All Forum Posts by: Stephen Chittenden

Originally posted by @Phat Vi:

@Brandon Hall @Stephen Chittenden

Thanks so much for the information. I have a follow up question on both scenarios:

1) assume that I need either a 1098 or 1099 from the seller. How does an average Joe (seller) know that they need to send out this form? Am I supposed to ask them every year?

2) assume that the seller is not required to issue 1098 or 1099 form to buyer. How do I document the interest that I paid during the tax return time?

Thanks,

Phat

 Brandon can probably answer better than me, the seller would only ever provide a buyer with a Form 1098, if anything.  Most sellers likely will not have to provide a Form 1098.  If you pay interest to anyone in the course of your business, it is generally deductible.  You would deduct the interest on your return, keep a copy of the written loan, and checks/bank records that document the payments.  

There are exceptions to the 1098 and 1099 requirements that may apply, however. Many sellers who carry a mortgage will not be engaged in a trade or business, and will thus not be required to issue a Form 1098. (Treas. Reg. 1.6050H-1(c)(1).) Similarly, if the principal borrower on the note is not a natural person (i.e., it is an entity), then the seller will not be required to issue a Form 1098 even if they are engaged in a trade or business. (Treas. Reg. 1.6050H-1(b)(1).) If the seller is a natural person and that is who you pay interest to, you may not be required to issue a Form 1099-INT. (Treas. Reg. 1.6049-5(b)(1).) The rules are technical, and you should consult a tax professional to determine how they apply to your facts.

Well, it turns out we won't be able to reuse the laminate flooring as we'd hoped.  So, the replacement is going to add a few thousand dollars to the budget.  To make up for this cost, we have chosen to sacrafice the jack-and-jill master bathroom.  Part of our bathroom rehab included cutting into the closet in a second bedroom, moving the sink and vanity, and installing a door between the biggest bedroom and the bathroom.  It is a shared bathroom with the other two bedrooms upstairs, so it wasn't a true master.  Ultimately, we didn't think the $1,800 was worth it given the additional cost of installing the laminate flooring downstairs.  

We've also decided to go with granite countertops and a mosaic tile backsplash in the kitchen.  That too has add a few thousand dollars to the budget.  

Our contingency fund was still pretty full though with only a sump pump failure (that caused no damage, just some pooling of water in an unfinished part of the basement) and gas leak due to a leaky valve having tapped the fund thus far.

We saved about $600 on our appliances by buying them on black Friday (online), so that helps cover the cost overruns as well.  All told, we're expecting to be in for about $52,000 on the rehab.  That will bring our total all-in cost to about $137,000 excluding loan costs on the back-end.  We now expect the property to appraise at the higher-end of the range based on a recent sale two blocks away with similar finishes and only 1.5 as opposed to 2 bathrooms.  Should still be a good deal for us.

I too have concerns because this isn't seller financing, and it sounds a lot like a residential loan on owner-occupied property. I would be very concerned about whether you can legally make such a loan.

If they don't own it outright, it is subject to, which is kind of like owner financing or at least can be combined with it. More risk to both parties in that type of transaction than in a straight owner finance. We found one that was owned out right and were able to negotiate owner financing.

Not in TX, but last year we bought a triplex for about 13% down, 5.5% interest, one year balloon, 20-year amortization. In the process of refinancing with the seller to a 15-year, 25-year amortization loan at 6.25%. At refinance, we're going to make an additional principal payment of about 3% to provide him a small lump sum payment that he wants this year and reduce our principal balance (and monthly payment). The principal pay down is less than we would pay in fees to refinance with a bank. I think those terms are pretty favorable, but it can give you an idea of what can be done if you can find out why the seller needs.

Originally posted by @Bill Hinshaw:

Not sure, Keith. That would make it tough, especially if you used hard money. Surely someone with more experience with BRRR can chime in. Either way, your numbers are outstanding and give you some options for exit.

I'm going to post the results of my first flip tonight. It will make you feel better about your 3 month rehab (mine was 7 months). And I spent quite a bit more.

 Like most things, it depends.  In this case, on the lender.  Portfolio lenders, small banks, credit unions, etc. will be more flexible.  Conventional loans are going to be much harder to make work because you may not qualify at all for cash-out refinancing.  If less than six months, you might be able to qualify for delayed financing if you paid all cash.

Sometimes explaining why that price is the most you can pay, can be helpful.

@Tariq B. Doing some more research, it appears that the problem is not with gift cards per se, but with merchandise credits that were issued in the form of a physical card.  In that case, Lowe's is requiring you to present the physical merchandise credit card.  These cards apparently start with 600649174.  If that is what you have, you should contact the website you bought them from and ask them to provide you with new cards or a refund.  I've had good luck with the websites on the one or two occasions where a card did not work.  

How do you plan to deduct property tax and mortgage interest (assuming there is a mortgage)? I'm not sure I would have created an LLC for this purpose. I'm not sure how you'd pass those through without a partnership return, or even if you can do it on a partnership return given that a partnership is supposed to have a profit motive.