How would you structure leases if spouses acquiring rental properties individually?

Question

Hello everyone, thanks in advance for the replies!

My wife and I are purchasing rental properties in our individual names in an attempt to be able to buy more down the road. (We dont want mortgages/insurance/taxes to hurt both of our debt ratios and would like to one day get to 10 mortgages each).  Would you put the leases in our joint names or only in the name of who owns that property?  
     We put the rent checks in a joint bank account and have an umbrella policy to cover the properties.  Does putting leases in our joint names increase liability  for us by allowing a tenant sue both of us (risking all of our assets) instead of only the half in that spouses name?

Also, does anyone know if leases are in joint name can, for example, my wife use that lease as income to qualify for a new mortgage if that property is in my sole name?

Thanks again!

Tom Goans · Answer

This may be a question best answered by your tax advisor, a tax attorney, or a CPA. Your specific current financial situation is important to getting the correct answer that best fits your needs. Be sure to consider the future with consideration for your estate and heirs.

Elizabeth Colegrove · Answer

Daniel B. I think my strategy next year depending on the market will be two fold until we can buy more investments than 4.

1) To try to buy some all cash houses in the 50k price range that produces pure cash.
2) To flip our cheaper mortgaged houses (2 of our houses have mortgages under 80k) into houses that are more expensive and better long term assets.

Daniel B. · Answer

Thanks for your responses!
Steven, I had not thought of the DBA, I have an LLC which has been useless as the properties have to be in our personal names in order to purchase them.  Would putting the leases in our LLC while the property is in our personal name protect us?

Elizabeth,
 We have had issues growing too.  We have 3 rentals in my name, 2 in my wifes.   My loan officer stated for rental properties that we have had 2 years they take net income, add back deprecation, taxes and insurance (but not interest expense) and divide by 12.  They then subtract piti, they are not showing a lot of cash flow because their formula counts interest expense twice.  we have mainly gotten 15 & 20 year loans which means more interest in a given month and its counted against us twice.  I have been told on BP this is not how it should be calculated yet 2 different lenders confirmed this formula.

Good luck in your investing and growing, let me know if you figure out a good strategy to grow.

Elizabeth Colegrove · Answer

That sounds lime a great plan. I had thought about doing that for our property but it was too late when the thought came to me. I would be careful on counting on rental income. We are having trouble growing beyond 4 houses for two reasons. 1) until we have two years of tax returns income will not be able to count 2) without my kncome or the rental properties we cannot meet required debt to income ratios. Just our current experience. Good luck!

Steven Hamilton II · Answer

Daniel B.,

Would you put the leases in our joint names or only in the name of who owns that property?

I would put it in one name.  Or I would get a DBA and list it in the name of the DBA.

We put the rent checks in a joint bank account and have an umbrella policy to cover the properties. Does putting leases in our joint names increase liability for us by allowing a tenant sue both of us (risking all of our assets) instead of only the half in that spouses name?

Yes, it does increase the liability to both of you. If only one of you owns it only one of you should have the lease in your name. That said: You NEED to have an umbrella policy that will cover liability. I recommend several million as it does get cheaper every million you add.

Also, does anyone know if leases are in joint name can, for example, my wife use that lease as income to qualify for a new mortgage if that property is in my sole name?

I can't recall the names of any BP members that are loan officers off the top of my head.

For tax purposes:  You will receive a stepped up basis when property is left to a  new heir. This will even happen when being passed to a spouse.

How would you structure leases if spouses acquiring rental properties individually?

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