All Forum Posts by: Sateesh Kumar

I think my response failed to consider that you were also looking to live there. If you want to live there the 12 unit is not for you. Consider retaining your current property and doing another conforming loan. There are 4 units on the market in Daly City, Concord, Palo Alto, Napa, San Francisco, etc. for between $1.2 - $4 million. Keep in mind that you'll have lower down payment, lower interest and the income from the units you own now, plus rent on the unit you live in today. Do you have any other source for the down payment besides the triplex? I see issues with pulling money from a HELOC when you know you won't be living there. Most banks do not write HELOC (HOME Equity LOC) for investment properties.

@Sateesh Kumar, I believe you have your answer.  When comparing syndication to a pure investment property (you are not Owner occupying any portion) the treatment is generally the same.  And being a W2, non-real estate professional, while you get access to those expenses and others, to offset the income earned, it will generally NOT reduce your tax bill stemming from your W2 earnings.

One thing I would note, regarding the structure of a syndication and pass through losses: deprectiation tends to be the largest line item for "expenses" and creating net losses on your K-1.  However, how different syndicators allocate depreciation varies widely.  If you see syndication structures that show the GP has 30% ownership in the entity, that is often setup to allow the syndicator to take 30% of the pass through losses right off the top.  I.e. if there is $1mm of net loss in that year, the syndicator can take $300,000 of that loss, leaving you and the other LPs to split the remaining 70% prorata based on equity invested.  

If tax losses through a syndication are your goal, and you want to maximize those losses (again, your current situation doesn't appear to allow you to take advantage of them anyways), then understanding this allocation is very important in your due diligence with the syndicator.

Hello @Sateesh Kumar,

These syndication deductions are only against passive income. If you need to use them against your w2 active income, you need to be a real estate professional. Since qualifying as real estate professional is near impossible to qualify for with a w2, you would need your spouse to qualify for it. 

 DISCLAIMER!: I am speaking in Hypotheticals/Opinions and not GIVING Financial ADVICE!

Now that we have the disclaimer out of the way! HA. 

You could do a HELOC (Floating Interest), Hybrid HELOC (Fixed at EACH time of Draw but the draw rate is based on the Interest at the time of Draw), or a 2nd Mortgage (Permanently Fixed at Origination)

I prefer Hybrid HELOCs as the rates are fixed at the time of draw and that stability allows you to plan for the future. 

HELOCs are great as they only take interest when you draw from it. However they are sometimes dangerous as the Floating Interest can crush you if the rates move up or give you relief if rates go down. How do you plan around that? 

And Fixed 2nd Mortgages are fine, but lack the flexibility of a Hybrid HELOC and you have to take 100% of the cash now and pay the interest on it.

So it depends on your needs and level of Risk. 

 Have you considered a Cash-Out Refi on the Triplex? 

1. Pay no taxes as its a non-taxable event.

2. Pull out cash to buy new house and invest in others

3. Keep your Triplex in the Portfolio to cash-flow and give to your children. 

4. Get a 30 year fixed loan 

This is usually my go-to strategy. I never sell anything I buy. I always convert to the Real Estate Portfolio. 

 I would not do it, partially because the rules are different but also because that decline has just started. There are predictions that we could see up to $800 Billion in commercial real estate defaults, meaning banks offer refi and the owners give the property to the bank rather than refi it. It's not a homogenous markets (none really is0 but if there is a growing glut of commercial real estate you might lose value if you are in that market. I would stay away the next 2-3 years

You could make a great deal there, do some value add and increase your appreciation velocity. BUT you probably would not want to live there.