All Forum Posts by: Jose Leandro Gobea

You can not deduct the down payment

You can deduct any costs you incur to upkeep the property(Repairs, insurance, taxes, depreciaiton, etc)

Whether you can offset the rental loss against other forms of income depends on whether the property is considered active or what your income level is.

Please seek guidance on your first property.  Expenses and taxes can be a confusing part of real estate.  Here are some examples below.

A down payment is not an expense so cannot be deducted.  Even though cash is coming out of your pocket, you are essentially exchanging your cash for a hard asset (the property).

Some cash expenses can be deducted.  For example if you paid someone to mow the lawn at your rent property, that is an expense that can be deducted.

Some cash expenses cannot be deducted immediately and must be expensed over time. For example, the costs to obtain the mortgage are typically amortized over the life of the loan.

Real estate also offers expenses that do not involve cash coming out of your pocket.  For example, depreciation is a non-cash expense.  If you do it correctly, there are also ways to pull-forward depreciation expenses.

Whether or not all these expenses will be useful to you is based on your personal tax situation which is why you want to have a good CPA.

There aren't any lenders giving out money for down payment. The only way to bridge the equity gap is to come up with the cash yourself or use OPM (other people's money). Your own personal circle of influence would be a good start if you have a deal. 

But there's a crucial piece needed to be successful... know the numbers and have multiple exits... Using other people's money is a big responsibility. Especially with friends and family, a bad deal can cause tension on your relationship. It's important to approach this as a business and explain your plan in great detail anticipating any concerns with a contingency plan already in place. Like any investment there are risks and your investors will need to understand that. If you have a good deal and provide a good return in a predetermined time frame, I'm sure it wont be the last deal they help with.

Eventually you'll do it enough where you will have the capital and wont need OPM. By then if you're successful enough, they'll want to proactively invest in your deals because you make them money! It isn't for the faint of heart but if you keep a narrow focus on your buy box and know your numbers, it'll give you the confidence you need to take the next step.

There are hard money lenders that are more lenient on the source of funds. They mostly care about the deal. If there's enough skin in the game and it's a solid deal, hard money lenders will back you. So in short. . . you can either raise the money, or save the money yourself. 

a way that is used a lot is off the credit card, we get a business credit card most you can get with a apr of 0% up to 12 to 18 months  use the card to put down on the property .When the lender pulls your report they want see it business does not report on the personal side.after you close start paying the card back off .Rince and repeat the good thing is you can have multiple llc is how we do great for multiple units.Make sure the deal can serve the debit that why I say multi unit the 12 to 18 apr time frame comes up fast.

Quote from @Jose Leandro Gobea:

Quote from @Bob Stevens:

Quote from @Jose Leandro Gobea:

Hello guys , I have another question,  do hard money lenders borrow money for down payments? what are some of the way that do you guys use to get all the money that you need for the down payment? 

 You either have it or you don't, if you borrow it you need to disclose to the bank where it came from 

I understand the bank can't take that risk. I have think about to find some partner that want invest in exchange of a good return of his investment or growing my money until i have the full down payment, which is probably what i am going to do. Thank you so much.  

 All due respect, you do not have any experience, deals or money why would I for example do anything with you?  Tell us why we should " work with you"? I am not beating you up, I am just telling you want you need to hear vs want 

Quote from @Jose Leandro Gobea:

Hello guys , I have another question,  do hard money lenders borrow money for down payments? what are some of the way that do you guys use to get all the money that you need for the down payment? 

 You either have it or you don't, if you borrow it you need to disclose to the bank where it came from 

Quote from @Jose Leandro Gobea:

Hello guys , I have another question,  do hard money lenders borrow money for down payments? what are some of the way that do you guys use to get all the money that you need for the down payment? 

Assuming you’re speaking of investment property rather than personal residence, minimum down payment with good credit is 20-25%.
While there may be higher leverage options available, utilizing them almost always results in negative cash flow for an extended period of time.  So the monthly rent payments received will not cover mortgage payments, insurance, property taxes, repairs, maintenance, etc, and to avoid default the owner will be required to “come out of pocket” for the negative difference. 

A lot has been made of purchasing a property “subject to” the existing loan, or alternatively via “owner finance”, or its hybrid a mortgage “wrap”.  These techniques, while still doable today, had its heyday in the 1970s and early 1980s when double digit interest rates combined with no due on sale clause accounted for the majority of real estate sales activity.  

99.9% of loans are such that the lender wants to know the source of the down payment.  “Gifts” from the seller, “concessions” and borrowed funds are not acceptable.  Again, the rare loan that allows a borrowed down payment would be at a significantly higher interest rate to align the lender’s risk/reward ratio.  Leading to very negative cash flow. 

Some people have had success purchasing a house as a residence utilizing one of the Government sponsored or Fannie Mae sponsored low down payment program and lived in the house for the prescribed minimum amount of time at which point they moved out and kept it as a rental.  This is actually a great way to start, but there are some implications of in fact this is your intent, as opposed to your intent being for this to remain your personal residence but your circumstances changing.  In any case it “gets you in the game” of real property ownership.  

Real estate has been hyped as no money down investing possibilities.  While this is certainly possible, the no money down techniques usually rely on the seller carrying back either all the price in a note, or taking a subordinated note for the difference between a first mortgage and the sale price. (There are other methods, but they become more circumstance specific and less likely to accomplish).  A sellers motivation to provide either 100% seller financing or subordinate his equity in a second lien note are (1) obtaining a significantly higher sales price, (2) selling a unsaleable property usually because of its condition, location, or because the property can not be financed, or (3) creating a loan with a much higher than market interest rate. 

Since real estate is an “imperfect” market, almost unbelievable transactions have occurred whereby the buyer obtained ownership of quality properties at below market prices with low interest seller financed loans and no money down.  But these are VERY rare occurances and one can spend years unsuccessfully attempting to conclude this type of transaction. 

The bottom line is that for anything other than the personal residence low down loans, no or low down deals have lots of moving parts and require a great deal of experience to pull off - and result in negative cash flow the majority of the time. As for the hype you’ll find by the gurus on YouTube and other social media, even if they were able to conclude a couple of these deals (which is not certain, there’s a lot of lying out there), the fact that someone with 20 years of full time real estate experience can pull off 2 spectacular deals in a 20 year period is no way indicative of an inexperienced person being able to do the same in anything like a near term time frame . 

Hi Jose, 

For hard money, you'll have to put down at least 10% of the purchase price, and they're not going to want that to be money borrowed from a friend or family member. For a primary residence purchase however, there are a lot more options including 3% down conventional programs and even 100% LTV FHA where the same lender gives you a loan for the 3.5% down payment. Let me know if you have any questions!

John