All Forum Posts by: Kyle Spiewak

In terms of qualifying for your rental property, in most cases you will not need to factor in your 401K loan payment into your DTI ratio. That means that the 401K loan payment is not counted against you when qualifying, whereas cash is needed on an investment property for your down payment.

One thing to note is that some 401K loans are required to be paid back in full when leaving a job or upon termination.  If that is the case there is always a risk that if you want to move on from your job or are dismissed you will be stuck with a huge lump sum repayment required or face penalties.

1) Quit claim deed although I am not familiar with Louisiana so it might be different.

2) It could be deemed as a gift, which is a non-taxable event. Depending on how technical you want to get your uncle might need to file an informational gift tax return. No tax would be due. Consult your CPA/accountant. Also, look into whether a Property Tax Re-Assessment exclusion is applicable.  Basically if property is passed down through family, it may be eligible to not be re-assessed for property taxes.  This is state specific and may not apply but is worth looking into.

3) Depends, hire a contractor, hire subs and manage it yourself or do the work yourself.

4) Yes - Is there an existing mortgage?  If you are planning on living in the property your best option might be to renovate the property and then do an owner occupant cash out refinance to pull out cash. Owner occupied cash out rates and ratios are better/easier to qualify for then investment properties. Qualifying ratios will apply.

1. You do not necessarily need to have the LLC formed in the state you are investing in. Delaware and Nevada are common choices for reasons beyond the scope of this post.
2. There is not necessarily double taxation since you are in CA. CA charges a minimum $800 fee for the fine pleasure of doing business in the state and then a tiered fee once your gross receipts exceed $250,000. If you are acquiring property outside of CA and you have a member outside of CA you can avoid the $800 fee by creating an entity outside of CA (i.e Delaware) and have the managing member be located outside CA.  The entity can not be "managed" within CA or the fee will technically apply . 
3. If you opt for the LLC to be taxed as a partnership then you will be required to file a 1065 partnership tax return. Income will be reported on your respective K-1 (the form generated to report income from a 1065 tax return). If the entity is generating a loss (not including deprecation), the losses will be used against qualifying income in future purchase transactions.
4. On a separate note: some lenders do not vest in an LLC therefore this may need to be done after the purchase. Send me a private message if you would like more info regarding vesting and lenders that will allow vesting into a LLC.

The lender may also look at your 2 year average income as reported on your schedule C from your Federal tax return. Often people are aggressive with their write-offs, however this may hurt them when looking at qualifying income. Also watch out for the FHA flip rule. FHA does not like properties that have been purchased and are being resold within 90 days.

Beware that some 401k loans require full repayment when leaving the company.  Meaning if you get fired or quit you may be required to repay the loan in full or pay healthy fees.

From a qualifying/lender stand point you will need to take a few things into consideration.

1. Occupancy rate of condo complex - Most lenders require 51% owner occupancy rate on investment condo properties.
2. DTI - You can use 75% of the rents as qualifying income on your condo purchase.
3. When qualifying for your condo purchase the lender will take into account your equity line payment in qualifying ratios.

Normally the trustee / co-trustee(s) can sign off. It depends on the trust.  If all the beneficiaries are trustees then most likely yes they will need to sign off. Hopefully there is only one trustee. Everything should be run through the trustee as they are the ones with fiduciary responsibilities to the trust. You might want to seek professional legal guidance. It would be a bummer to pay down the loan for an extended time only to end in mishap. 

There are several topics that could be discussed in your question. 

Down payment - Generating capital for a down payment is a huge topic on BP.  Several discussions on wholesaling and flipping are out there. You could also syndicate or raise money from friends, family and other investors. 

Financing - Traditional lenders will use 75% of the lease or appraised rental survey as qualifying income towards your ratios to qualify. Depending on your down payment and the rents on the property, you may not have a problem qualifying. Lenders have also increased the amount of properties allowed to be financed. It used to be 4. Now it is 10 and I have seen upwards of 15 financed properties for residential are allowed (10 for Fannie/Freddie). LTV requirements change when you get above 4 properties. If you have the down payment, figuring out the qualifying is the fun part for me! You could also look for owner financing.

You can tell the lender you do not want/authorize them to run your credit.  Depending how far along you are in the deal you can tell them your middle score (once your credit is established). There are three credit bureaus that report your credit score.  Lenders generally use the middle score of the three.  For example, if your scores are 700, 715 and 719, the lender will use 715 as your score when offering credit.  Some lenders offer alternatives if you do not have an established credit score however it usually involves provide 12 months of utility bills, phone bills ect and can be a lot of work. If you are needing a pre-approval / pre-qual letter to include in an offer then they will need to run your credit to confirm credit score and liabilities. Just don't give them your social security number!

Depends on the Note and terms of repayment.  For example if you are required to pay monthly and it is interest only then your monthly payment will be $1,558.33 (170,000 * .11)/12. Interest could accrue and be paid at the end of the note (not likely). I would suggest getting a copy of the note and not only reading it but fully understanding what you are signing.

You might also want to check your cash.

Purchase price : $140,000

Points and fees: $8,600

Repairs : $53,000

Total: $201,600

Loan: $170,000

Your cash/equity: $29,150

Total: $199,150

Shortage: $2,450

This does not include fees for escrow, title, and other closing costs and reserves they may require.