All Forum Posts by: Basit Siddiqi

LLC's can obtain loans/mortgagees. However, LLC's are not available to obtain a conventional mortgage(Fannie Mae/Freddie Mac).

You would pretty much need to get a portfolio/commercial loan. These lenders will likely require the members of the LLC to guarantee the loan.
These loans normally have slightly higher rates and shorter terms with a potential balloon payment. Call up a couple portfolio lenders in your area for terms/rates.

Paying back a loan is not a taxable event. You will be taxed on the income the rental property generates.

@Karla Parraga
HI Karla - I live in Brooklyn, NY and I currently own and manage a property in Allentown, PA.
Allentown is only 90 miles west of NYC but please be mindful that the commute to and from work can be more than 2 hours if you will be going into NYC during rush hours.

rush hours is 6AM-10AM into NYC and 4-8PM leaving NYC.

Let me know if you decide to take the plunge and go into Allentown; I'd like to hear about the details.

Onto your question - I do not think there would be an issue to get an FHA loan considering the commute.

@Ben Wenger

Congratulations on having a rental property!

Hi Ben - I am a CPA who invests in PA(Allentown).

Please be mindful that PA is a tricky state to invest in.
PA is one of the few states that does not recognize 1031 exchanges.(you would still get the deferment for federal purposes but not state purposes).
PA also does not recognize net operating losses(NOL)'s for individual taxpayers.

Normally - if you have a loss in one year - you can carry it forward(or back) to offset income in a future...nope not in PA.

Let me know if you have any questions.

@Simon W.

Hey Simon - I think the LLC route would work but I like the seller-financing route better.

The LLC route would be costly
$500 approx to have an attorney draft an operating agreement + create an LLC
$1000 approx to a bank for loan origination fees + home appraisal
$500 approx for annual bookkeeping + tax return prep fees.
$500 to dissolve the LLC

I am not an attorney so I can't speak on the liability protection side - but I would imagine there would be some protection with the LLC route.

@Nicole Heasley Beitenman

I am a little bit wary since this transaction is done between family member.

1) If you guys decide to go the seller financing route; you guys should pick an appropriate interest rate and not 0%.
Your father should then pick up interest income from the seller-financing note.

If the note calls for 0% interest - the IRS can calculate "imputed interest" onto your dad's income.

A workaround this is for your father to gift you $14,000(annual gift exclusion for 2017) and use that to pay off the seller financing and you pay him back after all is said and done.

It should also be noted that if he sells you the property at a loss - he can't take the loss on his return.(i know you said he is selling it at cost). this is again a IRS rule related to family transactions.

@John Jacobs
Why is the bank offering an ARM for the land and a fixed rate for the dwelling unit.
The length of the loan also is different. 

I also have gotten quote for ARM's and most have higher points paid at closing - so please factor that into your calculation.

rates seem a little higher than what I was thinking they would be.

Have you shopped around other lenders?
how is your credit score?

@Charles France
As Dave has mentioned - Expect to pay fed, state and self employment tax.

How much profit did you make?
Do you plan to do more flips in the future?

@Stephen Kunen

Hi Stephen - I am also an out of state investor who invests in the Lehigh Valley Area(I live in NY and invest in Allentown).

Please be mindful that PA is a tricky state for tax purposes.
PA does not ackowledge NOL's for individual purposes. As a result - you may not want to be so aggressive with your losses/deductions.

PA also does not recognize the deferring of 1031 gain.(you would still get the deferment for federal purposes but not for state purposes.)

Let me know if you have any specific questions.

Basit

Do you have a property management company in place?
give them the list of violations and have them fix it.

The alternative is to fix the items yourself?

What do the violations say that you did wrong?

@Jacob A.

I think you need to do more than co-buy the property to avoid the inheritence tax. In the sad moment that your she passes - she will still have a 50%(or whatever you guys agree to) interest in the rental property at which point you will inherit and be hit with the inheritence tax.

I think the next step for you guys to do is to create an LLC as Cara has suggested and have your mother gift you LLC shares every year to lower her estate.

You should definitely reach out to an attorney before doing anything though.