All Forum Posts by: Charles Situ

https://www.irs.gov/publicatio...

Yes.  "The 24 months of residence can fall anywhere within the 5-year period, and it doesn't have to be a single block of time. All that is required is a total of 24 months (730 days) of residence during the 5-year period."

As others said, there isn't enough information to provide a decision. Is the HELOC on the same investment property or is it on your primary residence? What are the rates on the 1st mortgage vs the HELOC?

I agree that generally HELOC is for short-term needs. But perhaps you want to pay off the first mortgage with the HELOC and just want to have flexibility to pay a variable dollar amount whenever you like and not have late fees if you don't make a minimum in any one month—you just pay interest instead. Maybe you want this because your total cash flows fluctuate a lot and don't want to have keep a lot of cash reserves.

You may hear some investors using HELOC as a strategy for purchasing NEW properties. I think that works well if you have lot of equity in your home and don't have a lot of cash. Having an HELOC in place allows to you participate as a cash investor, if the size of the HELOC is large enough, to win deals since the HELOC is easy to draw on—no waiting around a month or more for lender to approve a loan. It also avoids a few thousand dollars on closing cost for a new loan. Generally opening a new HELOC has very small closing costs (appraisal is the primary portion). I have even seen some lenders forgo all the fees/cost if borrowers draw a certain amount the first few months.

@Junior Jaquet Hernandez Typically the same companies that sells you auto or home insurances can sell you umbrella. Umbrella is sometimes used interchangeability with excess liability insurance. They are like a back-up or an extra on top of where the liability portion of your auto or home insurance are not enough. But umbrella goes beyond where you may have existing liability insurance and is more broad. They are designed to cover situations where someone may sue you. 

@Lyn Green I was saying that it is a common misconception that you can write off more items with an LLC than not. But some examples of items you can expense if you have real estate, regardless of the entities it is in, are travel expenses to look at properties, marketing if you did direct mailing, and home office set up. I think meals and entertainment expenses were removed from the last tax reform.

I am curious, did you already filed your tax returns after you established your LLC? I filed my single-member LLC as "disregarded entity" and therefore it is not recognized as an entity separate from my personal for tax purposes, and my LLC real estate are in schedule E, not C. My accountant says that Schedule C is for "trade and business" and are subject to self-employment taxes. But for legal reasons, I do keep a separate bank accounts for the LLC and track the flow of capital to prevent from co-mingling funds.

The pros to an LLC is protection of personal assets outside of the LLC. But if you want to protect your personal assets and not do an LLC, you can obtain umbrella insurance.

The cons are higher financing cost compared to conventional. LLC loans are considered commercial and have rates that are higher, generally fixed for a few years & then float, and have shorter amortization period (max 20 years). Many believe that LLC have more tax benefits since it is easier to write off expenses. But I find this to not be true. 

@Lane Kawaoka I do have enough assets and income for accredited investor status. I was curious, have you seen returns shrink also on the syndication side as well? 

@Jared Rine I think you are right. I am finding there are some longer term unintended consequences with an S Corp.. And this lender shouldn't have been giving me accounting advice. But at least she pointed out I had fewer Fannie slot than I thought. I done 3 conventional loans in the last year, but none of these lenders pointed this out to me.

@Jared Rine Yes, definitely have to consult the right person. My accountant said Schedule C is not for passive real estate investment and I would be subject to self-employment. But he said he has clients that puts them in S Corporations. Now I have to consult my attorney about creating the S Corp, have my LLC deed the properties to the S Corp, and make sure I am not required to pay off the loans the LLC has when I deed the properties to the S Corp. All of this comes at a cost and I have to make sure it is worth it for obtaining the lower financing cost from conventional versus commercial financing.

Would anyone have an insight if properties in an LLC go towards that count? And despite being in an LLC not normally be counted, would it count if the financed properties are in my Schedule E of my personal tax returns? I have 3 properties with loans in my name and 6 properties with commercial and private loans in an LLC. I originally thought I have 7 slots left because the 6 properties are in an LLC and the loans on them don't show up in my credit report. But a mortgage broker consultant with a couple of lenders who both said they need to count them because of they are on my Schedule E, and therefore I only have one slot left. They told me get to around it, when I do my taxes next year put the LLC properties in Schedule C instead. But I consultant my CPA who says that rental properties don't go in Schedule C and even if I was able to put them on Schedule C, I would be subject to self-employment taxes.