All Forum Posts by: Matt Y.

Go back and check your statement dates.  I'm guessing you'll see it on the same day every month and very predictable.  The day your statement cuts, borrow the money, and it won't show up on your credit report until the next statement (buying you about a month's time).

And also, just so you're aware--your HELOC showing on your report will count against you for Debt to Income ratios when the bank underwrites and determines "can you afford this?" This may or may not be a concern for your situation.

Since you have the HELOC in place now....one important thing to note is that a credit score is a based on a snapshot in time. If you borrow a lot and your score goes down, it will go right back up when you pay it off. It won't affect your score long term at all.

The only potential risk is that your creditors monitor your credit report.  If they see your score drop significantly and that is unusual for you, they may decrease your credit limits or worst case close your accounts.  If this is a real risk for you or not, I don't have enough information to advise.  I am purposely "training" my credit to borrow a lot on revolving lines.  That way when I borrow a lot in a short period of time it doesn't look unusual for me.

So try it out...and let me know if it affects your score. I would love to know. Also---how big is your HELOC?

You won't get points back over time like you would with an installment loan.  If it reports as a revolving line of credit then it is utilization that will affect your scores.

Gaining back points over time has to do with the average age of account.  A lot of times opening a new account drops your credit score because the AAOA lowers...5+ years is best and obviously those with a very long credit history can open new accounts with less impact because it impacts their average less.

Short answer---it depends....and GOOD QUESTION.

http://www.bankrate.com/finance/home-equity/heloc-...

HOWEVER, I know of a few people that have a HELOC only on their property instead of a primary traditional mortgage and they don't seem to suffer from utilization issues.

I've also heard that revolving lines above $50k in size do not affect credit scores in the same traditional way a credit card would....probably because such a large credit limit is probably a HELOC.

I'm following this thread and if no one knows for sure I'll do some more research as I also want a definitive answer.

It looks like I may be the only one that thinks this way, but I would consider renting to this guy.  I would want to know:

1.  Where did the $10k come from?  Those fresh out of BK aren't supposed to have money.
2.  Why does he want to live in a property that is way above his means long-term?  What's his plan in a year?  (What's your plan in a year?  Do you want a one year or multi-year tenant?)
3.  Where did he live before?  How much was the rent and was the previous rent paid on time?
4.  How much of a security deposit will he leave vs prepaid rent?
5.  Is he a drug dealer? (Does he have a clear background check)

I guess I'm not immediately dismissing the guy but it does raise some extra questions.

Saving $20k is SUCH AN ACCOMPLISHMENT.  Good job!  It's hard work to save up that kind of money.  I would recommend accelerating your timeline on reselling your property.  After 2 years most of the capital gain is tax free.

I also recommend doing the repairs on your house now.  If you're going to do them anyway, you might as well do them now and enjoy them for longer.

If you're investing the $20k into a house that you know will give you a larger return in the near future, do that.  If I can't convince you to do it faster (or if there is a reason not to and you're on a longer timeline) I would say pay off debt first.  Get completely out of all student loans, car loans, credit cards, etc, etc.

Keep up the good work.  Being an entrepreneur is like being a super hero!  The less debt you have the less pressure :)

I think an aspect of your strategy would be to establish credit.

Credit is primary built by using credit cards.  I would suggest opening 3 of them to start.  If you can't get approved normally, I would take $15,000 and open three secured credit cards with $5,000 each.  Use and pay off these cards in full each month.  You'll shortly establish a credit score.  Within a few months you should be able to open some unsecured credit cards.  With the $5000 limits you'll likely get approved for limits of at least that on the unsecured lines.

The long term goal should be 5 credit cards with 3+ year history on each.  If you plan to close the secured cards at some point (1-2 years down the road) you'll need to be more aggressive in obtaining unsecured credit.

My warning is to avoid limits much less than $5000. Credit limits are based a lot on income and your ability to repay the debt.  Larger limits imply you have more income.  These higher limits don't necessarily increase your credit score but do significantly increase your chance of approvals when banks are underwriting.

It may be worth it to speak to someone that is an expert in this area.  It's an area filled with sharks and people that really don't know the industry though so be careful.  Most bankers are clueless in establishing or rebuilding credit.  The secured credit card approach ties up some cash but is straight forward and simple.

I agree that the management company should be taxed as an s-corp IF it generates significant income.  If the purpose of it is to have it generate just enough income for it to pay for expenses, I highly recommend a strategy that just involves filing a schedule C for simplicity sake.  No 940's, 941's, corporate tax returns, etc.

I believe you could still write it all off but you'd want to see what your tax professional says.

If not, you could create a management company of sorts.  You could easily file expenses against a schedule C return but after a few years of posting a loss that "business" would be considered a hobby and you no longer can deduct the losses.  So you'd have to divert some of your rental income to the management company...at least enough to cover the expenses.  Who does the property management now for your rentals?

I don't think you'd have to go through all this.  I think your accountant can figure out a way to deduct the expenses now.

I'm not sure an LLC would affect your tax situation. Single member LLCs are disregarded entities for tax purposes. For properties you would file a schedule E and for business income you would file a schedule C.

Why do you think your expenses aren't deductible now?