All Forum Posts by: Andrew C.

personally....that seems tight.

"Vacancy 3%" That's 3 weeks every 2 years. I mean, possible...but you're counting on having multi-year renters or having to do no work between tenants.

"3% Maintenance 3% Cap Ex."  that's rather lower than the usual. At 800/month, 3% maintenance is 288$ / year. even quick paint btwn renters will blow through that. I believe the usual is at least 2x that. If this is an older place, maybe more.

Most cities will compute prop tax based on the price you just purchased it at. Is that estimate based on what the current owner is paying, or the local actual tax rate?

Overall, this looks like an 'everything goes perfectly' analysis.

re: 'what's good'....if you're investing for cash flow, this isn't it at 2.2% CoC. If you're investing for equity...you need to ask if properties in this price range/location are likely to increase in price (have they been doing so recently)?

are you trying to do this all local to you, in MD? some markets just seem impossible right now. Some are still great. Perhaps consider looking around, even if it'd be a bit more distant?

IANAL, nor a CPA. you should probably talk to one.  That said...

- the LLC will not make it easier to get a loan. At best, it's a wash. there are types of loans and lenders that won't loan on a property owned by an LLC.

- "makes it easier for multiple investors to partner up and split the equity"
plausibly true. IF you're going to work with partners and have them contribute equity, THEN you need a legal structure and a partnership LLC is a sane way.

- "its more professional"

meh.

"should I get the LLC now and buy the property with that LLC or will it be better for me to buy it as an Individual and get an FHA loan or a Conventional loan against my credit and assets."

the loan is easier to get (assuming it's just you getting it, no outside investors) if its in your name. The primary purpose of the LLC is asset protection. Specifically, it protects YOU from having your assets taken because of something that happens in the rental property (e.g. someone slips and falls, etc). Yes, insurance will cover many things that might happen in that house, but not everything and insurance has limits.

The usual guidance on 'do I need an LLC' is that you don't until you have several properties. Personally, I think that's not the relevant prospective. Since the purpose is (mostly) to protect the rest of your assets from the liability that is this new property, you need an LLC if you have material other assets, regardless of if you have 1 or 10 rental properties. 'other assets' like a primary residence w/ more than the state-protected amount of equity, or a decently sized brokerage account, etc. you're young...but who knows - maybe you're a crypto millionaire (who cashed out before the current crash, lol). If you don't have much in the way of other assets, then IMO don't both at this point.

I see your public pledge and vow to keep you accountable! If you do not post as promised I shall hunt you down with the fury of 1000 suns and.... 

no. just kidding. But good for you for jumping back in. 

Chicago is hard w/o a lot of cash - the prices on anything are just super high. That generally means equity plays, which doesn't sound like what you're looking for right now. Be careful with the super super cheap (10-50k) places - they can just be a money pit that needs constant repairs and replacement. There are locations that still cash flow (I just bought a place that'll do 12% CoC, even after paying a prop mgt). It may be a bit tricky to get your first one funded, though, without any W2 at all. Are you considering house-hacking?

 OK - so, something of a mix. FWIW, I'd pay off that CC and personal loan before I went and did anything else. make the min to both + whatever else you can to which ever one is the higher rate. Once it's paid off, send all that you were paying to the pair of them to the one that remains, till it's paid off. Usual snowball stuff.

 That is a LOT of car loan for someone in your situation. Like, downpayment-on-rental-property-in-many-parts-of-the-US sized car loan. Some people would probably suggest you sell the car and get out of it, but there's a loss involved in doing so, having a car you like can be a good qualty-of-life issue, and reliable transport is important, esp since you now drive for a living. so maybe it is what it is.

By the time you get the 2 high rate loans paid off, maybe you'll have enough time at DD to qualify - you'll definitely be a better candidate. I'd do that before I took on something more involved and leveraged like REI. fwiw.

I'll assume you understand what is and is not eligible to invest in an OZ and what the benefits of doing so are, and your question is how to do this yourself for BRRRR properties you buy, rehab, etc...rather than just dropping it in a fund (of which there are many, and that's definitely the easier route, though less 'fun').

OzToolKit is the best explanation on the web I've found. Do check that out.

IANAL or a CPA. you should ask one. But essentially the tl;dr is:

1) you must have a QOZ Fund. That fund must be at least a partnership (2+ people), but those 2 can be you + spouse. The obvious thing to do is start an LLC in one of the various friendly places for that, esp if they treat married spouses are separate entities in a partnership. Since you're going to have a 2 layer entity structure anyway, you might as well go the anonymous route (see: AndersonAdv's 'ghost LLC' you-tube videos for a solid description).

2) the QOZF then owns a QOZB. so make one. As usual in the 2-layer structure, put this in the state that has the properties you want to BURRR, member managed and sole-owned by your QOZF. note: set everything up and then fund it - there are sticky rules about what a QOZF can own, and it precludes having a bunch of cash sitting around. so fund the QOZF and have it transfer right away to the QOZB.

the QOZB is the entity that will actually buy, rehab, and rent out properties. Do keep in mind that you will have to do more than a gentle rehab for it to qualify - you have to put at least as much into the property (over a contig 31 month period, IIRC) as the purchase price of the property (excluding land) to count as 'substantially improved'. And, like all QOZ thingies, you'll have to hold for 10+ years.

But the win is huge. still get to take depreciation against the rental income, and since the 'no cap gains on sale' bit is actually defined as 'cost basis == sales price', you don't have to pay the depreciation recapture tax either. tax-free money. woot.

IMO (IANAL, a CPA, or personal finance consultant..I do not even play one on TV)....

can you clarify if that 105K debt is the mortgage on your house, or something else (CC, student loan, note from your bookie)?

if it's the home mortgage, then you aren't that under water and maybe there's near-term options. if it's any other kind of debt then Nathan's right - the rate on that is probably at least as high as the IRR you'll get from RE, paying it off is 0 risk, and it'll allow you to then qualify for less expensive financing options.

Yale. We got the ones without a physical key - those are materially less secure than the digital lock, if it's designed correctly. Have had this for 2 years, works flawlessly. The batteries last ~ a year, and there's a plug on the bottom for a 9-volt if they unexpectedly die.

You’d have to do a substantial amount of rehabbing to meet the ‘substantially improved’ requirement, but otherwise this seems ideal.

im interested in any practical experience you’ve had, including if your CPA understood how to meet the requirements.