All Forum Posts by: Darren Jordan

Hello BP,

If anyone can answer the question to this scenario I'd appreciate it! I don't believe it is too complicated but scoured the web for awhile with no luck answering my question.

The scenario:

A family member (father) buys a 'secondary residence', which includes a mortgage loan under his name to purchase the property but also puts his son's name on the deed along with his own name (father).

The son moves into this property and lives there for 5+ years, he assumes all responsibilities (pays mortgage, property taxes, insurance, etc.) and also files the mortgage interest every year with his taxes.

In the event the property is sold. Who reports the sale of the house to the IRS? Can the son do it? 

What it really boils down too, can the family avoid the capital gains tax on the property at time of sale since it was originally established as a 'secondary residence' but really treated as a 'primary residence' for the son over the last 5+ years.

Thanks in advance!!!

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $121,500
Cash invested: $54,000
Sale price: $193,000

My partner and I just completed our first fix and flip! Our return was small but the knowledge gained was priceless. On to the next!

What made you interested in investing in this type of deal?

We were originally looking for a deal to complete the BRRRR method on but the numbers didn't make sense in the end so we flipped it instead.

How did you find this deal and how did you negotiate it?

Through a large wholesaler here in Houston. Won the house with a silent bid.

How did you finance this deal?

Partner and I put our money together to purchase it in cash and were able to fund the rehab with cash.

We considered using a hard money lender which I'm grateful we didn't because we likely would've lost money on this deal if we did. We gave ourselves a larger than normal timeline for this project as this was a part-time deal for us and needed to prospect different contractors.

How did you add value to the deal?

This property was in very bad shape, we nearly had to rip most of the house down to the studs. Other than structural / foundation areas we touched just about everything in the property. Brand new interior/exterior paint, windows, cabinets, counter-tops, trim, floors, plumbing, HVAC, water heater, and the roof!

What was the outcome?

We originally ran our analysis on the property at an ARV of $185k prior to buying it which at the time we thought may be more on the optimistic side but felt it was doable. By the time we were ready to list it the market just began to heat up and with our property much nicer than any of the other comps we decided to list it at $199,900. We received a full price offer in 1 day! After our appraisal fell short, we ended up only getting a 5% ROI and sold the house at $193,000.

Lessons learned? Challenges?

I need to find better deals! The wholesaler we used was quite a large outfit in Houston. I have no animosity toward them but after closing this deal and after evaluating several other properties of theirs they really don't leave much room for error, if any, to make a decent return.

Luckily we set our expectations low. We told ourselves as long as we don't lose money we had won. We truly took this first deal in as a learning experience to set us up for the next one.

@Anthony Rosa

I would classify the neighborhood as a class B, most of the homes are built in the late 80s. The neighborhood is quite large with 100+ homes and has a HOA so it is decently maintained.

I'm not sure if the area has a large amount of section 8 renters but I will say for this particular zip code the HHA/HUD offers 130% of the FMR for section 8 tenants which I believe is attracting more section tenants to the area. Their voucher will go further and properties are in much better shape.

@Tamara Deering

Thank you! Full disclosure, before buying the property we had zero knowledge of section 8. It wasn't until someone called and asked if it was available to section 8 tenants that we started doing research and quickly found out that there is a high demand for this demographic. We weren't getting much interest on our house when we listed it through various websites (Zillow, Trulia, Craigslist, etc.) but when we opened it up to section 8 I probably received at least 10 inquiries on the first day it was listed on the social serve website which lead us to working with section 8 applicants.

It made our decision even easier once we found out that at least 70% of the rent is paid for by HUD, eliminating a majority of the financial risk. Other than my comments on applicants not showing up to appointments I can't complain to much on working with section 8 tenants thus far. From the serious inquiries we actually had and those who followed through with meeting with us they are SUPER grateful for the opportunity.

To answer your question. Are we happy with our decision? Yes, while it has required a little extra patience working with section 8 tenants and even the housing authority for that matter I would do it again. I am still actively looking for houses in the same market now to serve the low-income demographic.

@Patti Robertson 

Amazing post! Wish I saw your post when I was doing research on this topic in the beginning! Very informative.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $440,000
Cash invested: $50,000

In Sawyer Heights area, originally purchased as our personal residence but have since moved out and is now being rented.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $147,000
Cash invested: $40,224

Nice 3 bedroom / bath house located in a large older neighborhood in North Spring Texas.

What made you interested in investing in this type of deal?

Spring's job creation is growing faster than other areas around Houston and the appreciation rate over the last couple years has been averaging 9 - 10%.

How did you find this deal and how did you negotiate it?

Found on HAR MLS. We found out the seller had a buyer fall through just a couple days before actual close deadline due to financing issues so we leveraged that by insisting we'd be able to close with no issues. Our initial offer was 10k below asking we ended up settling at 5k below asking.

How did you finance this deal?

20% Down, Conventional Loan

How did you add value to the deal?

The house had recently been renovated with new carpet and granite counter tops. We did add some high end appliances but not much more was needed.

What was the outcome?

We made the house available to section 8 tenants and quickly found a tenant to move in.

Lessons learned? Challenges?

Be patient with section 8 applicants, had numerous inquiries and appointments set up but when it came time for them to come see the property a majority of them would go silent or not show up for the appointment.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $165,000
Cash invested: $12,000

A property my brothers and I purchased while we were in college. We did live in the property while we attended college. Once we graduated we quickly began renting it out. It is just a few blocks from the University of Texas at San Antonio campus.

What made you interested in investing in this type of deal?

At the time we were very uneducated in the world of real estate but knew if we needed a place to live together we'd rather pour our money into a house that someday we'd hopefully get a return on.

How did you find this deal and how did you negotiate it?

Local realtor, home was new construction.

How did you finance this deal?

FHA

What was the outcome?

Currently still own the property and is being rented out. We currently break even on the property every month. With the house now appraised around $220k and a significant portion of the loan paid down we are thinking about refinancing the property to a 30 year note to actually create an opportunity to cash flow and take the extra cash from refinancing and put it into one or two more rental properties.

Lessons learned? Challenges?

When we originally purchased the property it was a 30 year FHA loan with close to 6% interest rate! About 4 years ago we refinanced (Should've refinanced years earlier) to a 15 year loan thinking it was a great idea. The rate did drop by 2 whole points but we still break even on the property every month. Looking back I think we should've refinanced the property at a 30 year note and we could've cash flowed around $300 per month.