All Forum Posts by: Andrew C.

Quote from @Jason Norton:

I don't believe people are giving you the correct info. I would like to talk to you about how this really works. Education is key. With the correct info you can then make an educated decision on what to do for your LLC(ROI). Doesn't matter volume. I know of people in the same predicament.

I’ve DM’d you. ( Fwiw, the question about volume came directly from the linked article. )

https://www.biggerpockets.com/...

is 5+ years old. things change. Is there updated guidance on this, or recent case examples? I'm aware that I cannot, personally, do any of the work - I'd have to just buy the property in the name of the IRA's LLC, pay someone to do the work, have an agent list it, etc. It has to be totally passive on my part. Is that currently viewed as OK? Does it really depend on the volume done annually?

Quote from @Martin Dillender:

Hi all,

Not sure if correct forum but my question is this, I currently live in PA and plan on working my current job for about 5-6 more years. I've got 1 property (inherited) in Missouri being rented and want to invest in more SFH and small Multi Family there as well. Should I form LLC's in Missouri where I plan to retire to or in PA where I currently reside? I will be using a Property Management company in area where investing (Missouri).

I did talk to my CPA in PA who said, "go ahead and do it in PA" but not sure if he is just trying to grow his business :)

Anyone have any tips or gotcha's I should consider?

Thanks for your time.

Martin

IANAL.  But you’re cpa is incorrect.  Or, at least, that’s not the complete story. Owning property and renting it out is ‘doing business’.  LLCs are state-level organizations. If you create a PA llc you’ll then have to also register it as a foreign entity in the state where the property is. If you don’t, it’ll be doing business in that state illegally and, for example, will have no standing to sue to evict a tenant (since it could not have entered into the contract in the first place).  Foreign registering is usually as expensive as just registering an entity there in the first place. So - create the llc in the state where the property resides.   There’s no issue with owning a Missouri llc as a pa resident. Your cpa can still do your taxes, etc

Quote from @Andrew Garcia:

Hi @Andrew C., (great name by the way) most people start off in conventional. You can get up to 10 conventionally financed properties in your name. Those come with the lowest rates but they do not lend to business entities. 

Therefore, you will be looking at a few different options:

1. DSCR - They lend to business entities and they qualify you based on the income generated by the property, not your personal income.

2. Business purpose loans - Similar to the DSCR. They qualify the business based on the business's income generated from properties. You can use this to fix up, buy, or renovate properties.

3. Portfolio loans - This is where you start to have a lot of different properties. You can cross-collateralize them and they typically do not require you to personally guarantee them.

Hope this helps! Let me know if I can be of any assistance.

I keep hearing that ‘everyone starts with conventional’…..but I’m seeing ~6.5 from conventional and as low as 4.5 from commercial. Is that just an unusual situation? Other than perhaps the higher supported ltv, I can’t see why I’d use the conventional.  What am I missing?

Quote from @Robin Simon:

 (you might for example only be looking at like 15-25 bp lower on interest rate vs. 30-year fixed) 

that is NOT what I'm seeing. I'm seeing freddy-fanny 30-year at 6-6.5% and 5-year commercial loans (20 or even 30 year amortization) at 4.5-5%. 
Are people getting something very different?

Today, I own a small real estate company (LLC partnership). It owns 1 property, which it rents, and has one mortgage against that property, which it pays. I personally guaranteed that loan based on my assets and income, which is fine for now. But...that clearly won't scale and the point of doing this is to be able to quit that W2-paying job. So at some point there must be a way to not have to guarantee future loans. How does that work?

Let's fast-forward a bit as this RE business scales. Let's say it owns 20 properties, each with PV 150K. It has 3M in assets and 2.4M in mortgages, for net assets of 600K. It gets 1% per month in rent and pays .8% per month in expenses (PMI, maintenance, mgt co, etc).

So at the end of the year, that business files the following:

income: 1.5k*20*12: 360K

expenses: 1.2K*20*12: 288K

profit: 72K

depreciation: 3.5% * 3M == 105K

that entity files (because it's a partnership) and it issues a K1 to each of the partners (me + spouse) that passes everything through. And let's say I've since quit the W2 job. collectively, our personal return would look like:

72K passive income, 105K passive loss. So 72K income and no taxes, with some carried fwd losses. woot.

That's pretty great, but it's not going to support signing as the guarantor for the loan on houses 21-25 that the business wants to acquire, or to sign my personal income against new loans if the business wanted to refi the current 20 houses.

So, at SOME point, it seems the business has to be able to do this on its own. It has, in this example, 360K in income and a track record of renting houses profitably. Are there loan types that it could apply for that would not require me to guarantee it based on my income? Surely this is how larger rental business scale, right? What are those loans called, and what's required to qualify for them?

What is (or is there) a process of getting out of the business of personally guaranteeing the loans? Is there a point where collectively, the LLC has income X and current mortgage debt Y, and X is >> Y, hence another RE loan fits within the LLC/partnership's ability to handle and I don't need to personally guarantee this?

"Insurance carriers insist that the old wiring must be removed as well so it's not a cheap date."
really - has to actually be removed from the property? It's not sufficient to simply prove that it's not connected at either end anymore?

"I can also use bonus depreciation and effectively write off the entire purchase amount of $50,000." 

I believe it has to be > 6K lbs to qualify for that. Which excludes the non-electric F150.

Batteries are heavy, hence electrics are easy to qualify by weight (need a TeslaX?  :P )

I'm a bit bummed the eF150 can't be ordered and delivered in time. I'd pull the trigger if they were, even though my general guidance is not to buy anyone's first-gen electric.

oh, bummer! I'm traveling that week but would love to come. Is this a regular thing?