All Forum Posts by: David Neely

@stevenhamilton :

That's much simpler than the 2 page email I got explaining it. Thanks for putting it into "knuckle dragger" terms for me.

Cheers,

Dave

I discussed this with my CPA this afternoon (after posting) and the short version is that there are several methods to deduct the interest payments (or put them against gains), they just wouldn't show in a 1098 like a conventional mortgage....and a whole bunch of explanations of code that I couldn't begin to replicate here lol..basically, if i only use the LOC for real estate investing, it can be deducted. however, if i use the LOC for anything else, it would have to be leveraged against other gains.

Thanks for all the input. I think I'm going to give it a whirl. I still have concerns about liabilities, but I think a refi would eliminate that (though I haven't consulted an attorney about that)

Dave

Hello BP,

I'm negotiating on a quad right now. The company I invest in the stock market with offered me a LOC utilizing my portfolio as backing with a 2.5% variable rate, no fees. They told me that while the interest isn't claimable on tax deductions, it can potentially be used to offset capital gains, etc. The big bonus is essentially turning it into a cash buy however, meaning quick closing and no "vetting" process from the lender on each individual deal, which as we all know can be a real PITA.

Anybody see any downsides to this over a conventional loan at ~5%? (The obvious ones being that the variable rate is susceptible to rising, meaning the need to refinance if/when that time comes) and the lack of a direct tax write off). 

Not that anything on here is considered legal advice, I've read the disclaimers, but after listening to podcast 109 would this method of funding open up my stock market portfolio to possible legal action against me? I purchase under an LLC (admittedly, I haven't gone as far as 109 has suggested, but baby steps are being made).

Thanks for the feedback, as always thanks for the help!

Dave

While I tend to agree with you all that it was a decent deal, let me add a plot twist that I probably should have included in the original post..

Back in July I used this realtor to purchase a lot for the construction of my primary residence. This realtor works directly with the builder (who was the owner of the lot already) and the builder is one of 3 approved builders within the development. We asked if we could get a privacy fence, to which the builder and realtor both announced "no problem". We removed $9000 work of options from our house and paid an additional $1500 cash for the fence. We closed in November, and about 2 weeks later received notice from the HOA's attorney's stating we were in violation, remove the fence or face legal action, etc. etc. (obviously there's a lot more to the story, but that's the gist). Come to find out they knew all along, but were in a feud with the developer so the builder did it as an "f-you" to the developer.

Anyway, would you still be so quick to get into bed with this realtor on a deal like this after "the great fence incident of '15?" Particularly once you consider legal fees, credit checks, etc, and my most valuable asset (time)? I don't know..just didn't seem worth it to tie up so much liquidity at a 7.5% gross. But maybe I did miss out on some easy money.

Thanks for the feedback,

Dave

I lived in SoCal for most of my 20's. It was incredible. Absolutely amazing. I met my wife there (who is from the Bay Area). No regrets about my time out there at all.

That being said..

Once life got "real" (I got married and had kids) work brought me to TN. The cost of living out here, to include REI opportunities opens so many doors that would not have been available to us in CA. I'm not an appraiser, but the house I just build was just north of 300k...in Coronado, where I lived, my guess is it would easily be a $4 mil+ property with the land. The opportunities are there in CA, don't get me wrong, but they require a lot more money than I had available to get into them.

Cheers,

Dave

So I was presented an opportunity from a realtor I work with, that I eventually turned down, and wanted to get feedback from those on this forum that are smarter than I am on this stuff (i.e. everyone) as to if I evaluated correctly. (Background: I'm a buy and hold guy, not a lender..so this was my first "exposure")

The deal: Person "A" is moving here to work in Factory "B". "A" is not a U.S. citizen and is having a hard time financing a house through conventional means, despite owning 3 businesses (location/type unknown). They want to build a 265k house, with 120k down at closing. "A" wanted my to pay the balance on the house (providing the mortgage) with the following terms:

1 year ballon

7.43-ish % ($1500 per month as offered by "A")

Analysis:

So here's where I started to see red flags: 

1) He wants to put 120k down on a 265k house at closing, and pay off the note in a year, but can't liquidate enough funds in the 4 months construction time to pay cash? I have serious doubts on raising that kind of capital to pay off the ballon, and then I'm stuck with a 265k house I don't want or need.

2) While an "expensive" ballon loan, 18k really isn't a great ROI when we're talking investment properties vs. where my money is tied up (as compared to purchasing cash-flowing rentals utilizing leverage)

3) I know Factory "B" pays well, but not so well that he could cover that balance in a year AND still eat anything other than ramen noodles 2 x a week as a strict diet.

Unfortunately, these are the few details I was provided, and the concerns I addressed with the realtor that brought this offer to me..

So, what do you think? Would you have loaned the money? 18k over 1 year at ~7.5%?

(Obviously, this post discounts the fact that I didn't proceed to performing the due diligence of contacting references, rental histories, proof of employment/salaries, etc.)

Thanks,

Dave

I'm all for it...I'm away from home 7-9 months every year...quite literally. While I've been very lucky in my investments and dealing with PM's so far, it would be nice to have a place to compare notes and offer solutions to our unique situations, etc. Great suggestion.

Cheers,

Dave

We closed! Already I'm appreciating multifamily investments over single family. But then again, I'm using a property manager so the burden is fairly comparable (so far lol).

Again, thanks for everybody's feedback! Please contact me directly for any lessons learned, "coulda shoulda woulda" or if you have a large scale project that you'd consider bringing somebody in on.

Dave

First off, thanks for all the replies...

We ordered a second appraisal and it came in at over sale value (289). The overall feedback (bank, broker, etc) was that the first appraisal was way off (how did the property lose over 20k value in 5 years since the last appraisal in a solid market?). The seller tried withdrawing and demanding more money, but after threatening a forced sale/lawsuit under TN law based on a signed contract for lost income, commissions, etc., the seller agreed to the agreed to continue with the sale as defined under the contract, so I'm moving forward and should close in the next week or so.

Again, thanks to all those that replied for your valuable feedback and the education that the BP community provides!

Dave

Thanks for the large number of replies! I think everyone brought up some excellent points and I'll try to address them to hopefully give a better picture:

Yes, the bank lowered the amount they would be willing to loan based on the appraisal, meaning more cost out of pocket to me if the price stays.

I haven't been able to discern the reason appraisal was so much lower. It's in a pretty stable market/area, with comps similarly priced. I will say there are similar physical structures in the same city priced almost 100k less, but they are in terrible neighborhoods combined with high vacancy rates. The appraisal didn't reveal any major structural issues or the like that would demand a lower price.

The NOI was based on the previous 12 months, as supplied by the current property manager. Everything appears to add up on my end to lead me to believe that even if they are not 100% accurate, they're close enough to use for calculations and future projections.

No renovations required at this time. I may end up doing a little painting on the exterior, but any expense would be minimal. I'll be paying a 6% management fee.

At this time we're renegotiating. I think I said it in my first post, but as far as we can tell the only reason the current sales price was the lowest the seller would come to is because that was the price they paid for it. Hopefully with the appraisal in hand they recognize that if i walk they probably still won't do any better 6 months from now with somebody else. I'll keep everyone posted on how things progress.

Thanks!!
Dave