Basic lease or roommate lease for house hacking?
I am new to BP and always love the idea of becoming a real estate investor. I was listening to the podcast and notice we have a great tool in our hands to start our journey. We are planning to house hack our house, we have a mother-in-law suit and will like to add an extra income by making a 1 bed 1 bath with kitchen and livingroom in my house aside from the mother-in-law suit.
My question is should I do a basic month to month lease or a roommate lease to both of this rentals?
We all will be sharing the same address but all of us will have separate entrance and own privacy.
Should we rent through a company's entity or our personal name ? (For liability reasons)
Thanks for your advices in advance.
Honestly, just starting out most people don't have much of a lease.
People that I know tend to just find someone on the local ads, kijiji or craigslist
Less legal paperwork and if you do it under the table you don't have to pay taxes on the rental income either
Personally, I would go with a lease term of at least 1 year, as you might not want people in and out of your house all the time especially if you live there.
But if you are firm on getting a lease, try to ask for some legal help drafting it from a real estate agent
I do think though you should rent out through your personal name, as there isn't much of a need for a corporate entity at such a small level (no offense)
@Griselle Monzon I would ask any friends who are PMs , realtors or own rentals if they have a good lease you can use. I would not worry about a LLC but I WOULD declare the income on your taxes.
The first thing you want to do is avoid taking advice from someone that gives you advice on how to break the law. Under-the-table payments and not reporting taxable income is a federal offense. Don't cheat to try and get ahead in life.
Make sure the zoning allows for three separate dwellings. You can probably call your city zoning office and they will tell you what is allowed.
A roommate lease is appropriate when you have shared common area. For example, if you had three bedrooms rented out but everyone shared the bathrooms, kitchen, and living room then you will need a lease that addresses how to use those shared spaces. If your rentals all have private space and private entrances, then a standard lease is appropriate.
You should put them in your personal name. An LLC will only add protection if you know how to use it properly. They are easy to set up but many people don't follow the rules and expose themselves to liability.
Originally posted by @Nathan Gesner:
The first thing you want to do is avoid taking advice from someone that gives you advice on how to break the law. Under-the-table payments and not reporting taxable income is a federal offense. Don't cheat to try and get ahead in life.
Make sure the zoning allows for three separate dwellings. You can probably call your city zoning office and they will tell you what is allowed.
A roommate lease is appropriate when you have shared common area. For example, if you had three bedrooms rented out but everyone shared the bathrooms, kitchen, and living room then you will need a lease that addresses how to use those shared spaces. If your rentals all have private space and private entrances, then a standard lease is appropriate.
You should put them in your personal name. An LLC will only add protection if you know how to use it properly. They are easy to set up but many people don't follow the rules and expose themselves to liability.
Cool part about the roommate lease didn't know about that!
Originally posted by @Griselle Monzon:
@Richard Sherman Thank you i will be reporting it as income in my taxes, do you know im f this can be use as tac writes off?
I would imagine that you would get a write off for expenses incurred for renting it, but probably not more than the deductibility and eventual tax-free capital gains for it being your primary residence. That is a CPA question and I am NOT one haha BUT, if you had to buy furniture or paint or something to get it ready, sure that is a write off against the income from rent.
@Griselle Monzon For those of us who are fans of The Big Bang Theory, I think we should ask Sheldon Cooper to join BP and to share his roommate agreement with us (grin).