All Forum Posts by: Robert Sapienza

Question for the veteran or financial expert of the bigger pocket community.

My RE partner and I had our first big success in the BRRR method in the past month. My question revolves around taxes owed. Here are the round numbers. Any advice would be greatly appreciated.

Commercial property bought under an LLC for an all in cost of 290k. Appraisal came back at 660k. 75% loan gave us a mortgage of 495k. Money owed back to our line of credit is 290k.

495k minus 290k leaves us with 205k cash left over from our cash out refi. That money is sitting in our business account. I believe it’s not taxable because it’s not income it’s debt to the business, but what happens if we take the money personally. Does it then become income and taxable?

DISCLAIMER*** I am not looking for advice on what do to with the left over money. Not looking for investing strategies of how I can roll the 205k into something else. I am asking if that 205k leaves the business account and comes to us personally does it then become taxable.

What's up everyone. 

Before I start let me preface this by saying that I HAVE talked to my local lender, as well as a few local appraisers in the area and no one could give me a CLEAR answer on this question you are about to read.

So my business plan thus far has been to purchase multi fams with cash or a line of credit that I have. After that I refi out, and pay myself back, or pay off the line of credit that I used. I have done this mostly with houses that were in need of serious renovation so I never had any issue getting 100% of my capital back. 

I am now starting to look at larger multi family properties (5 units and above) and I would like to use the same method. Problem is that I am starting to find some private deals that CASH FLOW great even at full ask, yet the unknown appraisal is putting a question mark in if I am unable to get my capital back... and that is a VERY big deal for me and my business plan. Any one out there who maybe syndicates deals or uses a similar method that I use, how do you go into a deal (no matter how good it cash flows) without out knowing its true appraisal considering an appraisal is just an individual persons opinion. 

Here is an example:

Please pass no judgement on this deal as it is an example, keeping numbers simple and easy to calculate.

Full ask 165,000 

Purchase 165,000 Cash

NOI of 22,000 per year

Comps in the area are all over the place because of the nature of the city.

I would need to get a loan for 165,000 to get my capital back which would mean I need appraisal to come back at 220,000 (75% LTV). Although the deal makes perfect sense to me as far as cash flow goes, and one could justify that house could easily comp at 220,000 because of the gross income factor along with the NOI, how can I be confident I will be able to re-coup all of my money considering I bought it at 165,000. ESPECIALLY if this deal was being syndicated and i NEEDED to re-coup all of my money. How does one really measure an appraisal. Times the deal by 10x and make it 1.65 million and this situation is even crazier. How does one judge their offer BEFORE an appraisal was made. 

Any insight is greatly appreciated! 

So I purchased a multi family off of a landlord who has been in the business for 20+ years and currently owns over 100+ doors (veteran). My question is this... When I bought the property from him he was nice enough to have me over his home (we live in the same town) and BS about real estate investing. As he was showing me his portfolio and how he cash flows in different areas of the state, he showed me a record of all the tenant checks he copied and filed. I didn't think to ask him at the time, but is it necessary to make a copy of each check you receive from each of your tenants? Is there some benefit to this whether it be paper copy or computer scan? I have an excel spread sheet for each property that I own and as the checks come in I record the payment as paid on the spreadsheet and then deposit the money, but do not make any type of copy of the actual check. Would there be any reason at all to copy the check and keep it for your records? Thoughts much appreciated...  

Jorge Pena My vote would be to sell. But the exact situation that your in could mean 100 different things to 100 different people. Everyone’s needs and wants are different. I’m on my 2nd BRRRR 6 units total and have 5 straight flips that are unrelated to my rentals under my belt. With my experience I would take the money and run and look for my next deal. Even with my systems in place and contractors that I have a (semi-new yet good) relationships with, flipping or rehabbing a project that size is a full time job that comes with plenty of headaches. I say this from my stand point. You may have stronger systems set and better contacts then I. (Smallest Reno budget to date was 45k and largest was 150k) Im also from Jersey. I would love to connect and chat. Best bank I’ve found will only give me 80% LTV over 25 and I’ve been looking for a while. Inbox/request me. Good luck with your decision!

I feel ashamed even writing this post, but I can not figure out for the life of me how to delete properties that have been inputted into the calculator section under TOOLS. Is there a delete function on the rental property calculator? 

@Peter Moser thanks for the reply. I am almost positive that is also the case in NJ. I have only been a realtor for 8 months and got my license mostly for personal investment purposes, so I don’t have much real world experience (only a couple deals). I work in a small office and my broker is currently unavailable so I figured I’d throw this question out to the people of BP. Thanks again.

No contingencies, this was just a proposal to purchase form. A preliminary document with no contract.  

I'm looking for anyone who has any personal insight on a similar situation to this one. Submitted an offer on a house (investment property) and written in my offer I included that the offer would be taking the house at the offered price AS IS. I do this to make my offers more incising to the seller, and have all intentions of purchasing the house AS IS. I do not intend to ask the seller for any repairs to be made nor am I looking for a credit of money for any repairs that need to be made. I am offering a price on the house AS it IS. Offer got accepted and come to find out upon further inspection that there is major foundation issues. Where do I stand from a legal point now that the offer has been accepted. Thanks for your feedback. 

Question for (I'm sure many) people that have been in this situation. Here is the lay out. 3 people. All three of us are established in our own careers at age 30. All of us have been flipping houses together for the past 2 years and want to start to get into the buy and hold (rental business) together. We work very well together and everything has been going smoothly. Here is the debate. For STARTERS we don't know if we should open an LLC together and start to buy properties with private money via LLC OR if we should each get conventional loans independently (tenants in common) with an operating agreement in place. Example: Party 1 gets a mortgage solo with party 1,2 and 3 on Deed. Next house party 2 gets a mortgage solo with party 1,2 and 3 on Deed. Next house party 3 gets a mortgage solo with party 1,2 and 3 on Deed. This continues via conventional loans vs just starting with an LLC. The pull for conventional loans independently comes from us getting lower interest rates and 30 year amortizations (higher cash flows) but we dont know if it will get sticky during tax season being that we arnt all on the mortgage together. If anyone could shed some light on how they started their partnership (being an LLC or tenants in common) would be much appreciated. Just want to know if anyone out there has NOT done an LLC with 3 or more people to start buying rentals while scaling up (purchasing 2-3 properties a year) and how it has affected them.

Anyone know out there who is / know of any reputable lawyers that have delt with the eviction process? Possibly going through my first one and would love to get in touch with someone who is from the [preferably] south Jersey area or New Jersey. Thank you!