All Forum Posts by: Matt Mach

Hi Ann, 

Thanks for the reply. While I agree with you that banks can decide what their risk factor is and lend based on whatever percentage of value they want, in this case the bank CHANGED the value of the home and gave a mortgage amount as a percentage of their own value. 

The issue I have with this is that they had me pay for an appraisal by a licensed person in my state but then returned with an "appraisal review" that changed the comp values the appraiser gave and gave alternate comps to lower the valuation of the home. If they could have done their own appraisal without taking money from me, why wasn't this done from the beginning? How can a person at the bank, that isn't a licensed appraiser in MA, give me an appraisal that counters the legitimate one?

I unfortunately couldn't justify coming up with the additional money out of pocket and the sellers weren't willing to wait for another lender so the deal fell apart. 

So I've purchased 8 houses (both as a primary and investments) over the last 10 years or so and have never come across this issue when buying or selling my properties...

I recently had a deal fall through for a single family house that I was purchasing for my new primary residence in MA. I was the RE agent on deal and decided to pick the best rate of for mortgage off bankrate. The bank I picked kept jumbo, 20% down loans in house and you could bring down the APR by depositing money into their savings account which made perfect financial sense to me.

Long story short, a week before financing commitment I get call that the appraisal they ordered, and I paid for, came back with a number of $650,000 (my offer price) but after "internal review" the appraised number was $600,000 and they would only lend on that number. I asked for an appeal and found 8 more properties that supported the price of the house I was trying to buy and after a week the bank basically said they are holding firm. I have no idea what happened during the appeal.

So my question is, the bank is not local to MA and the appraiser that did the review for the bank is only licensed in CA as far as I can find, is this even legal? If I had known that they would just make up a number and reply to the appraisal with random comps from the other side of the country I would have never went with this bank. I even went back and checked the documents I signed and the only mention I can find is from the preliminary commitment that says something to the affect of "the appraisal must meet our standards".

I at the very least want my money back for the appraisal they didn't use but I really feel like I'm entitled to everything I spent up to this point because THEY are the ones that killed the deal. Any help is appreciated. 

What I'm a bit confused about when everyone uses these numbers of appreciation vs interest rate and comparing it to renting is that no one ever talks about the principle being paid off... If you have a comparable monthly payment if you own vs rent you need to look at the whole picture. If my mortgage/taxes/insurance is 2000 a month, part of those things are complete write offs on my taxes, so whatever number that is gifted to me before the government can take it. When you rent, you are paying 100% after tax dollars (I think MA lets you take a portion of that back).

Regarding some posts about land lords living off mostly credit, sometimes on the surface that might look to be true. I have a condo that I paid basically $100,000 for back in 2007. I moved in 2012 into a 2 family, renting on one side. I had an option of selling the condo for a loss at that point or refi the condo from a 6% mortgage to a 4% and rent it. 

Long story short, I net almost nothing between the mortgage/insurance/condo fees from that property, but because of property management and good tenants that I've had there for 7 years, my principle is now down to 80k with the value around 140k plus I have the option of raising the rent. Oh! and to boot, I take a loss on my taxes every year from the property because of depreciation. So I can either say "I make $30 a month on my rental." or "I own an asset with 60k in equity and growing that someone else is paying for."

Hey BP,

I've recently come across a situation where I finished one of my projects and my wife and I were seriously discussing moving into it as our primary residence if we didn't get an offer that we wanted. We are looking to move within the next year or so.

The way the purchase was structured is that it was held under it's own LLC, of which I was the only member, with a mortgage from a hard money lender.

I was told by my mortgage broker that because I had a " majority control" of the LLC which owned it, and I wanted to borrow against the ARV that it was considered a cash our refi so the rates weren't as good and the highest I could go was 80% LTV. That second part isn't a huge breaker for me, but I was hoping to a 10% down loan so that I had more liquid cash available.

I might be looking into doing something similar for a property I found recently and was wondering if there was someway to structure the purchase so that I had the most options available to me when I "purchase" the property from my LLC.

Thanks for the reply @Linda Weygant. I won't push the subject any further, I realize the pay now vs pay later idea behind sales tax, it would just be nice if it actually said that somewhere (maybe it does in some convoluted language). It was just confusing to me on how it worked for real estate since it's normally taxed differently in every other transaction except for flipping. 

Ok, so @Linda Weygant this is exactly where my confusion lies and basis for my question. The IRS doesn't care if I'm selling sandwiches or houses and I should report that income the same to the state as well. But my issues is that if houses and sandwiches are viewed the same, why does all the ingredients in that sandwich get paid for without sales tax but the house components do not? 

So I'm not able to forgo self employment tax because it's a commodity that I'm selling but I also can't get a break on sales tax because it's real estate. The transaction should be looked at one way or the other. I could see if i was getting taxed with capital gain but this feels like double taxation. 

We actually closed on our second last week. CPA tells me I'm not going to make a good argument doing more than 1 per year. 

Also, I realize the idea of buying widgets tax free so you can tell your multi widget thing after with tax included (more profits for the state), but the wording does not say anything about "multi widget item must sell sales tax". I realize I may be trying to take advantage of a loophole here but MA sales tax of 6.25% would be nicer in my pocket. 

Ok, I've gotten one flip under my belt. We closed in 2017, I've already talked to a CPA regarding taxes and he suggested I roll the income and expenses into the same tax year. I've been reading quite a bit about how I'm going to be taxed and the consensus definitely appears that the IRS will consider it self employment activity no matter how many I do or even that I have a W2 income (though many people argue this point and I wish they were right). The good news for me is that the income from my day job almost gets me over the Social Security rate.

But anyway, that's just context for my real question.

From what I've been reading, the IRS considers this activity non-investment income because I am acting as a "dealer" and am simply selling my "inventory" as I would with any other good. The first checkbox on the MA ST-12 form to receive a sales tax exemption says "The materials, tools or fuel will become an ingredient or component part of tangible personal property to be sold". Since the IRS says I'm simply buying goods and materials to later sell, wouldn't all of my purchases for the house be considered an ingredient and not subject to sales tax?

I've read some articles saying the argument is that I don't collect sales tax at the time of sale, however nothing in that document says that a stipulation of being tax exempt is that the good will be taxable at the time of sale. 

Would love to hear others opinions or experiences on this and also if you have any recommendation to lower my tax burden for 2017 would be greatly appreciated. 

@Daniel Hyman Thanks for the pointers! Is it possible to expense a car via the LLC?

Just got word that the buyer for my first flip was approved by the bank and we'll be closing 12/9. I created a solo LLC that is owner of the house (may have just been a waste of money) but I was sure to try to keep all expenses paid with a paper trail through the LLC.

There is somewhat of a long winded explanation, but I have people to pay after the property closes (as opposed to paying them upfront for their help). The actual payout (after already paid costs) will be in the 60K range, 20 of that will be paid out after the fact to people other than myself.

My main question is, what I can do to attribute the lowest possible tax to that 60K? Should I purchase things that could be considered a company expense before the end of the year? I have yet to talk to a CPA but that is my next stop. I'm also gainfully employed outside of real estate and believe I'm past the social security income limit before tacking on this income.