don't know what Buy and Bail is/was...

A buy and bail transaction is where a consumer decides to rent out their primary residence to take advantage of buying a bigger, or better home for less than what they owed on their current home. This was a big deal during the real estate crash in 2007/2008. A consumer uses the rental income from the previous primary residence to qualify for the new home and then allows the rental home to go into foreclosure. In response, mortgage underwriting guidelines morphed to identify and thwart “Buy and Bail” applications and anyone converting a primary residence into a rental in order to buy a new home were required to have a minimum of 30% equity in the rented home before rental income could be used to offset the mortgage payments due on the new home.

I read on a blog that Fannie Mae removed the equity restriction in 2015 and homeowners can rent out their current residence and use 75% of the rents received to offset the mortgage payment on the new home.

My brother applied for a new mortgage and wants to use current rental income from the 3-unit he lives in now, but the lender told him that his current home must have 25% equity before the rental income can be considered. He referenced the Buy and Bail rule as the reason for this requirement. The current primary has roughly 15% equity. It was purchased just 12 months ago with a 5% down payment.

Is this Buy and Bail rule still enforced by Fannie/Freddie or is it a Lender specific requirement?

Has anyone experienced a similar situation and found a creative and legal way around the equity requirement?

I think @Lane Kawaoka has contacts in Birmingham. He's a local (former SFH investor) guy doing syndications.

@Caleb MacDonald Hi Caleb. I have heard of landlords incorporating a "utility ceiling" into their leases. For example electric up to a certain dollar amount is included with the rent, and anything above that amount is the responsibility of the tenant. You would have to spend some time figuring out what a fair/reasonable ceiling is. 

Check out Cory Nemoto with KECO Capital. He’s on Oahu.