All Forum Posts by: Steve Maye

The conversion process is nothing more complicated than changing where that property is reported on your tax return.  So yep start with your tax advisor.  It's a simple but oh so powerful process.  Because when you do this all of that tax free sale of your primary can go into your pocket and the tax deferred dollars just bought your next primary residence.

Most want to keep their rental properties during retirement. Since the W2's aren't flowing in, it gives you income flowing.

@Steve Maye Hi Steve, I can understand detesting the fees, but unfortunately, they're part of the game. A lot of services have to be hired out to get a mortgage done, and your state also charges mortgage taxes to boot (the tax stamps). The trick is to find the best balance between rate and closing costs. Typically you want the rate to be lower if you're planning to keep the loan long-term, say 7 to 10 years or more. If you plan to pay off the loan quickly, then you want your closing costs lower, even though the rate is higher to do that. 

I agree with @Amy Bonis that you should shop a few different lenders and see what's out there, then if the lender you really like working with is slightly higher, go back to them and see if they can give you a little better deal. One area of negotiation is lender/processing/underwriting fees/application fees. Those are charged by the lender to pad their bottom line and cover internal overhead, so they might be able to cut you a break, which means more of your rebate can be used to cover the non-negotiable stuff like tax stamps, flood cert, appraisal, etc. 

Another tip as well: have the lender price some loan options with the interest rate slightly higher or lower. Often there's a sweet spot in the loan pricing where you can get significantly more rebate for not much of a bump in the interest rate. Or, you may be able to get a lower rate for a very small reduction in rebate. This is especially true for gov't programs like VA and FHA.

Hi @Steve Maye , yes, financing for rentals can be a steep. I would definitely recommend shopping around a bit to get a few different quotes in writing. 

One way you can help reduce your costs is to go with a little bit higher interest rate and let the lender absorb some of your closing costs into the interest rate with their "rebate" or "yield spread". This is easier to do on larger loans than smaller ones, though. Rebate/yield spread is paid as a percentage of loan amount; if we're talking 1% yield spread on $50,000, that's $500 that can be used toward closing costs. If it's a $200,000 loan, then your yield spread is worth $2000 - which can cover a lot more of the costs, obviously. 

Note also that yield spread tends to be more generous on longer term fixed rate loans like the 20-year or 30-year fixed. 

I would shop the loan around to a couple of different lenders to get different quotes and let the loan officers know that you have the cash to pay for the property in full. A good loan officer can find that "sweet spot" that keeps your closing costs as low as possibleby finding the right balance between loan amount, down payment, and yield spread that can pay as much of your closing costs as possible.

Another tip as well: I've found that yield spreads tend to get more generous when rates have been on a downtrend for a few days to a week. 

What are your goals?  What kind of cashflow do you need?  

Figure out the return that you need and then go buy properties at prices that allow you to make that return.