How does Hard Money Loans work? When do you pay them back?
I am looking at different ways to come up with money for real estate investments and I want to know how hard money lending works. When do you start paying back the loan? If I was to rehab a home would I pay it back after I sell the property?
A “hard money” loan is just another term for a sub-prime loan, available from what we used to call a “lender of last resort”, who will charge an exorbitant interest rate for a loan no one else will make.
It functions just like a normal loan, with regular monthly payments. You must pay off the balance when the property is sold.
You might be better off charging the purchase as a cash advance on several credit cards, it amounts to about the same thing.
How do you estimate what your capital gains tax would be on investment property?
This is a difficult situation. We own a piece of undeveloped land in FL and are considering selling to put a down payment on a house in CA. We have owned it for about 14 years. My husband is military and a FL resident. We currently are stationed in CA and I am a CA resident. The land is a joint tenancy. FL doesn’t have a capital gains tax, but CA does. So I am guessing that we have to split the gain 50/50 and have 50% taxed by the state of CA. We are trying to use an online capital gains tax calculator to figure how much we will have to pay.
We had an assesment to pave the street. Would that be an improvement cost?
Also, the state bought a small portion to widen a highway. Would the money they paid us be deducted from the basis?
How do you come up with the depreciation? My property value has went up (according to the county assessment).
How do you figure out what the tax rate is on the gain?
I know this is tough one, but I appreciate all the help.
If you file a joint CA return, ALL of the gain is subject to CA tax. If you file a separate return, only your half of the gain is taxed. The entire gain is subject to Federal capital gains tax.
The assessment raises your cost basis and therefore will lower the gain.
What the state bought constitutes a sale of part of the property. That was a taxable event when it occurred. You may or may not have taxable gain that needs to be claimed in the year of the sale. It will reduce your basis for the remaining portion of the property as well.
Land is never depreciated. No tax impact with that.
Since the property was held for over one year, the tax rate is 15% unless your marginal rate is 15% or less in which case it would be 5%. (Had you held it for 1 year or less it would be taxed at your marginal rate.) That’s the Federal rate. Not sure what the CA rate is. If I find it, I’ll post more later but it’s late and I’m heading to bed.
That was easy!
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Putting 20% down should I either get a 15yr loan or a 30 yr loan. The property would cost about 170K and would rent for conservatively $1000 a month. Putting the #’s into the calculator below http://www.finance.cch.com/sohoApplets/MortgageRentvsBuy.asp
On the 30yr loan my value of investment goes into negative even though the rent would carry my mortgage costs. However, when I do the 15yr my value of investment is really high but, I would have to bleed a few hundred dollars each month. (which i can afford)
I preface this with I don’t really understand home equity loans but, at 24 I would like to maximize my money for the long-term in the best way possible.
You should get a 30 year loan, positive amortization, no pre-payment penalty, fixed rate mortgage.
At the time you go to closing or settlement you ask for or its automatically given to you:
an amortization schedule – tailor made specifically for your mortgage.
Simply by taking the total monthly payment of principlal and interest THEN adding the following month’s principlal to that amount, you’ll save the interest on the second month.
Paying the principal does not mean you can skip the next month.
It means you’re saving the second month’s interest.
When month 2 comes, you pay the same amount of principal and opayment for month 3 AND ADD the principal for month 4.
Repeat this throughout the life of the loan. You’ll save THOUSANDS – tens of thousands of dollars.
With EACH payment, you enclose a note:
IDENTIFY THE PROPERTY: ADDRESS & LOAN NUMBER – AS WELL AS ALL BORROWERS.
Then you simply type a small note. The body is the same. Only the dates and amounts change:
Date: ____________, 2008
To Whom It May Concern;
Please be informed, enclosed is check no. ___ in the amount of $___. This payment represents
this month, ____, 20___ principal & interest, as well as the principal payment fior next month, ____. 20____
Please appl;y that additional amount to the balance of the mortgage.
According to the amortization shedule, the balance on the loan is $____
Very Truly Yours,
Signed
IF you have ANY Qs, speak with the loan officer. They may have the letter already prepared.
Thanks for asking your Q! I enjoyed answering it!
VTY,
Ron Berue
Yes, that is my real last name!
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