All Forum Posts by: Rick Im

Quote from @Devin Peterson:

Quote from @Rick Im:

Does anyone know of a lender that offers second mortgages on rental properties? I've been working with several lenders for DSCR loans, but I've found that the fees are quite high, with minimal benefit in terms of lowering my current interest rate. To leverage the equity for financing my next deal, a second mortgage seems like a more cost-effective option. Any recommendations?

There are a very limited and reliable few of lenders that do true DSCR 2nds. Typically max leverage is 70CLTV - very higher Prepayment penalties and be ready for rates north of 12% - I answer this question all the time. Calculate the blended rate, your decision as to what to do (2nd or 1st lien refi) is all in the math! Happy to help crunch it. Good luck!

Thanks for the information Devin! Do you know any lender who offers 2nd position HELOC?

Does anyone know of a lender that offers second mortgages on rental properties? I've been working with several lenders for DSCR loans, but I've found that the fees are quite high, with minimal benefit in terms of lowering my current interest rate. To leverage the equity for financing my next deal, a second mortgage seems like a more cost-effective option. Any recommendations?

Quote from @Chris Seveney:

Quote from @Rick Im:

I recently submitted an offer on a house listed as having 5 bedrooms and 3 bathrooms. However, when I reviewed the property information on the PVA website, the records indicate it is a 3-bedroom, 2-bathroom property, excluding the 2 bedrooms and 1 bathroom located downstairs. Interestingly, the records do include the downstairs space as part of the livable square footage. This discrepancy has left me confused—should I be concerned about this? My agent said no but I want to get a second opinion.

Rick

 Basement square footage and room count are typically not counted on public record but in some states agents list it or are allowed to list it. 

Is this a concern? Possibly if the house is 3,000sf with the basement and the comps are 3,000sf above grade. 

For your agent to say you should not be concerned, again the answer is it depends.

Thanks for the reply, Chris! This is a split-level house, with the downstairs space being partially below grade (about 1/3). Functionally, it operates as a 2-story home since the downstairs area has multiple windows in each room and plenty of natural light. When I checked the PVA records, they show 2,419 living sq ft but list zero sq ft as basement. My assumption is that the county classifies this as a 2-story home rather than a 1-story with a finished basement. Do you think this classification might be incorrect? Your response also got me thinking about how this classification might impact the appraisal if this is not a mistake.

Rick

That's what I was thinking. Thanks for your reply, Jonathan!

I recently submitted an offer on a house listed as having 5 bedrooms and 3 bathrooms. However, when I reviewed the property information on the PVA website, the records indicate it is a 3-bedroom, 2-bathroom property, excluding the 2 bedrooms and 1 bathroom located downstairs. Interestingly, the records do include the downstairs space as part of the livable square footage. This discrepancy has left me confused—should I be concerned about this? My agent said no but I want to get a second opinion.

Rick

Quote from @Jason Malabute:

Hey Rick,

Great questions! Start-up expenses like the ones you mentioned can’t be fully deducted in the year they’re incurred. Instead, they’re amortized over 15 years (180 months). That said, inspection fees for deals that didn’t work out and mileage from property viewings before actually purchasing a rental property aren’t considered start-up costs. Unfortunately, those are treated as personal expenses and aren’t deductible.

As for the repairs and improvements, fixing leaky pipes counts as a repair and can be fully expensed in the current year. Replacing countertops, though, is a capital improvement and usually has to be capitalized and depreciated over time. There’s a silver lining, though—if the cost of the improvement is under $2,500, you might be able to expense it under the IRS’s safe harbor rule.

Great information about the safe harbor rule! Thanks Jason!

Quote from @Ashish Acharya:

@Rick Im Inspection fees for unsuccessful deals and mileage for property viewings before acquiring your first rental CANNOT qualify as start-up expenses. If you actaully put the property under contract, the cost associated with that porpety can be taken as captial loss.

Replacing countertop could also be repair.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Thank you for your wonderful response, Ashish! To clarify, I had initially put the property under contract but had to back out of the deal due to negative inspection results, specifically related to foundation issues. In this case, am I still able to count the inspection fee as a capital loss, even though this expense occurred before I rented out my first property?

Thanks, Corby! I came across conflicting information online, so I wanted to double-check with the knowledgeable folks on this forum.

 

Hello,

I purchased my first rental property on October 4th. After a month of renovations, I listed it on the market on November 19th and secured a tenant with a lease starting on December 10th. Before this purchase, I had two other properties under contract but had to withdraw due to unfavorable inspection results. Although I recovered my earnest money, these unsuccessful deals resulted in some expenses, such as inspection fees. Can these costs be deducted as start-up expenses?

Additionally, I viewed over 40 properties this year before purchasing my first rental property. Can the travel mileage incurred during this time be included as start-up expenses?

Lastly, my understanding is that repair costs (e.g., fixing leaky pipes) but not capital improvements (e.g., replacing old countertops with new ones) before renting out the property can also be categorized as start-up expenses. Is this correct?

Rick

I recently purchased a rental property and discovered it needs more extensive repairs than I originally anticipated. If I rent out my current primary residence, I could generate over $1K in positive cash flow, so I'm considering moving into the rental property and handling the repairs at a more manageable pace. I understand there's a one-year waiting period before converting a primary residence into a rental property, but does this same one-year rule apply when converting a rental property into a primary residence.

I have another question. When I purchased this property, I used my HELOC to cover the 25% down payment. From what I've found online, there appears to be a 6-month seasoning period before refinancing, but this may not apply to non-cashout refinances. After completing the repairs, I expect that 75-80% of the renewed property value will be close to my purchase price, and my goal is simply to recoup the down payment. Would this be considered a non-cash-out refinance?