All Forum Posts by: Eduardo Aguilar

Hi @Gleb Dmitriyenko congratulations on purchasing your first house hack!!! So excited for you!!! I'll start by saying that I am not a tax professional and so would highly encourage you to connect with one in order to confirm or correct any of the advice offered here. 

That being said, if this is in fact a true house hack in which you are living in the home and renting out the rooms, your expenses on the repairs and getting the house ready will be seen  as simple improvements on your home which you can document via your existing tools (excel, etc). Since it's a primary residence, my sense is that you cannot necessarily treat it as a business and so do not need to go the route of registering it as such. 

Definitely will defer to others that have much more experience with this particular strategy but my sense is that for tax purposes you're simply benefitting from the ability to not have to put any (or as much) of your money towards mortgage and utilities. The perks of the house hack as part of your business strategy is that is frees up more of your capital by your renters taking care of the mortgage, to be able to save up and purchase your next investment property.

Hoping this helps and definitely wishing you the best!

Hi @Miriam Velazquez- I'll start by saying that I'd recommend reaching out to a Trust Attorney to get the most accurate information and that I am not a trust attorney and so only offer up the insights that I have gained from trainings and conversations on this topic. 

With this being said, unless there's a specific reason for mom needing to be removed from title (i.e. social security benefits) it may be more prudent to pursue placing the home within a trust with your husband named as a primary beneficiary. This would help you avoid the need to do any type of reassessment and therefore avoid the need to file any property tax exemption/etc with the county.

Additionally, this option would give you guys the flexibility on whether or not to move in while also offering you the capital gains protection via the Step Up rule (https://www.quickenloans.com/l...) In short the trust would allow for you guys to retain control of the property rather than having to go through the probate court process upon your mother-in-laws passing. The Step Up rule would also allow for you guys to avoid paying taxes on the bulk of the equity that was gained by the home as it is reassessed at the time of death of the owner and a new value floor is set should you guys decide to sell. You would only get taxed on the difference between the new value and the sold price. 

Hope this is helpful. 

Hi Jonn- your replacement costs are essentially the costs of building out whatever structure you are seeking to build. I agree with both @Greg Scott @Cameron Moore that the insurance estimate would not be accurate. 

Given this, your replacement costs would be best provided by a licensed General Contractor that can give you an estimate of what the market costs of building the desired structure. From my experience the "replacement costs" estimate in the permit form is typically used to calculate your permit fee. Short of working with a contractor to build out a true scope of work, you can call around to get a general sense of the per square foot costs of construction and use this number and your desired square footage to calculate a ballpark "replacement costs". 

Hope this is helpful. Happy to provide more specific guidance if you want to reach out via a direct message. 

@Wasam Hawari- definitely a tricky balance to maximize the price short of going to market. With that being the case however, you can run a pretty quick and dirty Comparative Market Analysis (CMA) using any of the consumer friendly real estate apps like Zillow/Redfin/etc. Here's a step by step process that will get you a confident range that you guys can base a decision off of that's built on fairly standard appraisal practices.

Step 1) Set the minimum maximum square feet of comps within a 20% up and down range of your home. At 1,300 sq ft, twenty percent equals 260sq ft so set your square foot range to 1,140-1,560. 

Step 2) Activate the ability to view closed sales and see if you can limit the closing period to a timeframe of the last 3-6 months. 

Step 3) Activate the ability to see Pending listings to give you an idea of what price homes are currently going into contract on. Though you won't know what they will close at (unless you contact the agent and they disclose) it nevertheless provides for one way to try to account for present day market value. 

Step 3A) You can further adjust for this by looking at what the list to closing price ratio for the homes that have closed to arrive at a comparable ratio for the Pending listings. 

Step 4) Average out the square footage of the Closed and Pending homes and then divide your home's square footage into the average sq ft of the Closed/Pendings. Write this number down. 

Step 5) Calculate, if not given, the average per square foot price for both the Closed and Pending properties. 

Step 6) Multiply the averaged Closed/Pending square foot price (Step 5) by the square foot ratio that you got in Step 4 to calculate an estimated per square foot price for your home. 

Step 7) Multiply the estimated per square foot price for your home by the actual sqft of your home to arrive at a base value. If you completed Step 3A you can apply the ratio to your base value to arrive at a fairly confident (85-95% confident) market price for your home. 

Remember however that if the plan is for your partner to either do a cash out refi or a HELOC, they will only have access to a certain amount (75%-85%) of the value of the home depending on the refi/HELOC option. For example, most lenders typically will only provide up to 80% loan to value meaning that for a refi, you can only access up to 80% of the current value of the home minus what you currently owe.

For a home purchased at $500K with a 5% ($25K) conventional loan (loan amount $475K) that is now worth $600K, the numbers would look like this. 

-80% of $600K= $480,000 

-$480,000-$475,000 (current loan balance)= $5K that you could pull out in equity. I'm sure you're not looking to cash out for $5K. 

I say all this as buying you out may require for you and your partner to explore a longer term equity option for you. This could mean you maintaining ownership of a percentage of the rents and equity for a designated period (5-10 years). This option does not provide for you to have access to an immediate return but at least gives you the ability to recoup a more equitable pay out based on the income and equity that is generated by the home if a delayed pay out works for you. 

I know that this is a lot of information to digest and so am happy to dive in if you want to send me a direct message. Either way, wish you the best and hope that this info was helpful. 

Hi Ying- there are several contractors that I regularly work with that I would strongly recommend. I'll DM you shortly with some contact info. 

@Jonathan Hernandez- it's my pleasure Brother. If you do not currently own a home, you should definitely look into taking advantage of an FHA or even an Ag Loan which requires 0-3.5% down payment as long as it's your "primary residence". This would significantly lower the cash that you would need to purchase though you would need to run the numbers to confirm that the property still works as a vacation rental at the higher mortgage payment that would result from a lower down payment.

Hey Jonathan-  I have not been in a deal where a Seller has carried back the loan. I've negotiated on behalf of a number of clients to secure a seller credit that is applied to closing costs but have been limited to applying any credit to only closing costs and not down payments. 

If you're buying a home that your intending to use as a short term rental, you can take advantage of a Second/Vacation Home loan which is offered by most lenders. This allows for you to qualify for a 10% down loan rather than a standard 20% down investment loan. A key requirement, that is somewhat subjective to the lender, is the distance between your current home and the home that you want to purchase. Typically trying to use this smaller down payment loan on a second/vacation home within the same city. 

In line with the limits that I've experienced, I did a quick google search that confirmed limitations to a Seller being able to offer credit/down payment concessions at this rocketloan blog post https://www.rocketmortgage.com...

Hope this helps and best of luck. 

Hi John- not being local to your area, I'm not sure what specific steps you would take, but can offer some insights from my experience as a Realtor in Sacramento, CA. Also, wanted to clarify if the property that you're interested in buying is residential or commercial as these may require substantially different processes. I can speak to the residential side. 

In reading between the lines for your post, my guess is that you're speaking of a commercial building purchase. You can see if you can find someone on the City Government Website with the title Asset or Portfolio Manager. These folks are typically entrusted with the oversight and management of the City's real estate portfolios and so could be who you target to open up a dialogue. 

With regards to residential, here in Sacramento, properties that have been purchased by the city and flipped to be put back on market require owner occupancy as part of the sale. Additionally, these homes are offered at below-market rates as the city retains the rights to the land and so is only offering condo-like ownership for the buyer which limits their ability to benefit from any long-term resale equity. These are intended to be longterm primary residences for low-income buyers and so the ability to purchase and convert into an investment is a bit of a higher bar. 

Hoping that this offers at least some guidance that you can lean on as you assess your options. Best of luck. 

Hi @Jacob Hufford, I'm a Realtor based out of Sacramento, CA and so can't lend any local insights to your market, but can absolutely provide some general guidance. Key to you setting a successful strategy will be determining your goal for your investment. Here are some BP resources that you can tap into to get more clarity on this https://www.biggerpockets.com/...

Ultimately, the key considerations that you'll want to get clear on include: 

1. How long you intend to hold the property: Are you planning on a long-term 10-15 year or 2-3 year period. 
2. What is the top result that you're seeking: Are you aiming for immediate strong cash flow or aiming for longer-term equity
3. Are you looking for turnkey or are you willing to put in sweat equity: The prior typically comes with a higher purchase price but lower cash commitment and lower equity building opportunity, while the latter typically comes with lower purchase price but higher cash commitment and a higher equity building opportunity.

Once you get some clarity on these considerations, the next step will be to get preapproved to determine what financial parameters you'll need to operate in as you vet your opportunities. This is absolutely necessary as you will otherwise be simply dreaming of investing rather than positioning yourself to take action. Key factors that will influence what you get approved for include your credit score, income, debts and the resulting debt to income ratio. Here's some targets for each: 

• Credit Score: Try to be above 700, ideally 725> gets you into best interest rates and terms
• Income: Want to show consistency. Lenders like W2 but can work with 1099 independent contractors though you will need two years of filed taxes and ideally a current Proft and Loss statement for your income in order for them to verify your funds. If you 
• Debt: This will be relative to your income, but ideally you are limiting how much debt you are carrying in the form of car, credit card, and personal loans. 
• Debt to Income Ration (DTI): This calculation takes your debts (i.e. car, credit cards, personal, college loans, etc) and adds the possible mortgage payment and divides it by your total verified income. Ideally your aiming for a DTI that's under 43% to again secure the best terms.

This can definitely be overwhelming to take in, but I would encourage to not wait on talking to a lender until you feel that you've landed on the desired target for each of these, but instead get the process started so that you have a very clear understanding of where you currently are and what (if anything) you need to do to better position yourself. 

There of course are many other steps that you can/will take in this process, but this is the first critical ones. Happy to talk through this further and definitely wish you luck as you start your investing journey. Don't hesitate to reach out if you have any questions. 

To add to @Daniel Nobile's comment about the use of the VA Loan requiring owner-occupancy for a year, the opportunity that you have with your VA Loan is to use it to purchase your primary/investment residence, refinance it out of a VA loan to free it up for you to use again. I'm not sure if there is a limit as to how many times this "recycling" can be done but to answer your questions @Zachary Aube it can absolutely be done. 

Key to your ability to deploy this strategy however will be to build your knowledge as an investor, starting with defining your goal(s). I'm a Realtor in California and am having to let me investment clients know that in my region of Sacramento, the opportunity to secure a long-term rental with strong cash flow is not high. So if my clients goal is to generate sizeable monthly income after expenses, the Sacramento market might not be the place to be for this. That being said, if cash flow is not a top priority and their goal is to build a longterm portfolio with solid equity, then Sacramento is an excellent market as its in this perfect nexus of having a strong employment base (government, health and education) and being a mid point between the Bay Area and the Sierras. 

What I've been turning investors onto is the opportunities that exists for short term rental investments that can yield a much higher monthly cash flow or at minimum provide access to a subsidized vacation home that can be enjoyed by my clients. All this to say, determining what you're goal is needs to be at the forefront of your strategy. Happy to talk this out further in this thread or via PM. Keep me posted and best of luck!