Will this be helpful to me? ;-) - Posted by drosengarden

Posted by Ronald * Starr on October 27, 2001 at 21:04:17:

Dave R-------------

Yes, debt secured by your personal residence can be placed on your 1040 schedule B if you itemize deductioins, which you typically will do when you own a home with a mortgage. Also, the part of the debt secured by the income part of the property is an expense of the rental business which can be subtracted from the income to reduce your income taxes.

If you can get a bunch of instant equity, that is fine. Just don’t kick yourself too hard if you don’t. And then you might well be able to get a second loan on it, which you use to pay some or all of your unsecured debt. Expect that you will not be able to get a second loan until at least 6 months, and possibly one year, after you purchase the property. During that time, you pay down your debt as much as your income allows. In fact, you are probably doing that already, aren’t you?

I think you are sensible and I think you could possibly do just what you want to do. Just don’t rush into a deal, is my advice. Get to know the market so you recognize what a good deal looks like and then snap it up. There is no reason to believe that you have to be some sort of “professional” to get a fine deal. A professional is just somebody who has made a lot more mistakes than you have to get where s/he is now.

Good InvestingRon Starr***

Will this be helpful to me? :wink: - Posted by drosengarden

Posted by drosengarden on October 20, 2001 at 14:11:09:

Hello all! As is probably common with all newbies rip roarin’ and ready to go, I am extremely excited and eagar to start my marketing and INVESTING. I am going home to the IL area, specifically Northwest suburbs and I’m looking out as far west as Elgin. I’ll be staying in Glenview for a time, but hope to find my own place of residence in the process of my activities.

As of tomorrow, for the past 5 monhts, my place of residency has been Marine Corps Recruit Depot, San Diego, CA. I was to be a Marine under the Reservist program, and specifically on a 92 day contract. What that basically means is that I was registered for my 2nd year at the Bible School I attend in Elgin (Providence Baptist College of Northwest Bible Baptist Church) and due to this enrollement, I was “guaranteed” to complete basic training during the summer of '01 to graduate no later than August 24 in order to get back to school, uninterrupted. After school year '01-'02, then I was to return to Camp Pendleton for my Marine Combat Traning and then to Kentucky (or was it Oaklahoma?) for Field Artillery Marine Operational Specialty. This second part was to occur in the summer of '02. So in other words, I get a special split training contract so I didn’t miss any school.

Unfortunately, I was injured during boot camp. I developed a severe stress fracture to my right femoral neck bone, compression side. This took me out of training and put me in a Medical Recovery Platoon for 1 day short of 5 weeks. During my stay at MRP, my school start date passed and I was still stuck here, unknowing of my outcome. After all the medical tests and exams, it was determined that I was unfit for duty and a formal hearing should be conducted in order to make offical determination that I am unfit for duty. This hearing would also determine how severe my disability is and rate a certain percentage.

Having been dictated for a Physical Evaluation Board, I was then transferred to a Recruit Separation Platoon and will have been here for exactly 2 months tomorrow. The ortho doctors determined that I should not return back to training (I tried) and to follow through with the board to be discharged from the military. They found me to have low bone density and that I would probably keep breaking if I stayed in the military. the Board process was to take approximately 30 days or so, during which time I have had to conduct physcials, attend classes and transition training, and a counseling session.

Yesterday, my findings came in. I am rated for temporary disability retirement leave with a disability rating of 60%. To me, this means a whole BUNCH of things that are very helpful. I am guaranteed a good cash flow monthly, some or all of it to be tax free and non reportable, a disabled veterans status and access to all the benefits for disabled veterans federally and in the state of Illinois.

The reason I tell you all this is because I’m thoroughly bored here at boot camp and this is about all I have to do for excitement (phone calls and internet - they don’t let me off base!) and because of the one particular VA benefit that could have some major helpful implications for me in my REI activities.

Specifically I’m talking about the VA Home Loan benefit. Under this benefit, I can get a 100% financed, no money down loan to purchase a property (up to four units) that I can qualify for, up to $203,000. Normally, veterans have to pay 3% on the first loan and 2% thereafter as a fee for the gauranty that the VA makes on all these loans (the assure the lender that 25% of the loan will be paid if I default.) As a disabled veteran, all these fees are WAIVED. So for the basic closing costs and whatever bone I’ll need to throw the broker, I can get all cash for the next property I wish to purchse (and live in - it must be owner occupied.)

So, (to all the REI veterans and experts) what kind of ideas does this cause your creative juices to conjure up?)

Thanx for your replies in advance and good investing.

(Please keep the boot camp jokes down to a minimum :wink:


You got lucky! - Posted by Bryan H (ny)

Posted by Bryan H (ny) on October 22, 2001 at 01:26:37:

I got a stress fracture in my hip with only one week of bootcamp to go on Paris Island. Resulted in an Entry Level Separation (not a discharge - so no benefits). The only thing I got out of the whole thing is government coverage of my hip for life!

I used to pass the bordom during my time in the seperation platoon by picking on the new arivals. I actually convinced a few that I was a DI, and had them "yes Drill Instructor Sgt. Hranek, sir"ing me for a couple days.

Anyway, good luck to you!

Re: Will this be helpful to me? :wink: - Posted by Ronald * Starr

Posted by Ronald * Starr on October 20, 2001 at 17:36:45:

Dave R-----------

Sorry about the medical issues.

I concur with Tom’s advice. I think a four-unit is a good idea. You might also consider a two-unit or three-unit if you can find one that has good cashflow potential.

You need not rush into making a purchase. I advise caution. Most properties for sale on the open marketplace are not very good deals. I suggest that you can do best if you spend several months studying up on real estate investing, even now before your discharge. And, when you are in the Elgin area, study the local market for several months. Learn what the usual selling prices are for properties of different size, age, and location. Then buy only when you find a real good deal. Figure that you want at least 15% off of market value, and at least 20% is even better. There are a lot of posts on CREONLINE.COM about locating good deals and getting sellers to call you. In general, properties on the MLS and listed by real estate brokers will not likely be a bargain.

If you have a choice between a property which comes close to your $203K limit and one which is, say one-half of the price, you might want to go for the higher priced one. This gives you more property value to appreciate in the future–assuming there is appreciation of property values there. Of course, I’m assuming that it is also a good deal and will have a positive cashflow. These come first, before consideration of purchase price. However, if you buy a less expensive property, you could later buy another property with the remaining eligibility, as I understand it. Then you could buy a single family house, if you wanted to be away from the renters. Or another 2-, 3-, or 4-unit property.

Good InvestingRon Starr*

Re: Will this be helpful to me? :wink: - Posted by Tom

Posted by Tom on October 20, 2001 at 14:25:15:

You bettcha.

Don’t do anything creative here. Just go find a good four unit building which will cash flow with only two units occupied. Buy it with conventional VA financing and now you’re a landlord. But be careful not to pay too much for your first building.
Other thing you need to research is what kind of changes can you make to your diet to increase your bone density.

Re: You got lucky! - Posted by drosengarden

Posted by drosengarden on October 27, 2001 at 12:48:01:

Yeah, this is what we do as well. The PEB’s (what I got) are kept separate from the ELS and other recruits. (Fraud, COG, ELPAC, XO, etc.) The Drill Instructors in this platoon are those who are on their way out of their DI Tour and kind of just lay back. They rely on the PEB’s to get everything done and the recruits who leave within that week’s timeframe processed out.

So we just naturally act in charge and yell at the recruits. They call us sir from the moment we pick them up. Then, even after explaining to them that we are still recruits, but in charge, they still continue to call us sir. Oh well, so be it! :wink:

The PEB’s get it better then any other recruit on depot. Our squad bay consists of a lounge with television, VCR, PlayStation 2, pool table, foosball table, 2 ping-pong tables, and an air hockey table but the air motor is weak and we don’t have the pucks. We all get to listen to music and have purchased CD players and CDs. The only caveat is that we get the recruit runs done on time, when needed, and our squad bay has to stay immaculate. (Which still doesn’t compare to a training company half the time.) Oh! I forgot to mention the chip and candy vending machine as well as the Gatorade vending machine, right in our squad bay and one body’s length away from my rack. So, we got it tough! But don’t get me wrong. I can’t wait to get out THIS THURSDAY! (IT BETTER BE THIS THURSDAY!) I’m egar to find out what the VA rates me at. If they follow suit (which I understand they USUALLY do) then that means I’m banking $770 a month for life and yearly pay increases as well! They might not rate me that high, however, because of my time in service. By time I’m discharged, I will have been in the Marine Corps 6 months or more (days).

What I am going to get, however, is really nice, considering.

So where was your HIP fracture? Mine was specifically, right femneck. That’s a really bad one! Almost all who get that get PEB.

Talk to you soon.


Re: Will this be helpful to me? :wink: - Posted by drosengarden

Posted by drosengarden on October 21, 2001 at 15:26:40:

That’s about what I started to think after I posted this. I can honestly say that I was so overwhelmed to get so much from the military not even having completed boot camp. (and that’s probably gonna tick off a lot of “real” vets off, but hey, I was on the job)

But as it is, I have what I have and after some thinking (I have been studying creative real estate investing on and off for over 4 years, much more seriously in this last year consistently) I figured I need to look for a motivated seller that would DEEP discount for all cash. I figure if I get preapporved and all my i’s doted and t’s crossed before even shopping, the loan wouldn’t take too much longer to close after striking up a deal.

In fact, with my current situation, I figured something out that I’m totally lost on now. If I go back to work full time (I mean I WILL!) I will have a minimum base of $2288/month. Plus add in the $701/month (this is only guaranteed after 18 months and then who knows, how will the lender look at it?) If I have a 4 unit with 3 rented out, take 75% of their total rents added to my incomes and viola, there’s my monthly. From there I should be able to figure out how much of a building I could purchase.

Let’s see, my base income of $2989, take 25% of that (front end mortgage payment) for a total of $747.25. That’s a maximum Principal and Interest I can afford. So now, if that were my payment, that payment would include full rent for 1 unit, plus 25% of total rent for the 3 other units. (Can only use 75% of rental income, most cases.)

So I get this $747.25=rent + 3(.25*rent): Right?

That makes the average rent for my future building: $427.00 exactly! NOW, take three times that average rent * .75 to get my rental income : $960.75

So my total qualified income becomes:

Work: $2288
Military: $701
Rents: $960.75

Total $3949.75

Oh wait, it doesn’t work this way, does it? Duh, my front end payment will be figured out by my total income, not my rental income from my front end payment before adding in rents.

Ok, so tell me I’m wrong and I need to know how much rents are first before I figure my payment out, and be sure to let everybody who is thoroughly confused know that I was suffering from temporary wacko phase so they feel more comfortable.

Hey, at least I’m trying!

Re: Will this be helpful to me? :wink: - Posted by drosengarden

Posted by drosengarden on October 21, 2001 at 15:35:43:

Oh, and my mom already has me on the worry track for my bone density thing. She’s a nurse at a hospital and her doctor buddies think the whole thing is strange. So my job is to make sure I have a complete copy of my medical record and all MRI’s X-rays Bone Scans and Dexa Scans so I can follow up outside if need be. Monday I go to ortho for a final hoorah and I will drill them for what they think the cause is and to see if I can get any more tests done to prove/disprove their little theory about my bones.


Re: Will this be helpful to me? :wink: - Posted by drosengarden

Posted by drosengarden on October 21, 2001 at 15:33:27:

That’s about what I was looking to do. In fact, I do have a specific plan with this first property if I use my VA loan:

I have debt in the ballpark of $25,000. I would like to find a property that I can pick up $40,000 to $60,000 in instant equity on an as is condition with room for $20,000 to $30,000 increase in value with minimal investment.

The house I would purchase in this fashion would be discounted and I would take out my loan to the maximum I could afford, pulling out the $25,000 for debt consolidation and whatever additional monies to pay the rehabbers to get the place in pristine condition. I could then hold on to it and use the newly found gobs of equity to write notes and secure other ventures, get a home equity, etc., etc. OR I could sell it, if possible, to realize all the equity just created…right?

It’s wonderful to have options. I just need to make the best of them.


P.S. - I did read here that it might not be a good idea to be a landlord right away because of the fact that I don’t have a pool of funds to cover problems that just happen and more so from inexperience. Although if I were to find a property that had that much instant equity, you think I’d be covered?

Re: Will this be helpful to me? :wink: - Posted by Ronald * Starr

Posted by Ronald * Starr on October 21, 2001 at 19:27:13:

D Rosegarden------------

Yes, I think you are right, the lender will count 75% of the rental income as part of the income. And that is added to your other income to see how much property you can afford to buy.

I haven’t done the math, but I think you are on the right track.

Now, one thing to think about. Investment property vs own home. When you buy an investment property you definately want to get a good deal. When you buy your own home, the “quality of the deal” is much less important. You want to get into a location you like and a building you like. Trying to combine the two into one purchase might put you in some comflict. You might find ok investment deals where you would not want to live and you might find a nice place to live which doesn’t make sense on a cashflow basis.

Given that this will be your own home, I’m not sure you have to push to buy the very best deal in town. A good deal, yes, but not necessarily the very best. If you take some time looking, you’ll have a pretty good idea what the marketplace is like and can tell you are getting a good deal.

Good Investing***Ron Starr

equity - Posted by Anne

Posted by Anne on October 21, 2001 at 17:42:40:


You don’t necessarily need to find a 4-plex that will have lots of equity built in (although that would be nice). For your purchase of a 4-plex with your VA loan, just get one that works- i.e. will generate a good cash flow after you take into consideration vacancy, maintenance, repairs, etc. Let amortization, appreciation, tax benefits and rent increases all work in your favor.

Properties with $40-60K in equity do not grow on trees- most deals like this are MADE by investors with lots of experience and know-how, the kind that comes after years of doing this. Now, you may get lucky, but I suggest you would be better served to get realistic. You’re in a very good position to get started in REI, but you need to do a lot of learning first.

Another thing- I would strongly suggest that you do NOT take that $25,000 unsecured debt that you have (I assume it’s unsecured- credit cards?) and secure it with your new 4-plex. Why turn unsecured debt into secured debt? Right now if you don’t pay it, well, you get in a mess o’ trouble with your credit rating, but so what? If you secure it against your home, and you don’t pay it, they take your home.

Calm down and do some reading and thinking about this.


Re: Will this be helpful to me? :wink: - Posted by drosngarden

Posted by drosngarden on October 27, 2001 at 13:19:25:

Thanx for the response, Ron.

You bring up a very good point for me here. You’re right about the “finding the very best deal in town.” I just might not be able to find it. However, this being my home would be VERY short term. The fact is, if I were to find a better property that I could pick up creatively the next day after closing on my 4 unit, I’d move! I got no problem moving! I’ve been moving 2-3 times a year for the last 7 years of my life anyway! That I can deal with until I get established (or married, whichever comes first.)

Some have told me that finding a property with the kind of instant equity I’m talking about is something only the pro’s can do. Probably more true than not. What about the refi for my debt situation. This person also suggested that securing my unsecured debt isn’t a good move, even if I could find the instant equity. All I know is I want the debt gone, net positive monthly cash flow per my rental incomes. If I put this debt into property, now I have more tax write off on interest where I didn’t have it before, right?

Your thoughts? (We’re talking about $25k in debt.)

Thanx again.


Re: equity - Posted by drosengarden

Posted by drosengarden on October 27, 2001 at 13:28:41:

Thanx for your post, Anne!

Well this is the kind of slap in the face I need, I’m sure. I like the fact that I can bounce ideas off of people here and get realistic responses that are geared towards getting me more in touch with reality! :slight_smile:

Ok, so yeah, that’s a lot of equity and I WAS hoping to get lucky, BUT mind you if I were to find a great property that worked, I’d take it. I was just thinking, because I will have all cash with my loan (if I get everything pre-prepared before the closing it could be only a week to close, maybe two)I would be in a better position to ask for a discount on the property, thus generating instant equity for me. If I find the right distressed owner, I might be able to negotiate this. And what a headache solver for the distressed owner if I could just come in with all cash! Then, should there be equity to fix up the place, pull it out and do that. Then, should I have enough equity to pay my debts, pull IT out OR sell it and boom! Debts are gone! Ok, not such a great building strategy or buy and hold strategy, but I just want those debts CLOSED ON ONCE AND FOR ALL. A clean close taken care of in one property! That’s my dream! I still have the VA loan and can use it as many times as I want! (As long as the previous one is all paid off!) Do you catch my drift here? Am I still being too immature in my thinking? (You’re probably going to say yes! )

So do you see my position now? You probably saw it from the first post. Anyway, that’s the idea. Now that I’ve been a little more specific, is this all still too unrealistic?

Thanx again!