Vance: This is the Real Estate Guide to Success
video series. I’m Vance Poindexter – Mr. Ronnie Adams with me again.
Ronnie: Yes I am. Vance: Today we have a very special question
and answer series episode. We have an e-mail question we got in from a Mr. Davion McKnight.
He is in Afghanistan, we really appreciate you checking our videos. I know things are
crazy over there but we really appreciate you checking us out.
Ronnie: Can’t wait until you get home. Can’t wait until you get home.
Vance: Appreciate what you do. So we have a couple of questions from Davion
who sent an e-mail to you at [email protected], feel free to do that. Ronnie will take some
time to get back to you. There’s a lot of e-mails coming in so give us some slack [00:52].
But, first question we have is about seasoning. A lot of people may not understand what the
terms ‘seasoning’ means but we can go into that. But it says, “Do you have experience
with banks that don’t care about seasoning, and if so how soon can you re-finance a property?”
Ronnie: Yeah, seasoning first of all is the banks will have criteria on how long you have
to own the property before they will either allow you to get a loan, or allow you to get
a loan and cash out. Some banks, or lenders I should say, if you
got a loan on a property today and you turn around and say, “Look, you got better terms,
I want to re-fi with you tomorrow,” they may say, “You have to hold that property for twelve
months before we even give you a loan at all”. Vance: So that’s the seasoning period.
Ronnie: That’s the seasoning period. Yes. Now sometimes they say – like for somebody
who buys a house cash, then I have no loan. So I figure I should be able to get a loan
on the appraised value of the property. Well, seasoning then will dictate that we’ll only
give you a loan on the purchase price of the property. I may have purchased it and rehabbed
it, say I purchased it for fifty, I put five thousand in.
So then the bank says, “Okay, we’ll give you the purchase price plus your rehab. And you’ll
have to show a receipt showing your rehab for the five. We’re going to give you a loan
on the fifty five. Now we’re only going to give you 70% of the fifty five.” So that makes
you always have your own cash still stuck in the property.
Vance: So why do banks do this? How does that protect them?
Ronnie: Well, banks always want you to have some interest in the property. They don’t
want it where all their money is in it. So now the way that you’re able to… and we
have to be very honest with everybody that it’s harder now after the crash to get a loan
for right out the box, where I bought the house for fifty and it’s actually worth a
hundred and fifty. I want a loan on the appraised value of a hundred and fifty.
A lot of times the mortgage companies, they don’t want to give you cash out. They don’t
want to give you fifty thousand out because what they’re afraid of is you’re going to
take fifty thousand dollars and just walk away, and you’ll try to do it again. If you
can do it within three times like in a month, then you could literally walk away with a
hundred and fifty grand and just say forget it.
Vance: That’s what they used to do. Ronnie: Yes, that’s what they used to do.
They used to have seasoning also, it’s just they were slacks. So some companies said,
“Okay, we have the seasoning.” Some of them said that they didn’t.
Now what I would do to get around it was, banks generally back in the day, had no problem
with seasoning. They would give you whatever on the appraised value right off the bat.
But now where they do, they are looking and they don’t want to do that. A bank’s generally
there closing cost are low. So closing cost for a bank for a re-fi is almost so small
it’s not even worth counting. If you want to purchase a property then you’re
going to have closing costs involved. It may be three or four thousand dollars. you can’t
do that too many times, because you’re sucking down some of your profit which are closing
costs. so if you did it again at say four thousand dollars, that will make eight grand
and I just re-fil twice in one year. Where’s all my money gone?
But banks generally, their closing costs are nothing, so if I went to a hard money lender
who, their closing costs are going to be higher, but I already know that they’ll give me money,
but they only want to give me money for a year. Then after that year, then I’ll go to
the bank. And then I’ll get a loan from them to pay off the hard money lender and their
closing cost was nothing. So I’m still paying one closing cost as far
as I’m concerned. But I was able to get the loan, get the cash out that I wanted, and
I turned around and got the bank to pay off the hard money lender. So now I’m at the end
I still have a loan with good terms, good rate for the next whatever.
But here’s the thing; I have to make sure that that hard money lender, when he gives
me that cash, that I can definitely re-fi that thing in the twelve months. Because after
twelve months, if I don’t – most of the time they will give you extension for a year. But
they’re going to hit you with a closing cost again. They’re going to hit you with points
and everything like that. So then you’re right back where I pay two closing costs, you know
what I mean. But if you do your homework, then you can
kind of get around that. You would have to find a company that will give you money on
the appraised value up front, and just understand they’re going to charge you fourteen per cent,
where everybody else is charging you forty, they’re going to charge you probably four/five
points, where everybody else is charging you one maybe two.
But you’re getting that cash up front. Now you’re going to already talk to the bank and
find out what their criteria is to re-fi that thing. So now okay, I already know that you’re
going to give me ninety percent of the appraised value. I already talked to my appraiser, what
is this thing appraising for today. The deal has to work today because we’re still at the
bottom. So next year we should be the same or higher. So that I’ll make sure that I’ll
be able to re-fi. Vance: Alright, so the second part of that
was, “How soon would you be able to re-fi the property?”
Ronnie: Well, that’s all according to the letter that you file. Some of them say it’s
going to be a year. Seasoning generally means a year, twelve months — that’s what it means.
You may find some that go six months but you just kind of have to do your homework to find
out, but I would bet on the year. Vance: Right, he had one more question that
we’re going to answer for today, that is regarding the income a year for your property, which
is pretty much passive, how do you offset that income that you get in for tax purposes?
Ronnie: Well, remember your rent is offset by certain things – your taxes that you pay
on the property, your mortgage and there’s the mortgage interest on the property. Any
maintenance that you put in, and it would be almost a dollar-for-dollar thing – any
maintenance that you put in. I had to put in a new hot water heater, I had to get the
grass cut, I had to pay electric bills. Whatever it was, even though I don’t pay any electric
bills, I make my tenants pay it. After a tenant moves out, if they messed the house up, then
I have to fix it back up, all that is written off also.
Vance: Lawyer fees… Ronnie: Lawyer fees, accounting, anything.
You know even gas to ride back and forth to that property. I may even have a part of my
house being an office, so then I can write off that also.
But a big part is going to be depreciation on a property.
Vance: Itself, okay. Ronnie: Depreciation on a property is a great
write-off because all these other write-offs that we talked about, we have to put a dollar
out. I put a dollar out to fix the property up. I put a dollar out to pay the electric.
I put a dollar for the mortgage, the taxes whatever. But for depreciation we don’t put
a dollar out. Properties depreciate over a certain amount
of… the government gives each type of property, or just real property, being TV’s, being computers,
being cars, they give you a depreciation life span.
So for the first couple of years there’s going to be a certain amount of write-off that you
get and then it depreciates down as it gets closer to the end of its life span.
The properties, houses, they get like I believe it’s fifteen or twenty years, or something.
So in the beginning you get a higher depreciation write-off, and then it goes down until you
get to the last year and that’s pretty much where it tops out.
Vance: So what you’re saying is over fifteen years in year one I might get a $2,000 write-off,
year two I might get an $1800 and it goes down…
Ronnie: Yeah, until it’s over. What some people do is, and this is really getting into like
apartment complexes, they get big write-offs because it’s such a big loan. So once they
get to the point – but they do it just for depreciation because they already made a lot
of money doing something else. So they’re using that depreciation to offset something
else. Once that lifespan of that property gets to
where it doesn’t make any sense, they’ll just sell. Like I can sell mine to you, the year
starts over. And you can sell it right back to me a year later and it goes right back
up. So depreciation is a great write-off because again, it’s write-offs that we’re getting
for money that we actually don’t put out. Vance: In your tax accountant handles all
of that. Ronnie: Your tax accounting, yeah, that’s
what you need. You need a good… the accountant is very important to you, just like Uncle
Sam is. And I always say Uncle Sam is your partner, whether you want him to be your partner
or not because if you screw him, then he will make your life very miserable. So that’s why
you want to make sure that you do everything on the up and up.
Vance: Alright, Davion, again thank you for the e-mail, I really appreciate it. Keep listening,
keep watching. Everybody out there please subscribe to our
YouTube channel and also check out our e-book, realestateguide2success.com/eBook. A lot of
great information there for you to take in. Ronnie: Alright now. Thanks.