Skip to content
×
PRO
Pro Members Get Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
$0
TODAY
$69.00/month when billed monthly.
$32.50/month when billed annually.
7 day free trial. Cancel anytime
Already a Pro Member? Sign in here
Pick markets, find deals, analyze and manage properties. Try BiggerPockets PRO.
x
All Forum Categories
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

All Forum Posts by: Michael Richardson

Michael Richardson has started 6 posts and replied 13 times.

Post: Guarantor/Renter Application Fees college students

Michael RichardsonPosted
  • Rental Property Investor
  • San Diego, CA
  • Posts 13
  • Votes 6

Hi - We're getting a lease ready for 5 college students.  We use Rentredi as our PM software and they charge $35 for background/credit checks.  I feel a little bad charging $350 of application fees, but that's what it would be if we screen all the tenants and their parent/guarantors.  Knowing these students aren't going to have much credit/income yet (and they're freshmen so doubtful they've ever been evicted), would you forgo the screening on the tenants and only have the parent/guarantors pay the screening fee?

Post: creative seller financing question

Michael RichardsonPosted
  • Rental Property Investor
  • San Diego, CA
  • Posts 13
  • Votes 6

Thank you all for your thoughtful replies.  I really appreciate the time you spent thinking about my issue - Happy New Year!

Post: creative seller financing question

Michael RichardsonPosted
  • Rental Property Investor
  • San Diego, CA
  • Posts 13
  • Votes 6

Hi guys,

I was wondering if anyone with experience on the seller side of seller financing had some insight on the following: I have a rental condo that I bought for $400K in 2009 and can probably sell now for around $500K. I have about $300K left on the mortgage. It's in a 7/1 ARM at 2.875% that won't adjust until 2020.

Even with the great interest rate, the property doesn't cash flow (San Diego), some of which is because the HOA keeps jacking up fees (now $500/month). I pretty much break even each month.

My renter is interested in buying the place, and I'm interested in selling.  I'm not sure if she would qualify for a bank loan based on her income, but she's never been late on her $2000 rent each month.  An additional twist here is that if I sell by the end of February, I will save probably $20K in taxes and won't have to do a 1031 exchange b/c I would have lived in the place for 2 of the last 5 years.  I guess this would be considering a wrap around mortgage since I'd try to keep paying on my mortgage - though I do have the ability to cover if they were to activate that rare due on sale clause.

So my questions are for anyone who has had experience in structuring seller financing deals:

1) My initial thought would be to structure it to parallel my own ARM to keep her payments low for 5 years (close to what she's been doing for rent) and have a balloon payment in 2020.

2) What kind of interest rates are usually charged in this situation?

3) If I sell the place, but still pay the mortgage in this wrap around strategy, am I officially off the hook tax-wise?

4) If at some point she stops making payments, the condo would go back to me (and my bank) as lien holders, right?  And even money that went toward her principle would be forfeited? I would essentially have to foreclose on her?

5) As the owner, she would now be responsible for HOA dues and insurance; would I still need to carry any insurance?

6) Who draws up paperwork for this kind of deal?  Seems like you would need a lawyer, an agent, and maybe even a banker.

Thanks in advance for your insight!

Michael

Post: My first long distance buy

Michael RichardsonPosted
  • Rental Property Investor
  • San Diego, CA
  • Posts 13
  • Votes 6

Hi guys - just closed on my first rental property yesterday.  It's a 4b/2ba in Louisville, KY.  It's near U of L and rents easily to college students.  $93,500, currently rents for $1200 (to my brother and his friends).  Once family moves out and we do about $5000 of work, it should easily rent for $1600.  My biggest reason for posting this is to give a shout out to Bigger Pockets and @Chuck B.  I live in San Diego, so making the long distance buy was a little anxiety provoking even though I have family in the area. I met Chuck through the website and he was super helpful just out of the goodness of his heart and his interest in this business.  He gave me  a ton of great tips, resources, contacts, and even gave the house a once over on his own free time.  So thanks BP and Chuck!

Post: Tax ooops on rental condo

Michael RichardsonPosted
  • Rental Property Investor
  • San Diego, CA
  • Posts 13
  • Votes 6

Gotcha - thanks so much for clarifying @Dave Foster!

Post: Tax ooops on rental condo

Michael RichardsonPosted
  • Rental Property Investor
  • San Diego, CA
  • Posts 13
  • Votes 6

Thanks guys!  @Dave Foster - that sounds like a very good idea. So, would the tax hit come when I contribute the Louisville properties that were obtained as myself into the LLC? Or would it still carry over based on the 1031 until the LLC sold the properties?

Post: Tax ooops on rental condo

Michael RichardsonPosted
  • Rental Property Investor
  • San Diego, CA
  • Posts 13
  • Votes 6

Thanks @Justin R. and @Bruce May  - I really appreciate you guys sharing your insights!

Post: Tax ooops on rental condo

Michael RichardsonPosted
  • Rental Property Investor
  • San Diego, CA
  • Posts 13
  • Votes 6

Ahh- capital gains instead of personal income tax rate. Amateur mistake by me! Thanks @Shawn Couch.  You saved me some sleep tonight now that I know I didn't totally screw myself out of tens of thousands! Will definitely run it by my tax guy too.

Post: Tax ooops on rental condo

Michael RichardsonPosted
  • Rental Property Investor
  • San Diego, CA
  • Posts 13
  • Votes 6

Hi guys,

I'm brand new to the site, and I'm loving it.  I've learned so much in the past month - I've already listened to 80+ episodes of the podcast and spent a ton of time browsing the site - so thank you @Joshua Dorkin and @Brandon Turner for monopolizing all of my limited free time - my wife thanks you too :).  I'm starting my investment business in Louisville, KY in the near future, but this question is actually related to my rental condo I have here in San Diego, CA.  I've made a huge tax boo boo that is going to cost me tens of thousands of dollars.  Wouldn't have known about it if I hadn't learned so much on BP, but now that I have, I'm super annoyed at the situation - I guess ignorance would have been bliss - thanks a lot guys for stealing my innocence :)

The stats:

I bought a condo in 2009. It's a beautiful 2B/2BA in a nice area of San Diego (Hillcrest) in a newly constructed building (2007). I paid $405K for it - currently I'm in 7/1 ARM at 2.875% that doesn't adjust until 2020. I got married, got a dog and had a baby, so we bought a house and moved out of the condo in 2013. We've been renting the condo out (for ~$2000 - a little below market value, but not much) and losing money every month since that time - PITI is $1900 but HOA fees are $450 - it's not a big loss compared to my salary, so I was justifying it based on appreciation. And it has appreciated - it's probably up to about $500K market value - But if I've learned anything from you guys it's that cash flow is king and I should never bank on appreciation. And if I've learned anything else, it's that HOAs suck - and sure enough they just jacked up the required elevator move-in/move-out fee from $75 to $500 after the first move-in/move-out. Presumably this is to discourage rentals. So, my plan was to sell after the current lease ends and probably funnel the profit into my newly formed LLC in Louisville. Unfortunately, I just figured out that I hosed myself on taxes. If I sell by 3/16, I'd only be responsible for paying taxes on maybe $5000 after accounting for depreciation and our net losses, because I would have lived in the condo for 2 of the last 5 years. If I sell after 3/16, I'll be responsible for paying taxes on like $100,000+. And I have the mixed blessing of being in the highest tax bracket, so that will be quite a huge hit. And of course, the punchline here is that we just had someone sign a new lease through 8/16. What would you guys do? Here are the ideas I've thought of:

1) Pay the tenant to move out early - this seems cruel as they've just moved in, love the place and they're our acquaintances.

2) Find a buyer before 3/16 that would be willing to assume our tenant's lease.  Doubtful since I don't even cash flow at 2.875% on $318K left on my mortgage.  Any buyer would undoubtedly have a higher interest rate and higher principal, thus even more cash flow negative.

3) 1031 exchange - but I'm looking to use the profit in my LLC, not my personal property, so that might complicate issues? Also,even if that is OK, I'm not sure if I can bank on identifying a good property and closing long distance (San Diego to Louisville) in the required short time period.

4) Continue to hold the property despite losing money. Though I know the general BP feeling is against betting on appreciation, this property really is nice and in a great area and SoCal can be prone to impressive appreciation. I have a great interest rate on a low maintenance property with low maintenance tenants. Also the monthly loss will eventually help me on taxes when I finally do sell. But I'm recently feeling more pessimistic about this as a long term hold because the HOA looks to be getting a little power-trippy with age.

5) See if the tenants would want to buy the condo with some creative financing - I don't think they can afford it or are interested in owning though.

6) Could I sell it to my wife?  She isn't on the condo mortgage since I bought it before we got married, but we do file taxes jointly, so I'm guessing this isn't kosher.

7) Sell when their lease ends 8/16, pay the extra tax hit and chalk it up to a learning experience.

What would you guys do?  Any other creative ideas?  Thanks!  Michael

Post: LLC refinancing

Michael RichardsonPosted
  • Rental Property Investor
  • San Diego, CA
  • Posts 13
  • Votes 6

Thanks @Erik Hitzelberger - great advice. I'll definitely get some legal input on how to keep everything under the LLC before I make the move.

@Clay Smith - thanks. Since we're new to this, we'll probably just start with one or two - hopefully 2-4 plexes, but could also do SFR and then we'll see where things go!