All Forum Posts by: Chin P.

Originally posted by @Samir S.:

I apologize for the formatting; it didn't come through how I typed it on my phone.

 This happens to me a lot when I use the phone app.  I type perfectly reasonable paragraphs and spacing, hit send, and then it shows up all mashed together as a post making me look like I've got a strange stream of consciousness going.   

Hi Victor Eng

Gilbert Dominguez makes some good points and that sounds like a good route to go. Another thought is how willing you are to sacrifice your personal living situation for awhile. Assuming you're past your first year (or whatever other term your loan may require if you are required to use it as your personal residence), and if you have a family they are okay with it, then you could move to a lower cost living situation and rent out your initial house.

Some options are temporarily staying with family, finding the cheapest rental you are comfortable with, finding a friend with extra bedrooms willing to rent to you for a short defined period of time, living with roommates, etc. Essentially, you're looking to trade your current situation for a materially lower cost situation. Should generate you a bit of extra cash flow if, for example, you're current situation costs you $1000 a month and you can find something for a lot less than that. I'd want my exit options defined before doing that or have a situation where I could be there longer as there may be issues with getting a bank consider the rental income your first property is generating with regards to length of time you're generating that income when you go looking for that next loan.

Some things I've personally done:

Lived with family and rented out my personal residence. I basically needed to be out of the area for two years and wanted to keep my place and was lucky enough to stay very low cost with family and basically bank the rent payments every month.

Lived for 11 weeks in Washington DC for $900 total around 2007 in a decent area. Basically needed to be in DC for a summer internship and was making decent money but figured I could pay for a trip to Europe by renting cheaper than what a lot of my friends were doing. Found a house rented by a bunch of grad students where 1 was studying abroad for the summer and I took over his portion of the lease for that time. The more applicable point is you can save tons by living with roommates, which I've also done.

Also, have you considered whether you'd be willing to rent out any extra bedrooms in your personal residence while still living there? It probably won't make a difference getting the second loan, but it's a way to generate income without having to get a second property.

Hope this helps. Good luck.

To simplify the concept, depreciation is just a question of whether you are allowed to take 100% of a cost as an expense today or whether you must take the expense allocated in some fashion over time.  Most costs in a business are allowed to be considered an expense immediately and you get to take an immediate deduction on that year's tax return.  Stuff like labor costs, office supplies, etc.  

Some things the government and the accounting world has considered to have a useful life of multiple years and has required that you are only allowed to recognize that expense and take it as a deduction over that useful life.  Think as examples 27.5 years for buildings (40 years under MACRS), 5 or so for computers, 5-7 for cars (I'm going from memory so the years may be off) .   That estimated life may be different depending upon what you are doing, so don't fixate upon the number of years too much.  

So in your example, that 50k purchase plus 50k fix up is not allowed to all be taken as a tax deduction in the year of purchase.  Rather, you have a $100k basis in the house and are only allowed to take 1/27.5th of the $100k as a depreciation expense each year.  Depreciation is the name for physical assets and amortization is the name for intangible assets like goodwill.  Hope this helps.

@Marco G.undefined. Good point.  I didn't see your post before I made mine, otherwise I'd credit you in my original post.   Personally to me that feels like a lot of debt to comparatively little income but I'd not rush to judge until I ran the numbers once I got the debt service info.  I'm thinking (but could totally be wrong) that she needs the roommate to make rent and should be looking to enroll in one of the federal debt forgiveness programs.  Haven't looked into it myself but I think I recall some income based repayment ones and non-profit/civil service career ones floating around.  If that's the case maybe all the student loans are rolled up into a long term or income based repayment plan with the hope that lots of the principle is forgiven by the government after 10 or whatever years of payment.   In that case monthly payments might be relatively smaller than a typical student who is repaying all of a similar amount of student loans over a shorter period of time.

Definitely need to get the monthly debt service amount. It makes a big difference over what term that debt is being paid off. $270,000 student loan debt feels like both undergrad and law school were done on loans to some significant extent. Another $100,000 of debt for what? All credit cards and I'd be cautious of someone living beyond their means without a good explanation. Interesting that payments started in June. Just graduated or loans were deferred for some period? Either way it feels like a short period of time where the person has been carrying the full load of debt payments. I'd want to get comfortable that there's enough coverage of rent, debt and normal life expenses. Just get the mandatory payment info and compare to the usual benchmarks they suggest online. I assume you're qualifying the roommate separately. Good luck.

Max Kim Disparate impact is an interesting topic. There was a recent Supreme Court case this June on it. I don't want to appear to be giving legal advice, so will refrain from commenting on the topic. Here's a decent summary of the recent Scotus decision. http://www.scotusblog.com/2015/06/paul-hancock-fha/.

This thread looks on topic. http://www.biggerpockets.com/forums/51/topics/74512-legal-repercussions-of-renting-your-primary-residence

Sorry, I don't have any handy tools for you. I used to see and review a fair number of cash distribution waterfalls in the private equity/asset management world and the math really isn't all that complicated for any particular situation. Since you're talking about an Excel model, I think the trick is automating the calculations in a way that will handle all possible situations--which can be a bit more difficult. I once spend way too much time automating selling shareholder participation for an IPO where the private equity investors were providing an opportunity for employees to offload a pro-data portion of their stock options to match what the PE guys were selling. Don't ask me why they had the attorney doing it, I kept hinting that there had to be someone better than me who does this type of thing for a living for way cheaper than my rate but was ignored by the client. You should try to build your model as best you can, but you've got to be methodical in stress testing the accuracy of the model in all sorts of cash distribution levels designed to trigger and not trigger each step of the waterfall to ensure that your model is accurate. Once you've tested your model this way, you can rest easier that the model will correctly calculate distributions. You should also have "fresh eyes" stress test it also. It's like reviewing your own writing, you may miss stuff since you're so wrapped up in the model and another or a few set of eyes will catch stuff you may have missed. Hope this helps. P.S. Just to be safe, this isn't meant to be legal advice and if you feel like you need legal advice you should contact your own attorney.

You're right Tony. The interest must have been recently updated from the last time I checked. The interest rate seems to have been updated a few times and depends upon when the tenancy started. From the MD Attorney General's office: "The landlord must put the security deposit in an escrow account. When returning security deposits of $50 or more, the landlord must include simple interest of 3 percent per year, ac-crued at six-month intervals from the date the security deposit was paid for all tenancies that were initiated prior to January 1, 2015. For tenancies that began January 1, 2015 or later, the interest rate is payable at 1.5% OR the simple interest rate accrued at the daily U.S. Treasury yield curve rate for one year, as of the first business day of each year, whichever is greater. The Department of Housing and Community Development has a Rental Security Deposit Calculator on its website at www.dhcd.maryland.gov to make calculation of this interest rate easier. A landlord must pay 4 percent on deposits held before Oct. 1, 2004."

Thank you for the reply.  I believe that Maryland requires an "escrow" account to hold security deposits, which I imagine is so that it's kept safe from you or your business' personal creditors in the event you go belly up.   I walked around to some of the local branches of national banks but none of them seemed to have or want to do escrow accounts.  I was hoping someone had a suggestion on a good bank or other financial institution to use that was easy o setup escrow accounts with.