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Posted by Johan Garst on May 8, 2007, 12:52 am
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Hello,
I want to buy a condo for 300K, and pay cash for it
initially. Later I want to get a standard 30yr mortgage on
it, and put the cash that I initially spent back into my
personal account.
Here is one solution that I am considering:
I have an S-Corporation, I am the only 100%
shareholder/owner, no employees except for myself. I can
loan my S-Corp 300K, have my S-Corp buy this condo. Later I
can ask a bank to give me a personal 30yr mortgage to buy
that condo from my S-Corp. I will have the bank pay my
S-Corp the money for the condo. Later I would have my S-Corp
pay me back the loan of 300K. Can this be accomplished
without paying any taxes? Will this plan trigger some tax
event somewhere? I suppose I would need to charge my S-Corp
interest on the loaned 300K, and pay tax on that interest.
Is there anything else to worry about? Is there anything
illegal with my plan? If yes, how to make it legal?
My goal is to be able to pay cash for the condo, but later
be able to convert it into a standard 30 yr mortgage, and
keep the cash except for the 20% down payment. It doesn't
seem that the banks at a later time would let me convert to
a standard mortgage if I pay 100% cash for the condo. At
least, I am not aware of any bank product that would do it.
I don't want any home equity loans with some horrible ripoff
interests, just normal mortgage. My credit record is
excellent.
Thank you for your input.
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Posted by Stuart A. Bronstein on May 9, 2007, 3:54 pm
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> My goal is to be able to pay cash for the condo, but later
> be able to convert it into a standard 30 yr mortgage, and
> keep the cash except for the 20% down payment. It doesn't
> seem that the banks at a later time would let me convert to
> a standard mortgage if I pay 100% cash for the condo. At
> least, I am not aware of any bank product that would do it.
It's called a re-finance, and it's done all the time. See a
good loan broker and he can find you a good deal.
By the way, why in the world would you want to structure it
this way?
Stu
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2006) - All rights reserved. >>
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Posted by Gil Faver on May 9, 2007, 3:54 pm
Please log in for more thread options > It doesn't
> seem that the banks at a later time would let me convert to
> a standard mortgage if I pay 100% cash for the condo. At
> least, I am not aware of any bank product that would do it.
I must be missing something. I paid off my house, and a
couple years later financed it with great terms.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Tom Russ on May 9, 2007, 3:54 pm
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> I want to buy a condo for 300K, and pay cash for it
> initially. Later I want to get a standard 30yr mortgage on
> it, and put the cash that I initially spent back into my
> personal account.
>
> Here is one solution that I am considering:
>
> I have an S-Corporation, I am the only 100%
> shareholder/owner, no employees except for myself. I can
> loan my S-Corp 300K, have my S-Corp buy this condo. Later I
> can ask a bank to give me a personal 30yr mortgage to buy
> that condo from my S-Corp.
First a caveat: I have no professional tax qualifications.
But, this seems needlessly complicated. I don't understand
why you want to get your S-Corporation involved at all.
Especially since I don't think you really have to.
I'm sure that the tax pros can comment on the difficulties
involved in the subsequent sale, since at that time, the
value of the house would (presumably) be higher. But since
it is owned not by you, but by your corporation, I doubt it
would qualify for the tax-exclusion on the profit. And
since you control the corporation, you would have to worry
about not having an arm's length transaction (at fair market
value) and running into various self-dealing rules.
> My goal is to be able to pay cash for the condo, but later
> be able to convert it into a standard 30 yr mortgage, and
> keep the cash except for the 20% down payment. It doesn't
> seem that the banks at a later time would let me convert to
> a standard mortgage if I pay 100% cash for the condo. At
> least, I am not aware of any bank product that would do it.
OK. It is unclear to me why you would want to structure the
transaction this way, but I'll take it on faith that you
have a good reason.
That said, it doesn't seem like there would be any problem
with doing a cash-out refinance of the property at some
later time. This would get you a first mortgage on the
property and not a home-equity loan (which are typically
second mortgages, and having a higher interest rate because
they are second in line for the security). IIRC the
interest rates on cash-out refinance loans are often
slightly higher than on purchase loans, but I don't think
the difference is very big. Don't quote me on this, but I
think it's only about a 1/4 percent higher rate, if it's
higher at all.
Have you actually asked a bank loan officer or a mortgage
broker about the process of taking out a mortgage on a home
that is owned free and clear?
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Seth on May 9, 2007, 3:54 pm
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> My goal is to be able to pay cash for the condo, but later
> be able to convert it into a standard 30 yr mortgage, and
> keep the cash except for the 20% down payment. It doesn't
> seem that the banks at a later time would let me convert to
> a standard mortgage if I pay 100% cash for the condo.
They probably will (as a "refinance" taking additional money
out), but you'll have a problem with deductibility of the
interest.
Seth
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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