All Forum Posts by: John Kwon

@Natalie Kolodij Further research shows that you are right. 

Base on the IRS link that you posted, second example clear states that interest is not deductible.

"example 2: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, the taxpayer takes out a $250,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages does not exceed $750,000, all of the interest paid on both mortgages is deductible. However, if the taxpayer took out a $250,000 home equity loan on the main home to purchase the vacation home, then the interest on the home equity loan would not be deductible.

https://www.irs.gov/newsroom/interest-on-home-equity-loans-often-still-deductible-under-new-law

This is a bit confusing, but...

If you dive into Interest tracing rule, any debt for investment interest seems to allow tax deduction. In other words, you can't just deduct your HELOC interest, but if you justify that the HELOC was used for investment interest (i.e buying a investment property) then you can deduct the interest.

https://roundtablewealth.com/resources/mortgage-interest-tracing-rules/

Perhaps, I asked the wrong question or I need a new accountant. Thanks for your input.

JK

@Natalie Kolodij and @Guifre Mora are both correct.  If you refi and take cash out and used to improve the property then you can get a tax deduction. But, per my account, you can't use it to improve another property (or least there some limitation). 

BRRRR is great method. I am a cash buyer, but my strategy is going to change a bit, since tax deduction is large part of any real estate investment planning.

This is an important point for newbies who wants to refi in the future. Make sure talk to an experienced accountant and talk about tax implications. 

JK

So interest rates are tanking so I was about to refinance and take cashout from some properties.

But, speaking with my accountant, I found out that interest on the refi will not be tax deductible because I am not planning to improve the property.

So this mean that BRRRR method is no longer a good method at least from tax deduction point?

Thought?

I know that Fed just lowered the interest rate, but it got me thinking about the opposite scenario?

I heard about 12-18% interest rate in the 80's. My current BRRRR strategy would not work with such a high interest rate. I am a buy and hold guy. My strategy is to build equity over 10-15yr on each property and do cash refi for my needs ( i.e. kid's college fund, trips, etc). But this plan is a bit speculative because my plan works with interest up to 8-9%.

I think BRRRR seems more conducive at lower rate...

@Jaron Walling Well said. DIY has its limits. Knowing when to get help is also a skill set. ( I think I am still working on it) 

@Tanya F. Drywall? Good for you! That's definitely on my hire someone list. I can't never get the mud job done right and the dust is too much for me. 

Hi,

I wanted to know when you decided to stop doing the work yourself on your investment properties?

I love building and fixing things. Initially, I enjoyed the work and the satisfaction of finishing a nice work. I know many investors are cringing theirs face because it does not save time or money to do your own work. I agree.  

Anyway, on my last investment property, I decided to replace the dingy carpet with vinyl planks. My wife and I removed the old carpet without much problem. Btw, we never pulled carpet out in our lifetime. We noticed "millions" of little staples on the baseboard. We slowly tackle the monument task to remove them. God bless my wife who did a great job removing them on 1 bedroom. I spent 30 minutes and I put my hands up. This was the moment when my DIY  motivation just flew out the window and decided to outsource  the job.

So, tell me your story when your light bulb went on to hire a contractor? Funnier the better. 

@Jimmy Lin We own properties in Philly. Transfer tax for the city is outrageous, so consider that before making any transfers. Also, contact local credit unions or  banks and ask for portfolio loans. You will not get 30 yr fix, but they may offer 15 yr fix with 25 or 30 yr amortization. They will want to see your P&L and cashflow.

IMHO, if your insurance can cover your personal and business asset, then there no reason to place your property under LLC (for obvious reason). Privacy is non issue, b/c they can find you if someone really wants to, unless your LLC is under WY or AZ something like that.

We started to purchase our properties under LLC to protect our personal asset as the reason noted above. Don't worry about the loan limitation. There are plenty of other ways to buy aside from traditional loans. Cross that bridge when you get there. Good luck!

@jason 

@Jason D. @Fred Shatzoff @Jesse East

We bought a property with cash and tried to refi with delayed financing. Our ARV was $290K (purchase was $210K), but the bank would only refi 80% of cash purchase price instead of the ARV. They considered refi on ARV after 1 year. That may vary from bank to bank. We tried with a local credit union porfolio loan for LLC owned property.

So, make sure that the bank is able to refi based on your ARV, not your cash purchase value.

I agree with @Eric Hrlbock that lowering rental rate is not going to happen. New apartments are being built b/c there is a demand. This is just a simple supply and demand issue. Price will remain same or even go up if demand is not met. There is potential of influx of population in the area. But the down side is that it hinges only on 1 employer which is the medical center. 

@Bart Charkow Be careful about airbnb. Some towns like Beacon do not allow short term rentals like airbnb for non-owner occupied properties. Do your due diligence before jumping into short term rentals. 

https://upstater.com/beacon-cracks-short-term-rentals/