All Forum Posts by: Jenny L.

Excellent, Patrick! Now I only wish they had locations in NJ.

@Patrick Liska, these details are incredibly helpful, thanks for taking the time. I suppose there could be a pre-payment penalty for us but still, w/ terms like that, it's a no brainer.

Anyone? 

"@Patrick Liska, thanks very much -- good to hear this work for you. What kind of terms -- interest rate, length of term, any down payment -- did your construction loan come with? 

What was used for qualifying since it was held in LLC (your credit, income, I assume)?

It's not a line of credit, correct? It's one lump sum?

Would you recommend that lender?

Thanks in advance for your insight. Here's our rehab and resell situation:

Elderly parent currently owns the property OUTRIGHT. Three adult children have taken control of it. Our company would enter into an equity partnership with them, forming a new LLC for protection for all involved, the LLC would be named on the deed. Looking like they will be 85% of the LLC, we would be 15%. We, the rehabbers, would be responsible for the entire renovation and sale. The adult children, silent partners.

We wanted to have the newly-formed LLC take out a HELOC for the repairs for a 8 month timeframe — house is owned outright, the ARV is five times the cost of repairs so the HELOC math would have been a slam dunk — HELOC qualifiers don’t get better than this. But we now know LLC’s cannot obtain HELOCs, only individuals. This is a newly formed LLC — just for the sake of this project and protection for all — there are no 3 years of tax returns, bank statements to show this is a "stable business", like many local banks request for their BLOCS. 

Is there a product available to LLCs that's very similar to a HELOC, that is secured against the asset, but doesn't have extreme costs like hard money, typical portfolio loans for flippers, etc.? A construction loan perhaps, but at what terms? Something else?

I posted this on the Tax Forum but received no responses so thanks in advance for your help!

We are trying to find a way to creatively finance a rehab and resell deal. What we’re thinking would be structured like this:

Elderly mother currently owns the property outright. Three adult children have taken control of it. Our company would enter into an equity partnership with them, forming a new LLC for protection for all involved. We are considering they would be 85% of the LLC, we would be 15%.

We (the rehabbers) use our GC for the reno. We rehab and resell the property, and split the sale roughly 85/15. This way, they will end up with a higher return than if they sold as-is, and we save significantly on loan costs usually associated with flips and still make a good profit.

The only thing they incur is holding the house for another 8 months and paying what they are already paying for prop taxes, insurance, utilities, etc. We split the loan interest/fees or perhaps we, the rehabbers, pay it all.

Our tax question is, on a typical flip, your property is considered inventory, not an investment. What would a deal like this look like to the IRS in terms of profit on the sale of the house? Would this be considered a short term investment instead? Will the tax hit be greater than if we purchased outright? Our company would just be added to the deed, no actual purchase involved.

And what about the owners - would their tax exposure be greater, or worse, than if they had just sold it outright?

From reading more on this, it would seem to be ordinary business income, I'm just wondering if there are any other complications to our LLC just being added to the deed, vs. buying outright?

Looking to tax pros for their input on this -- thanks in advance for your help! We are trying to find a way to creatively finance a rehab and resell deal.

What we’re thinking would be structured like this:

Elderly mother currently owns the property outright. Three adult children have taken control of it. Our company would enter into an equity partnership with them, forming a new LLC. They would be 85% of the LLC, we would be 15%.

LLC takes out a HELOC for repairs. We (the rehabbers) use our GC for the reno. We rehab and resell the property, and split the sale 85/15. This way, they will end up with a higher return than if they sold as-is, and we save significantly on loan costs usually associated with flips.

The only thing they incur is holding the house for another 8 months and paying what they are already paying for prop taxes, insurance, utilities, etc. We split the HELOC interest/fees (or perhaps we, the rehabbers, pay it all).

Our tax question is, on a typical flip, your property is considered inventory, not an investment. What would a deal like this look like to the IRS in terms of profit on the sale of the house? Would this be considered a short term investment instead? Will the tax hit be greater than if we purchased outright? Our company would just be added to the deed, no actual purchase involved.

And what about the owners - would their tax exposure be greater, or worse, than if they had just sold it outright?

Thanks @Brandon Turner !

Ok, so we tried the new calculator, and really like how it gives information about "Total Personal Cash invested." This is exactly what we were looking for our personal needs! The new calculator is still very good for creating reports for partners and lenders. 

Only question at this point - they're coming up with different profit numbers (with the same inputs.) Now, I understand that the two calculators approach the same project from two different directions - the original calculator for example, asks the purchase price, whereas the new calculator outputs a "maximum allowable purchase price." This creates a small discrepency in the purchase price for the two scenarios, but we're getting a profit differential of  almost $25k! That's a big difference! Yikes! Not sure which to trust.

Current calculator profit: $150,000

Old calculator profit: $126,720

Any insight into this? Did we miss something?

Current Calculator:

https://www.biggerpockets.com/calculators/shared/364862/58bb4445-0010-436d-b63a-29402fccb1ac    

Advanced Calculator:

Hello - Any recs for smaller insurance companies offering Builder's Risk insurance for flips? After reading up on the subject here on BP, seems as though the insurance giants don't offer it or are cobbling together a product that is not comprehensive enough, thus offering inferior coverage. Many say the best route is to go with a smaller, in-state insurer. 

Any insight on cost for a SFH would be appreciated too. I hear terms are either 6 months or a year? Thanks in advance!