All Forum Posts by: Martin M.

@Arthur Means

Hi Arthur,

Have you read the Avery Carl book on STRs? If not, I'd check it out. It's an easy read and is slanted towards driveable destination markets like those in TN. A lot of good info. in there, especially for folks just starting out.

https://store.biggerpockets.com/products/short-term-rental-long-term-wealth

Good luck!

@Aaron L Rohlin

It's very common to have the LLC that will hold the properties, created/registered in the state where the properties reside. In your case NY like the other posters are saying.

Regarding the umbrella insurance...  you may know this already, but you need it. Whether or not you have LLCs in place.

You mentioned you have tax questions. You may already know this too but mentioning just in case. The relationship between legal entities (LLC, Corporation etc) and taxes can be a bit confusing if you haven't looked at this before. I think of it this way, a legal entity is just that, a legal container or a bucket, and that container will file taxes in a specific way. How that container files, is going to depend on multiple factors and this is where a CPA knowledgeable with real estate investing comes in. Generally speaking though, from a tax perspective, for LLCs, these are "pass through" entities. I'd google that if not familiar. Also, if you're flipping these run down properties, google "dealer status".

For your attorney search, if you google asset protection attorney new york, you may find additional attorneys that could structure your entities. Once the entities are created, be sure to understand your ongoing and repeating annual document requirements/responsibilities for those entities. The entities are only as protective as the paper work associated with them.

Lastly, with you partnering with someone, that can become much more complicated from an entity and tax perspective, but it sounds like you're already aware of that. Be sure to spend the money and sit down with a business minded attorney to document the "what ifs?". If party A wants to sell a property but party B doesn't, what happens? What are the rules going to be for each party withdrawing money from the accounts that are associated with the properties? Assuming you create LLCs, who will be the LLC members, just you or you and the other investor? Would you be better off taking a simpler approach to start, where just you are the business owner and the other investor invests in your projects, and there's a contract in place between the two of you stipulating the terms and returns?

Hope this helps!

@Kevin Kim

That 2.75% sure is a nice interest rate on an appreciating property in a good area. You may know this already but know your numbers, i.e. account for vacancy and property management as already mentioned. Is garbage/recycling included in your HOA payments?

One of the bigger challenges with investing in an HOA based home is how much input the HOA can have with regards to your ability to rent the property.

Your current bylaws may have limits on how long a unit can be rented for, whether or not units can even be rented etc. If you haven't scrutinized them already that's a good next step... and note, these can also be modified in the future by the association (although that can be more complicated than it sounds)

If it were me and I was able to afford hanging onto the place I would, assuming the HOA allows the rental, but I'd go into it eyes wide open, knowing that at any point in the future the HOA could enforce that I could no longer rent it (at which point I'd sell)

Good luck!

@William K.

Answers to your 1, 2 and 3 questions:

1. It's all about removing liens that are attached to the property. The key is attached to the property, not the person.

2. Similar to question 1, generally speaking yes, winner would also have to pay senior liens if they want to obtain title (ownership) to the property

3. I'm fairly certain that second position lien holder (the one foreclosing) would be paid in full. I don't know how the excess funds would be distributed.

Peter's making some really good points. Buying foreclosures isn't for the faint at heart and it's easy to lose a lot of money if you don't fully understand lien positions and such. Sadly, a lot of people make very costly mistakes at auction that are legally binding and can't be undone.

The book Bidding to Buy may be a good place for you to start. It breaks down a complex topic (foreclosures) into understandable terms. If you haven't read that I'd highly recommend it.

Also if it were me, I'd maybe start with only first position liens until you're really comfortable with the process. It's still risky, but not nearly as risky as bidding when a junior lien holder is the foreclosing party. Hope this helps. Good luck!

@Tyler Lingle

It varies as you might imagine. A bit higher than 2% is fairly common in pricier areas of the city and some of the burbs

@Alexa Intong Broadly speaking hard money's typically used for shorter term projects because of its terms and the high interest rates. As an example of where hard money's often used, an investor buys a run down property with hard money for say 100k, they rehab it and sell it for 150k and immediately pay back the hard money lender. Even though the cost to borrow was high, the profit from the rehab and sale was enough to justify/cover the high costs of it. Hard money's also sometimes used to do a rehab and then "cash out refi" on a property.

Bigger Pockets has a short book called Investing in Real Estate with No (or Low) Money Down. I haven't read it but that may be worth looking into as well while you're building the income at your partner's job.

@Alexa Intong

Hello, have you guys looked into "DSCR" loans? They're somewhat similar to commercial loans in that they look at the ability of the income from the property itself to cover the mortgage, as opposed to the focus being on your own personal DTI.

They can be better than commercial loans in a sense too, in that with many DSCR loans you can often borrow at a higher LTV (some offer 80% for example) than what you can borrow with many commercial loans.

@Wayne Brooks

@Wayne Brooks

Understood. The point was more around the quantity of notes he wholesales... and to ask a CPA.

Re: flips, actually there are instances whereby a flipper is required to pay "SE" taxes (15.3%) on all of the profit from a flip... and other instances where they do not pay on all, depending on multiple factors. In other words not all flips are taxed equally....

If your point is ALL flips (active income) are taxed heavier than long term passive rental income, sure... but I read the original poster's question as a comparison between taxes on wholesaling a note and taxes on house flipping

@Anthony Howell

The heavy taxes from flipping are typically because the IRS assigns you what's called "dealer" status based on selling multiple properties in a year, that you've owned for less than a year. It's that multiple per year part that's key.FYI, dealer classification applies to more than just real estate too, i.e.if you sell 5 cars in a year you bought that same year etc

For notes, I'm not sure. A CPA would know best. My guess though is if you wholesale just one note in a year, no dealer classification taxes. Again though... CPA knows best. Good luck!

@Jin Zhang

There's another loan option that you may or may not be aware of. It's called a "DSCR" debt service coverage ratio loan.

Most lenders that specialize in single family homes don't issue these. Investor focused lenders do.

The DSCR lenders tend to look at whether or not the income on the property covers the mortgage as opposed to looking at your own income or your DTI. They'll look at this too but it's not the main factor.

Keep in mind though, even though this particular type of loan isn't centered around your personal DTI, it will increase your debt obviously and that'd impact your ability to borrow future loans that do factor in DTI (as paying for the DSCR loan increases your monthly debt)