All Forum Posts by: Account Closed

bumping this thread-- surprised nobody has ever had a change in original intent of a project which could impact financing or tax treatment. Maybe this question is more appropriate in another forum. Similar intent example to the one posed; a developer is planning a 10 unit multi-family new construction and originally plans for apartment style living (held-for-investment), and then at some point decides to sell as condos (held-for-sale). How would your original intent effect tax treatment--e.g., ordinary tax or capital gains? 

I wouldn't put too much value in the deductible interest of using a HELOC to pay the 50k in credit card debt. If the interest on the heloc is 4 pct the value of the tax shield is only 500 dollars, assuming your effective tax rate is around 25pct. (50k x 4 pct x tax rate-- represents your dollar reduction in tax liability on ordinary income)

You should confirm your debt-to-income by pulling your credit report and summing up all of your documented monthly expenditures. Divide by your gross income. Seems hard to believe with 200k in income you would have DTI issues. Your minimum payments on the 50k in credit card debt are probably a mandated 3 pct per month, or 1,500. Add back PITI on your primary of say 2,000, and interest payments in a 50k HELOC of say 300, and your DTI is only around 20 pct on 200k of income. Where are the other expenses coming from the bank is considering? Are the banks including your primary residence expense in your obligations, even though the mortgage presumably is not appearing on your credit report? Maybe you have loan-to-value (LTV) issues and the bank messaged the wrong denial reason. How much equity do you have? Will it support a 50k HELOC? Try a local credit union-- I have found many that go to 90 or 100 pct of LTV.

Anyone know if you can obtain financing for new construction as a primary residence and then decide to sell upon completion?

How much can be allocated to tax advantaged retirement options? I think you hit the pretax retirement account limits pretty quick, and eligibility for IRA's phase out quick for higher income earners. Maybe there other vehicles I am not thinking about. In your example for the high income earner I am not sure you would even need to think about allocation given the retirement limits might be small compared to income. In other words, there is enough capital to allocate to max out tax advantaged savings in a passive activity, and plenty more for active management which might garner higher returns.

Form another entity that owns 50 percent of each of your respective entities. Add another layer of protection.

I don't think any issues identified with the land would be public record. Plus, if you bought the land and there was some environmental remediation required, it was known, and not disclosed, you would have recourse. Best bet it to make your offer contingent upon a soil test. Probably cost you two grand and give you piece of mind.

Some valid points about accumulating mounds of debt; especially just to "open doors" as my post suggested. I worked my way through undergrad b-school and was company sponsored for both my graduate programs.

If you are flipping SFR a degree is probably a nice to have and not a must have. If you are syndicating a $10m development having a good track record is most important but a top tier degree in hand (for example an MBA) could speak volumes and open doors. It certainly has for me as a young adult without a long record of success. I can almost guarantee a meeting with any top developer in my area by mentioning I am a current MBA candidate and soon to be XYZ graduate with a development proposal. As you get older I suppose this education will be discounted as other posters have mentioned. Nobody asks or cares where or if you went to school as an older distinguished real estate investor-- or at least I imagine that to be the case. Of course this perspective is coming from someone that places a high value on education.

Sounds like it has been two years since you purchased and will qualify for a capital gains exclusion. Assuming you want to take the position this was not held for investment and the intent was to occupy as a personal residence. In this case, no need to figure out your cost basis (improvements, depreciation, etc) to calculate income subject to capital gains.