All Forum Posts by: Account Closed

Hi Jason,

Thanks for reaching out. It was good speaking with you.

TTYS,
Joe

I'm posting to help a friend with a property in Clovis, CA. She and her 2 siblings are inheriting a home in Clovis, CA from their father. 

The property is currently 3 bedroom, 2 bath, 2124 sq ft, on 2+ acres in the north east part of town. What's owed on the property is such that the heirs are thinking of just letting it go into foreclosure and walking away. A complicating factor is the deceased father was sold a solar package with pretty unfavorable terms. If that was all there was to say, then I'd tell her; "sure, check with your CPA, maybe it's best to just walk away".

What's interesting is that the county shows this is a 5 bedroom, 3.5 bath, 2859 sq ft house. Apparently, there is an upstairs area that has not been completely built out yet. My friend thinks it's possible the plumbing and electrical are in place, just not the interior walls or stairs. There is an area downstairs set aside for stairs. I find it hard to believe walking away is their best option...

So, I'm looking for someone to pass on to my friend to discuss if they have a better option than letting the bank take it over. It seems to me this property is an ideal candidate for quick remodel and build out the upstairs. This is not a wholesale deal. I get nothing out of this. I'm just trying to help out a friend. The heirs probably don't want to be out-of-pocket on anything, so your favorite contractor would get paid in escrow I assume. Reach out to me if you are a savvy RE agent in the area who has experience with this sort of situation. 

Thanks,

Joe

Downtown is hit or miss, varies greater from block to block. To evaIuate properties I used Trulia crime maps, and Google & Bing street views to some extent, but mostly I depended on the judgement of my RE agent, @Rachel De Faut . She knows downtown very well, and her guidance was always spot-on.

@Keegan Fraker:

Generally speaking, I think Brent is correct. It would be probably be cheaper to buy existing income property than to build. Your best bet is probably to buy a SFR to live in, and to separately buy a rental property. Which order to buy them in might depend on your ability to qualify for the mortgages.

You might want to touch base with my agent in Wilmington, @Rachel De Faut. She and I have discussed the possibility of building a garage apartment on a property of mine. I haven't priced out this option yet, but it might be relatively low cost way to build if you're really set on only owning one property. She's also a great choice for a buyer's agent generally, if you're not already working with one.

I hope that helps. Good luck!

There should be no tax if your capital gain is under $250k, assuming it was your primary residence for 2 of the last 5 years. (needs to be a full 2 years, no less). Double check with your CPA of course.

To assure your analyzing it as investment correctly, estimate what you'd net in cash if you sold it. What's your ROI on that theoretical net. If you guess you'd net $50k if you sold it, and cash-flow $500/month, that would be pretty good. If you cash-flow $10/month, I'd sell it yesterday

I hope that helps.
Good luck.  

@Lisa Jones, add me to the list of people here advocating paying down your (highest rate) interest first, then invest.
I recommend thinking of high interest debt differently than student debt. If you're paying 10%-30% interest rates on credit card debt, pay that down as aggressively as possible. I'd be eating ramen and any spending I could until that high interest debt is paid down. I believe in paying off the highest interest rate debt first.

Any low interest debt, say 0%-5% is another story, especially if it's deductible on your tax returns. When you get to where you only have low interest rate debt left, you can start to consider if you'd be better off investing.
Best of luck and thanks for your service.

If you buy an investment property with "cash", and then do a cash-out refinance, there are a few possible scenarios depending on how you use the funds. 

If you use some/all of the cash-out funds to pay back loans used to come up with the cash to buy the property in the first place, that portion can go on Schedule E for the property. Be conscience of IRS tracing rules. 

If you use the funds for "investment", they can be deducted as "investment interest", but not on schedule E for the property.

If you use the funds for personal reasons, for example to buy groceries, go on vacation, etc, that portion is considered personal interest, and is not deductible.

A decent CPA will be able to walk you thru all this.

Good luck!

Yes, you both can claim 50%. Your partner has what is refers to as "equitable interest". 

Kyle is correct. The refi doesn't trigger any tax. 

A consideration you didn't ask is; "Can I deduct the interest on the new mortgage?"

The answer is yes, no, it depends.

The interest on the portion of the refi used to repay loans used to acquire or rehab the property would be corrected deducted on schedule E for the property. Also funds used to further improve or repair the property.

The portion used for other investment can be deducted elsewhere in your returns.

The portion used for non-investment isn't deductible.

Keep in mind there are IRS tracing rules.

If you already knew all this forgive my off-topic comments. 

If this is all new, you're welcome and ask more questions...;)

Good luck,

Joe

If you don't mind typing, you can message me. I prefer written communication to phone calls. 

Alternately, you can try my agent/broker property manager @Rachel De Faut. She might be available for a call.

I hope that helps. Good luck.

Joe