By buying with cash you should sustantially reduce the cost that would normally pay to the mortgage broker. You should not need to show anyone where the money came from. Just have it wired to the title company doing the closing. Unless this investor is very naive and trusting you will secure his interest with a note, deed of trust/mortgage and mortgagee title policy.
The investors tax liability is paying the taxes on the interest(or profit) he receives. You deduct that interest as an expense. You will pay tax on the profits when you receive them.
You did not say what interest rate the mortgage broker could get you. So we don’t know if the fees offset a reduced rate.
Subject property purchase price 45k, have 15%($6750 in escrow as down). Mortgage broker jerked us around now wants additional 10% down for 75% LTV. Property is a rehab, needs 15k which we have. My partner has someone who will lend us 38k to buy all cash. The numbers are very good, positive cash flow & equity in the ARV. The numbers are as follows:
Purchase price 45k
15% already down 6,750
need 38k
Here’s the offer, 38k with 10% mgt. amotized over 30 years, with no principle deduction, and balloon in 2 years.
after repair value 85k
fair market (comps)85 to 95k
monthly income 1,400
debt service 680
cash flow 720
with loan, rehab, down payment, investment of 60k, equity of 25k.
We will refi to pay balloon, and capitol invested in 2 years.
Now the questions concerning the 38k, and tax liabilities.
Does 38k need to be recorded?
How do we show where the money came from?
What can we do to reduce the investors tax liabilities on 38k?
What are me and my partners tax liabilities?
I know this is long but tried to include all the info,thanks in advance for any help or suggestions. I sure can use them!!