All Forum Posts by: Peter Forrest

Thanks @Bill Exeter

@Russell Brazil it ended up being a flip but I intended to hold it. What are some common deductions that people  use in this line of work?

:( thank you guys - one heck of a lesson to learn

I typically buy and hold, but in February this year, I bought a super run down property, and turned it around. When I looked at the numbers -  total all in cost & rental income VS. just selling it outright, it made way more sense to just sell. So I listed on August 15, and sold on September 15. Here are the numbers:

Purchase price - 130K

Reno cost - 100K

Sale price - 325K

Gross Profit - 95K

Net Profit - 70K

The net profit (70K) is after paying agents, fees and all others. I intend to definitely buy two more properties with the proceeds from this deal. Before doing that, I am looking at a huge tax bill. From preliminary research, my worst case scenario is -  Fed 35%, and 10% to DC - that's a giant 45% gone.  Question, can I still do a 1031 exchange ? If I go ahead and just buy the two houses and use up all the proceeds, will I still have to pay taxes to the government?

Thank you so much!!

@Russell Brazil

Thanks, I was able to quickly find name and address. Are there common ways to get their phone numbers as well?

@Brent Coombs

"I didn't quite get your "...it's just a faster way to get upto 20% equity into the loan" comment. ie. don't you have to get to 20% equity BEFORE you can refi?" 

To get rid of the PMI your loan to value ratio (LTV) has to be at 80% - for people who can. The caveat is based on something that I read that if you bought your property with PMI after a certain date, you can't get rid of your PMI. I don't know how true that is, I am explaining what I went through for a property that I 203K-FHA in 2011, and got rid of the PMI in 2014.  There are three common ways that people use to get to this 80% LTV: 

(1)Put a 20% down-payment - which is common, and many people use this route when they get conventional loans

(2) You can refinance once your property has appreciated enough that your loan is effectively 80% of the assessed market value of the property. This did not happen automatically for me, I had to refinance. This might depend on the financing institution. The big ones would definitely not automatically get rid of your PMI

(3) The PMI would automatically go away if you pay down the loan over time so that you are at 80% of the purchase price.

Thus for people who can't put down the 20%, refinance is then the fastest way to rid of the PMI if market values are going up.

You can also refinance at anytime for whatever reason, could be to have lower interest rate, lower payments by extending the loan maturity date etc.

Good, I thought it was treated as one mortgage - but are you also saying: once you pay off or refi out of an FHA203k loan, you can NEVER re-apply for that same type of loan? "Once in a lifetime"?

YES - 203K is an incentive for first time home buyers. You can only do it once. However, you can get multiple FHA loans. I believe you can easily get up to 4 FHA loans, and at most you can get 10. I haven't been through the FHA limits because I now use commercial loans for my properties. 

Hope this helps

You refi the FHA loan to get out of the PMI, however, it's not a must....it's just a faster way to get upto 20% equity into the loan.

You don't have to pay off the rehab portion, it's treated as one mortgage

I am not sure that the PMI is for life. I did mine in 2011 and got out of it in 2014. Unless they have changed the rules.....

203ks are once in a lifetime 

I think there is a way, I do similar investments often- creating legal apts or creating legal bedrooms in basements. Just got inspections done, and passed in NE & SE. If you need a section 8 tenant as you say, you are probably in NE/SE area, and I haven't come across these restrictions. For your renovations, I would encourage you to look up the code. It's online and pretty straight forward. For instance, your ceiling heights can be 6'8" under ducts and beams (very helpful in old townhouses)not all windows qualify as egress Etc.The work would need to be inspected, and you can use DCRA or a private company such as Bello and Bello. Through this route you can get your certificate of occupancy. On another note, DC housing is worse than the DMV, I would call again or go there in person to see if you can get a second opinion.

I am wrapping up my section 8 rehab in Anacostia, and putting together documents to put it on the market. I need to create a trust which will hold the property, do you know any good and affordable lawyers in the Washington DC area? I tried to reach out to Mr. Landlord, but they haven't been responsive.

Thanx!

Thinking out loud, can you sell off some units to trusts/LLCs to get around the rent control? This obviously depends on where the building is. It might not make a whole lot of sense in NE/SE, but might be worth it in the NW