All Forum Posts by: Joshua Aycock

Hi! How involved do you need it to be? (I live in MN, so laws could be different). I've created several LLCs for different purposes (coaching business, rental business, etc.) very quickly and easily myself through my state's secretary of state website. You might not need an attorney to create an LLC! Pretty simple registration with the state in MN.

Thanks @Wichly Cazeau appreciate the recommendation! 

What are the tax implications for the seller in an owner-financed deal? 

I've identified an off-market property that I'd try to get seller financing on. They've held the property for a couple decades, and would likely have a significant capital gains tax liability if they were to sell it on the open market. 

If they write a seller financed note, would they still need to pay that capital gains tax? 

My thinking: seller financing represents a debt owed to the seller. Therefore, it's an installment sale. I am thinking that they wouldn't have to pay cap gains tax on the "sale" because they'd be earning interest income on the loan payments. There would be a separation between principal return and interest payments. 

Similar thinking of how taxes would work at a traditional bank: they pay tax on only the interest earned, not on the principal repaid. 

Can someone check my thinking/understanding of seller-financed tax implications? 

Thanks in advance!

Thank you @Sergey A. Petrov! It would be a 4-unit, I would inherit tenants, and would likely want an inspection as part of it for my own process. I think I'd be comfortable with just a comp report vs a full on appraisal, since I would anticipate an appraisal upon completion of the seller note term (when I take it to traditional financing). 

I thought that maybe the RE attorney would be more costly/involved than my agent? Seems like it would be the opposite based on what you've said. 

Thanks again

Hi all,

I am currently in a BRRRR and thinking about the next deal. I'm targeting a property currently off-market, and wondering what kinds of ducks I need to line up to make it happen.

I'm planning on approaching the current owner with a seller-financing offer. I purchased my first deal using my real estate agent, but am curious how that process differs for an off-market deal.

Do I still need to use my agent as my representative? 

Do I need to secure a real estate attorney? 

How do off-market deals settle? 

If I write a seller-financing contract, what would you recommend I include in it, outside standard contingencies/options/etc.?

Thanks, all!

@Tim Herman, sure, totally get that! My original plan was to do the straight up cash-out refi. This HELOC idea is just intriguing...

Have you done a blended deal, where you maintain your original mortgage and take a HELOC instead of remortgaging the entire thing?

@Tim Herman thanks for the questions! I am unaware about how/why a HELOC would be called? Could you explain that to me?

And as far as rates go, I would imagine it could be either floating or fixed...also something I don't necessarily know right now without going down the path, but that would be an important point, for sure. I'd bet fixed could be an option, probably with some additional fees/higher rate.

Regarding interest rate increases: it's inevitable. And it will impact both traditional mortgages and other lines of credit, like a HELOC. It's unavoidable, from my perspective. I already have one HELOC, which is tied to prime, and increasing.

Hello all! 

I'm looking for someone to check/confirm my thinking on a 1st position HELOC. I am a newbie and bought my first BRRRR in Oct 2021! It's been such a fun process, but also a TON of learning. It's what it's all about!

Some house stats: Stillwater, Minnesota, built 1876!

Bought as 2bd/1.5ba at $250k. Rehabbing into a 3bd/3ba, $450-500k ARV, from $450k future value (FV) appraisal in Jan 2022 (as condition of construction LOC). Two of the bathrooms are ensuites in the bedrooms upstairs. Refinishing hardwood floors, semi-custom cabinets, LVP in kitchen and bathrooms, mid-range finishes & appliances. Rehab/construction costs approx $135k, and no...I didn't expect it to be this big of a job! Basically a new house within an old house! I'm still 2-3 months away from being fully-remodeled.

I came across 1st Position HELOC idea (1PH) from my friend (first) / realtor (second). From what I understand, I could refinance my current mortgage and rehab costs with a 1PH, because the value of the house is significantly greater than the original mortgage. With the equity I'll have based on ARV, it seems like it could be a good move to refinance out of the current $235k mortgage.

The Math: 

Current Mortgage: $235k

Current Construction HELOC: $105k

Remaining Construction Needs: $30k

Total Debt Incurred: $370k

Potential 1PH @ 80% ARV: $400k

1PH could pay off initial mortgage, current HELOC, fund remaining costs, and provide $30k cash out.

Then, the 1PH would be paid down in lieu of a mortgage paydown. I plan on House-Hacking this BRRRR, by renting out the two upstairs bedrooms (the ones with ensuite bathrooms). I anticipate $850-1,100 per room considering my local rental market. One room has a much larger bathroom than the other, hence the rent spread. So I could pull ~$2k/mo in househacker income, and pay down the 1PH.

Some advantages of the 1PH from my very basic initial understanding: 

- interest is paid on average daily balance (ADB) of the LOC, versus amortized interest. This alone could represent a huge interest savings.

- interest only payment terms for a certain period of time

- use the available 1PH funds for other rehab improvements or new investment

- pay as little or as much principal as desired during the interest-only period

- use 1PH as the settlement account for all personal finances (this is a little murky). Theoretically, you can reduce your ADB by funneling your entire take-home paycheck into the LOC account. This could reduce the ADB with each pay period. Living expenses accrue on credit accounts, paid off at the end of the month by the 1PH. The ADB is subsequently drawn lower and lower, assuming your earnings outpace your expenses (which we hope they would).

- access equity from real estate that would otherwise be locked up in 30-year term

Any ideas/comments/thoughts on this? Anyone have success with this strategy in the past? Any warnings? 

All the best, friends!