Heloc interest charges

[dharam]

I refinanced as well as took out a heloc to purchase 2 new properties. Just to make sure I am doing it right, the heloc interest charges are an expense against the new properties, right? And not the property(another rental) used as collateral? This bookkeeping is a mess and I am starting to keep separate entries for each property, but it is going to be tough struggle with the credit card purchases/payments.

Cheers,
Dharam

 

[Thomas Beyer]

QUOTE (dharam @ Dec 29 2008, 03:11 PM) I refinanced as well as took out a heloc to purchase 2 new properties. Just to make sure I am doing it right, the heloc interest charges are an expense against the new properties, right? And not the property(another rental) used as collateral? This bookkeeping is a mess and I am starting to keep separate entries for each property, but it is going to be tough struggle with the credit card purchases/payments.

Cheers,
Dharam
What is the HELOC against ? an investment property or your own home ? If own home ALL interest expenses would go against the 2 new rentals. If the HELOC is against a 3rd investment property you can allocate a portion of that to the 3rd investment property to the degree that is should not exceed your intial cash outlay

Example: you bought the 3rd property for 200K with 50K cash and 150K mortgage .. now it is worth 300K .. and you get up to 80% HELOC or 240K. Then you can use interest expense of up to 50K of that to allocate to 3rd property and not against the 2 other properties i.e. you have some room to creatively allocate interest expenses !

 

[dharam]

I am not sure I fully understand the last comment. Personal residence is not involved. The Heloc is against a rental property. After the heloc there was still 20% equity in this rental. Whilst this original rental is in my personal name, the heloc funds were used to assist purchase of 2 new properties which are in a company name but I am the mortgage guarantor. So should company use heloc as expense or original rental rental property?

 

[Thomas Beyer]

QUOTE (dharam @ Dec 29 2008, 05:11 PM) ... So should company use heloc as expense or original rental rental property?
as I said, there is the option to use some of these interest charges on the personal investment property !

However, if the freed up cash is personal cash, then ALL cash is personally expensed.

Also: if you move personal $s into a corporation there is only two ways:
a) it is a loan, or
b) it is equity, i.e. a share purchase

So, if personal cash goes into the corporation as a loan (regardless of source) then account for it properly ! You could, for example, charge 12% interest on the loan to the corporation .. then the 12% is an expense to the corporation but income to you (offset by cost of HELOC !!)

You could also use 2% or 5% or 8% or 28% .. there is some discretion here !! whatever is reasonable !

 

[dharam]

Thanks Thomas.
Got it! I will try to work out the most beneficial approach.