Entry Level questions multi-family

7 Replies

Hi All

Im at the beginning of my REI journey. I have saved some money and read a few books but I still have some very basic questions.

If I want to get a loan, let's say 20% down, 30yr for property in another state, do I need to apply for a loan at bank in that State?  Can I apply for a loan in the state I am in at large national bank that has a branches all over the country?

One aspect Im not clear on is an LLC and OA. I feel like I need one but Im kind of on the fence because I live in CA and you have to pay $800 every year for an LLC. Is an LLC the only way I can get tax benefits and use for expenses. As an example, if I travel to another state to view properties, do I have to have LLC to expense that? Im starting so small, Im not sure if LLC is worth it yet, Id imagine on larger properties, with partners that it becomes much more critical. What am I missing? Should I just go to a lawyer now?

@Damien Anderson , loans are going to be somewhat contingent on the asset you are buying.  Most commonly the loan will be with a lender local to the property, not you. If it is a 4-unit or less, you can probably find non-owner occupant lenders in some of the national banks.

With the LLC, your issue will come back to financing. As soon as you own in an LLC you move to commercial lending. Once on commercial, you are likely talking higher down payment amount, and potentially shorter term and amortization, although this is hugely variable from bank to bank. In my experience, the national banks do not do small commercial real estate loans (talking under seven figures typically). So you are back to local lenders and credit unions.

Lastly, regarding the LLC and writing off travel costs, you will need to talk to your accountant. Technically, you can write off anything and report those on your taxes, but that doesn't mean you are necessarily allowed to. I self manage and own locally, so I do expense my travel, but we are talking a couple hundred miles of driving at $0.56 per mile. There is a lot of potential for abuse here, and therefore the IRS will likely scrutinize these more closely. I found this article that dives into this issue:

https://www.fool.com/millionac...

@Damien Anderson, the other aspect to consider is protection. With an LLC, you are removing certain aspects of your personal property and assests from risk should something go wrong. I am in the early stages of multi-family development (here in CA as well) and felt the cost far outweighed the downside of personal exposure on something larger than 4 units. If it were for a simple flip or BRRR, I'm not sure the nuances regarding the LLC are as pertinent.

I will say though, if you are doing an LLC in California it's worth getting the advice of a good CPA. We had a great firm we were working with but they were out of state, and at one point we decided to bring on a new CPA that was closer to home (she's fantastic BTW if you need a recommendation) and she mentioned they had overlooked certain things that California requires that they weren't tuned into. Not major stuff - but mostly filing related and always best to dot the i's and cross the t's.

You are right. One of the members of your team on the ground would definitely be ......your lender. As for the LLC vs Corp your CPA should be able to direct you but one important thing to think of before LLC etc is Umbrella Insurance. As soon as you acquire the property get that.

Where are you investing?

Tapan