All Forum Posts by: Mason Liu

Just to take a step back...

You mentioned your monthly mortgage on your current primary is $2900/month, but you expect rents to only be $2500/month. That would be a -$400/month cash flow. That definitely won't help when it comes to trying to purchase a new property with a conventional investment loan in terms of DTI.

But yes, in general with every property you purchase with a conventional loan, it makes it harder to purchase another property with a conventional loan given the DTI restraints UNLESS you exponentially increase your income (preferably W2).

You are going to need to consult a tax professional on this. The K1 could show you have ordinary income, deductions, capital gains etc depending on what the investment opportunity was and how they managed and exited the investment vehicle. Depending on what type of income/payout you received from the deal (as shown by the K1), there may be chances to offset some of those tax concerns from the K1 with real estate or other vehicles. 

You should be receiving some type of quarterly statement from the GPs of the deal showing how they are doing and what the NAV of your LP ownership is, including income you've received. You can share that with your accountant and start to have a conversation now of what your tax liability (if any) from this deal may look like and start to develop plans on how to potentially mitigate those if they are substantial.

Tagging in @Chris Mury as he knows a lot about airbnbs in St Augustine

Hey Brandon,

Fellow investor in St Augustine! So with a SBL, typically you are able to take about 50-90% of your marginable securities. If your portfolio is allocated more towards equity, you probably will be able to take out closer to the 50% amount of your portfolio value, which would be $50k~. Agreed, $50k~ does not go very far as a 20% downpayment in St Augustine lately, and although you mentioned you have a higher risk tolerance, that would be a lot of debt you would be undertaking between margin, your existing rental property debts, and the new debt with the planned purchase. If anything goes wrong with the new property, or if the market takes a dip, your margin loan and the new property could be at risk. Due to the amount of liquidity you have, it's hard to recommend the SBL loan (or any additional leverage) without knowing your full financial picture since it does seem very risky.

Now if you truly do have a home run deal in the works and it would cash flow and work with DSCR rates and terms (which I believe are only a couple points above most margin rates or conventional loan rates now), I would say that might be an option to consider. That way you reserve some cash for yourself in case additional repairs are needed etc.

So I was curious and did listen to the podcast where this was mentioned. I believe he made his recommendation under the assumption that the individual with 1.5MM in retirement accounts would wait until the age of 59.5 so that there would not be a 10% penalty in withdrawing from the account. That being said, there would still be income tax liabilities due to withdrawing from the retirement account after 59.5, and a lump sum withdrawal like that would probably lead to being taxed at the highest marginal tax bracket due to it being 1.5MM (this was not mentioned in the recommendations). Also, I do find it interesting how no mention is made to the fact that that retirement account grew to 1.5MM over time probably due to stock appreciation where the individual did not have to touch a thing and probably averaged a healthy, tax-deferred return over decades.

I do agree that the podcast has turned a lot more salesy/pitchy in recent times. That being said, I think it is up to the listener/forum user to be able to critically think about the content they are consuming. Almost every content creator on social media looks to advertise their own brand and products, but that doesn't mean their content is inherently bad. Just have to be able to glean a little bit of benefit from each content source, including BiggerPockets. For example, just because most investors who have been successful on BP did so through Real Estate Investing doesn't mean investing in a 401k or IRA is bad because they said it is. Likewise, investing in a 401k/IRA is probably not the end all be all either.

So one thing I'll add here is that there are a few situations where paying cash and doing a cash out refinance down the road may make sense. They include:

1) Being able to purchase the property at a cheaper price due to being able to pay in cash. Especially if doing an off market deal where the seller may require that quick close, this can make the difference between a deal happening or not. Even on the MLS, you may be able to negotiate or have your offer stand out with an all cash offer.

2) If you expect rates to be lower in general when you choose to cash-out refinance. This is more speculative, but if you have that belief and are flexible with when you wish to cash out refinance, it may make sense to put the cash up to purchase the property if you don't need the cash now and want to secure a property.

The best way to go about this is to just get multiple bids. Personally, I'm not a fan of nickel and diming contractors on their work because well...they will end up nickel and diming me on the quality/effort they put into the job I've found. 

More importantly, I do think the way they provide you their bid matters a lot as well. The vendors who are detailed in their scope of work and bids tend to be more professional and handle their jobs better, and may be worth the premium (if any).

Hey Yuqing,

Firstly, congratulations on making it through medical school! Not an easy feat by any means.

As a financial advisor who has many close friends who are currently in residency, I would say one thing that often times gets overlooked is the value of your time in residency. Without knowing what specialty you're in, I know some residents could be working overnight shifts semi-regularly and 70-80+ hours a week. Owning a home, managing repairs, collecting payment from tenants...all these things take time away from you and you might not even have that much time to begin with.

Most of the residents I see opt to rent a place with roommates to offset the cost of housing. For example, if you got one of those places that charge 3.5k/month and got a roommate to share in the cost of rent, you'd be all in for 1.75k/month. You wouldn't have to worry about buying a home, repairs, anything.

At the end of it all, once your residency ends, more likely than not you will be making very good money via your work as a doctor. From then, you can pay down your loans very quickly and invest to set yourself up for success. Just another perspective to consider.

Hey Francisco,

In terms of avoiding paying the capital gains tax, unless you have capital losses elsewhere to offset these gains by, there is not really a good way to avoid them. You could choose to defer them via opting for a 1031 exchange or investing the proceeds into a QOZ Fund. 

I'll add another important point...if you sell your primary residence in less than a year, you will be paying short term capital gains tax which more likely than not will be a higher percentage than the long term capital gains tax bracket. I would talk to a tax advisor prior to making any decision you make so they can help you weigh out your taxable implications.

Without having all the details, I would say on surface level that this does not seem like a great deal. Paying out of pocket for your first ever deal typically doesn't work out well in someone's favor. Often times with real estate, the beauty of it is that if you hold on to the asset long enough it works out relatively well. This doesn't work out well in practice if you are not at least cash flowing positively on the property. Also, not sure if you are budgeting for CAPEX/Maintenance/Vacancy/Property Management, but that is an additional 15-20% of gross rents in general so that makes this deal even harder to pencil out on paper when you are financing almost the entirety of it via HELOC or Mortgage.

Now, if you went with option 3 and could househack the home, use the first property that you are taking the HELOC on as a rental and either break even or cash flow positively, and could subsidize your personal living cost by living in the new SFH and renting out the other rooms as planned, this could be a viable solution. Hard to say without knowing the exact numbers.

Ultimately, I think you need to crunch the exact numbers to know what the best route to take is, but on paper I would say this probably is not a deal as a rental.