Posted by Dolores on April 19, 2006 at 12:41:25:
Well, that makes sense. I guess I need to study next all the specifics of a 1031 exchange.
Thanks a lot,
Dolores
no doc loans - Posted by Dolores
Posted by Dolores on April 18, 2006 at 15:52:46:
Hello Everyone:
I’m thinking about no doc loans to purchase income properties with at least 50% down. My FICO is over 750 (last I checked). Does it matter what my income is? I work part time, so I don’t make a lot of money but I’m thinking about selling a property (free and clear) that will give me plenty of cash (I’ll do 1031 exhanges).
Thanks,
Dolores
No doc loans don’t ask for income - Posted by Rob Ricker
Posted by Rob Ricker on April 19, 2006 at 02:44:27:
so no, your income doesn’t matter. Your credit score, absence of late payments, collections, etc. and the house’s appraisal are the basis for your loan approval.
Re: no doc loans - Posted by Patrick S. Lawson
Posted by Patrick S. Lawson on April 18, 2006 at 16:37:02:
If the properties would not cash flow with 100% financing I would consider some other property.
Re: no doc loans - Posted by jason
Posted by jason on April 18, 2006 at 16:10:38:
Most no-doc loans are stated…you sTATE your income
yes, it matters. if u make $2000/yr, how will you repay the loan?
If you LIE, on the other hand, you can get a lot done. Tell em you make 150k/yr under the table
Re: no doc loans - Posted by Dolores
Posted by Dolores on April 18, 2006 at 16:47:56:
The properties will cash flow with less than 20%. But I have to think not only about 1031 exhange rules but about what lenders want from me so that they give me a loan!
Dolores
Re: no doc loans - Posted by Patrick
Posted by Patrick on April 18, 2006 at 16:34:33:
Jason
You couldnt be more wrong. No Doc loan is just that, no documentation. You don’t state your income, because it is not a stated loan. With a No Doc loan your 1003 bank application is virtually empty.
Re: no doc loans - Posted by Dolores
Posted by Dolores on April 18, 2006 at 16:27:56:
I was thinking about a BIG down payment on each property so that the mortages are paid with the positive cash flow I’ll be getting.
Worst case, I could by free and clear but then I could not borrow against them. That’s why I was thinking about no doc loans. Besides I want to leverage my money.
Dolores
Re: no doc loans - Posted by Patrick S. Lawson
Posted by Patrick S. Lawson on April 18, 2006 at 16:56:32:
1031 rules will allow you to use the funds from the sale to purchase one or a thousand properties.
With an LTV as low as 50% no doc is not a problem, but you can probably go stated without a hitch and get a better rate.
Say you sell your current property for 200K. Instead of purchasing a property for 400K and using the 200K as a downpayment you may want to consider purchasing 4 250K properties and putting 20% down on all of them.
Re: no doc loans - Posted by Dolores
Posted by Dolores on April 18, 2006 at 17:18:17:
I was told that you cannot go over double the money in a 1031 account (if you sell one and buy multiple properties, let’s say half a dozen). If you have 500K in the 1031 account, all the properties together cannnot be worth more than 1 million.
Dolores
Re: no doc loans - Posted by John Corey
Posted by John Corey on April 19, 2006 at 09:33:31:
Dolores,
- Check carefully the 1031 rules. There are limits which you have to meet. As you are coming out of a F&C property there are some assumptions about the amount of equity that has to be in the replacement property. Similar for the debt level and the total value.
You will need to be careful about any refi’s soon after the 1031. One person will say that any refi is fine. Another will say that a refi quickly after with cash back can be recast as boot and might void the 1031. The second position was from a RE attorney who does estate planning.
- Once you have clear direction on the 1031 rules and the facilitator you want to use is in agreement then you can strategize as to how best to fund the deals.
With a very low LTV you can get a loan without a lot of paperwork. If you expect to do this often it might work well to use a local bank. Someone who can approve deals based on the deal and not based on the criteria used when the loans are sold into a portfolio.
If you have a lot of cash in the present property you may find that selling is a bad idea. There are transaction costs to buying and selling. If the property is otherwise a keeper then look to pull out capital by using a Working Line Of Credit (WLOC) or a straight cash out refinance. Speak with a mortgage broker and some local banks to see what they can do for you.
You could be in a strong position but with a limited set of options. As creative finance tends to focus on how people with bad credit, little income and no assets can find deals someone like yourself with good credit and ample assets will do just fine.
Continue to post questions as you work out your 1031 options or send email if you like.
John Corey
Re: no doc loans - Posted by Dolores
Posted by Dolores on April 19, 2006 at 11:48:20:
Thank you for all the information.
What about selling a property bought through the 1031 exhange, let’s say six months or a year later (where maybe the appreciation is not great). In such a case, since the capital gain is low, there are hardly any taxes to pay. Right? That could be a way to get some cash. Or is there a specific period of time one is prevented from selling after an exchange?
Thanks again,
Dolores
Re: no doc loans - Posted by John Corey
Posted by John Corey on April 19, 2006 at 12:18:05:
Dolores,
I think you misunderstand what a 1031 tax deferred exchange means. When you ‘exchange’ the present property for the target property (or properties) you move the tax basis from the present to the future. This means that any profits you have are still there up and you will owe taxes when you sell the target property.
A deferral does not mean the taxes owed will go away. No matter how long you own the target property you will still have the starting point of the prior property’s tax basis adjusted for subsequent changes (more depreciation, capital improvements, etc).
When you die your heirs might get the to forget the tax in that they get the property at the stepped up basis. You can refinance to pull out cash. There is the question as to how quickly you refinance after buying the target property. Assuming you can do it one day after buying you can tap into the equity. Just do not sell or you definitely trigger the taxes being due.
One other exception. If you move into the target property 1-2 tax years after the 1031 exchange you can ‘convert’ the tax status to your residence. Before moving in you will have to show it was an investment and held for investment for a period after the 1031. As we are talking about rentals then 1-2 tax filings with rental income, etc will establish the target as a true investment property. Then you move in. If you live there for 5 years out of 5 (not 2 out of 5) you can then sell and any gains up to 250K or 500K if married are tax free. Not tax deferred, tax free.
Your tax basis for the calculation of the gain is still the tax basis from before and all the adjustments. With depreciation you might have more gain than equity so you could have a larger tax bill than a person might first think.
John Corey