Few Questions, Out of State Investing

7 Replies

Hey there. I have a few questions. I'm not looking for anyone to answer all of these or any of these really. Just need some suggestions on where to look. Whether that be a forum post, a book or whatever else. Before I list the questions I should fill you all in on my situation.

I bought my first home in Colorado 5 years ago. Thanks to the booming market, I made a good amount of money on it when I sold it a few months ago. I now would like to use some of the profits to invest in my first rental property. I am active duty military stationed in SC now but looking to purchase a home in GA north of Atlanta. So all of that raises some questions.

I purchased that first home with a VA loan and put no money down. This is my only experience with mortgages and I now know that I will not be able to use a VA loan for an income property. So I think my question is, do I go with a traditional loan and throw down 20%? Are there other, potentially smarter options?

Will I have to pay taxes what my renter pays? I know property taxes will be taken care of through the mortgage but are there other taxes from owning a rental property? Also will I be able to write off some of the cost associated with maintaining a property?

Should I start an LLC to do this? I'm thinking it could help with taxes and liabilities but I really don't know much about LLC's. I also heard on a podcast that if I use an LLC, a home office would be a tax write off. Sounds like a check in the "pros" column. Are there things I should consider for the "cons" box?

Does anyone use those home warranty programs that's suppose to cover certain things like large appliances if they were to ever suddenly break? I have listened to many podcast and watched a lot of YT vids but I have never heard someone even mention this.

Thanks in advance to anyone who response. Again, I'm not looking for someone to give me all the answers here and now (though I wouldn't complain). I'm more looking for resources to find the answers. Thank you!

Hey Alex! To answer your questions:

  • I purchased that first home with a VA loan and put no money down. This is my only experience with mortgages and I now know that I will not be able to use a VA loan for an income property. So I think my question is, do I go with a traditional loan and throw down 20%? Are there other, potentially smarter options?

If you aren't going to be living in the property, you will have to put 20% minimum down for the traditional loan.

  • Will I have to pay taxes what my renter pays? I know property taxes will be taken care of through the mortgage but are there other taxes from owning a rental property? Also will I be able to write off some of the cost associated with maintaining a property?

You will absolutely be able to write everything off since it's an investment property. As far as income taxes, technically there are income taxes on the income but the write-offs tend to cancel those out. Details here-

https://www.biggerpockets.com/renewsblog/2016/07/0...

For ideas on the write-offs more specifically- 

https://www.biggerpockets.com/renewsblog/rental-ta...

  • Should I start an LLC to do this? I'm thinking it could help with taxes and liabilities but I really don't know much about LLC's. I also heard on a podcast that if I use an LLC, a home office would be a tax write off. Sounds like a check in the "pros" column. Are there things I should consider for the "cons" box?

Yes, there are. Tons of details here (and be sure to read through people's comments, there's a million of them with additional information and considerations)-

https://www.biggerpockets.com/renewsblog/2013/08/1...

  • Does anyone use those home warranty programs that's suppose to cover certain things like large appliances if they were to ever suddenly break? I have listened to many podcast and watched a lot of YT vids but I have never heard someone even mention this.

You can definitely use them. I recommend them more just for at least the first year after you buy the property, just in case anything unexpected jumps up. You can oftentimes convince a seller to include 1-years worth of a home warranty in the sale, or they cover the cost of it or whatever. As far as whether to keep it going after the first year, it kind of depends on the situation and the property. If it's a property that needs a good bit of work, it may be worth it. If it might not need much, it might not be worth it. Also read the fine print of the warranty to make sure you understand exactly what is covered, and more importantly, what is not. I've had PMs in the past all tell me it's easier if I don't have one, but that's more for them being able to get the repairs dealt with themselves versus having to coordinate with my warranty company.

Sorry to bombard you mostly just with articles, but those are the more detailed answers. Hope they help!

@Ali Boone Thank you for your reply. The articles will be perfect. Looks like I have some reading to do. Thank you again!

@Alex Krussell

Congrats on selling your Colorado property for a gain! As long as you lived in the property for 2 out of the last 5 years - you may be entitled to exclude up to 250,000 of the gain(500,000 if married).

VA loans require you to live in the property. You may want to look into buying a multi unit property with a VA loan where you live in one of the units and you rent out the others. The alternative is to put down the 20% for a conventional loan.

Owning an investment property requires you to report the rental property's activities to the IRS on Schedule E. Depending on your income and expenses  - you may owe taxes additional taxes to the IRS if you have net income or you can potentially decrease your tax liability if you show a loss on your rental business.

Your rental property business is entitled to the same deductions whether you own the property in your personal name or in the name of the LLC. Therefore; you can have and deduct a home office deduction if you own it personally.

@Basit Siddiqi Thanks for the response! Would you suggest to just make an LLC? Right now I cant find a reason not to.

it's 15% down for non-owner occupied single-family residence. Not 20%.

You bet! Reach out anytime if I can of any help.

@Patrick Britton Only 15% required down might mean more possibilities. This is still considered a traditional loan? Sounds like I need to do some reading on mortgage options.

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