Real estate business. taxes involved?

The4Aces · #1 12-07-2006, 10:33 AM

Me and a few friends are thinking about buying a house 100% for cash. And using that house to secure a loan for 2-3 more houses.

Say we can rent each house out for $1500. We would use all of the rent to pay off the loans. What taxes other than property tax would we owe? Would we owe federal taxes on the equity we build over the year?

UncleSalty · #2 12-07-2006, 11:17 AM

[disclaimer]I'm not a tax accountant[/disclaimer]

You would owe federal capital gains tax on any amount above your tax basis at time of sale (initial purchase price plus any capital improvements minus depreciation.) The tax rate depends on how long you hold the properties.

You would also of course be paying annual income tax on any Free Cash Flow after operating and capital expenses.

spex x · #3 12-07-2006, 12:16 PM

IMO, this question is just too complex to answer in the context of this forum. You should sit down with your real estate agent or accountant to determine the taxation for the properties that you will be buying. You could also look at some books about real estate investing.

The4Aces · #4 12-07-2006, 12:17 PM

[ QUOTE ]
IMO, this question is just too complex to answer in the context of this forum. You should sit down with your real estate agent or accountant to determine the taxation for the properties that you will be buying. You could also look at some books about real estate investing.

[/ QUOTE ]

Ya that is a good idea [img]/images/graemlins/smile.gif[/img]. I am seeing my accountant later this month. Just wanted some basic ideas before i saw him.

Lucky · #5 12-07-2006, 05:40 PM

Putting 100% is unnecessary. For anyone with good credit and 10%, you will for sure get loan from national lender. You can even go through countrywide and do no doc or NINA.

Also, as anything under 4 units is considered residential, you can probably do up to four 4plexes, with only 10-20 percent down on each. Then if you have to go to another lender for future properties, you can use equity in the four you have to secure those. So anyway, do legwork and research, but dont put all cash down imo. Better yet pm rikakazak and ask him.

spex x · #6 12-08-2006, 01:04 PM

[ QUOTE ]
Putting 100% is unnecessary. For anyone with good credit and 10%, you will for sure get loan from national lender. You can even go through countrywide and do no doc or NINA.

Also, as anything under 4 units is considered residential, you can probably do up to four 4plexes, with only 10-20 percent down on each. Then if you have to go to another lender for future properties, you can use equity in the four you have to secure those. So anyway, do legwork and research, but dont put all cash down imo. Better yet pm rikakazak and ask him.

[/ QUOTE ]

Yup, I agree. You guys can utilize your money better by buying several properties at 20% down, or buying a few at 20% down and investing the rest elsewhere. If you put all 100% into one property, you will still have to come up with about 10-20% down in cash for all subsequent properties even if have no mortgage on that first one. That cash upfront is a major way that banks protect themselves if you default.