All Forum Posts by: Bethany M.

Yes, very helpful! That was what I expected was the case, thank you for taking the time to answer! 

We have not needed a mortgage since acquiring our personal residence on land contract. We are now considering a sizeable mixed use purchase, also on land contract. In the event of seeking financing through a conventional mortgage in the future, on new large purchases, I’m wondering if we need to disclose the mixed use land contract if we also aren’t disclosing the income from it? Lenders we’ve dealt with in the past made our rentals only as valuable as the equity and disregarded rental income...that would be a little extra frustrating with the mixed use land contract purchase.

Extension to the question: How long have you been a landlord and NEVER needed to use it?  How many leases do you have that you've never needed to use it for?

I'm looking at increasing my liabilty coverage, there's always stories about what "Could" happen...just seeking some real life, average stories about what DID happen and how much liability coverage you needed to be covered for it?

@Alla Minchenkov we’ve purchased a short sale and a foreclosure listed AS-IS. We offered, inspection started, we found a laundry list of things to negotiate, told them the price that we were willing to proceed with based on our findings...they countered, we countered, they accepted. I take As-Is to mean they aren’t fixing a single thing...what you see is what you get...the price you’ll pay for it is still negotiable through the inspection period...if they don’t budge on price when you indicate your reasons...you either pay more or walk based on inspection.

I agree with those saying "Rent".  The next question is, what will a bank approve you for to get a mortgage on a smaller home for yourselves?  They won't give you any income credit based on your plan to rent it out, you will need to show that you can carry your current debt, average expenses, mortgage for your current house and the mortgage that you're asking them for.  The first play may be to get on a strict budget and hit the high interest debt hard, then ask a bank what you qualify for.  Get the debt out of the way that is only costing you money, then you will have a more solid foundation to take on debt that will make you money.

@Scott V. If you’re gonna do it, check rates at a credit union. We get car loans at 1.75% through Suncoast Credit Union in Florida

@Stephen Rager. You do still need to separate expenses for each property, either in an accounting software or a spreadsheet. Each property will be recorded separately on your tax return. You can have 1 bank account & 1 LLC. There also isn't much liability protection if all of your properties are in the same LLC, unless you hold a plethora of personal assets you're protecting.

Some states it’s very easy to have LLCs. Ohio is a one time purchase of $99, so why not? I think California is $800 annually...not as clear of a choice. Florida is around $125 annually...

I really think, in general, an umbrella policy is sufficient for the first 5 - 10 Residential doors. Most insurance policies and umbrella policies will cover any big suits...unless you have a multi family or commercial that burns down and kills people...then you'd lose everything without an LLC. Even with an LLC, a suit could take that house. Umbrella can protect you against that.

For us, we have liabilities in our business that are far more probable of causing suit than a rental property. We keep the business in an LLC and the properties to keep it all extra separated.

Here’s some scenarios from an article that helped clarify it for me:

Scenario 1: Umbrella insurance

The landlord owns a triplex worth $700,000. A tenant breaks their leg on the property. The tenant sues the landlord for $300,000.

LLC: The LLC has assets of $700,000. The LLC pays the full amount of $300,000.

Umbrella insurance policy ($10,000 deductible/$1,000,000 coverage): The dwelling insurance picks up the liability max. After that, the landlord personally pays $10,000 out of pocket for the deductible. The umbrella policy would pick up the remaining balance plus legal costs.

Result: The landlord would be better off with the umbrella insurance policy. With the LLC, the landlord would lose $300,000. However, with the umbrella policy, the landlord only loses $10,000.

Scenario 2: LLC

This unfortunate situation happened in Oakland, California. A landlord rented out a warehouse as an event and residential space. A fire ignited at the warehouse, killing 36 people. Prosecutors sued the owner and leaseholder for “negligently ignoring safety hazards.” Insurance paid out $3 million to the owner for the fire. However, 31 of the 36 victim’s families sued over the fire.

We don’t know yet how much the families will win. Let’s say they win $20 million.

LLC: The judgment is $20 million. The value of the warehouse is $3 million. The landlord loses the warehouse and insurance payout. The total monetary loss is $6 million.

Umbrella Insurance Policy ($10,000 deductible/$3,000,000 coverage): The landlord goes bankrupt, losing $20 million.

Result: The landlord is better off with an LLC, which shields them from personal bankruptcy.

Ultimately, landlords should make a decision based on their own real estate portfolio. An umbrella insurance policy is generally the better financial choice for most small portfolio holders. However, everyone’s situation is different.

Look at your personal financial situation and real estate portfolio. Make a decision that won’t eat away your profits, while lessening your risk for bankruptcy.

@Bo A Vanecko. I don’t know about the mattress, but when I stay in higher end VRBO I am always thrilled with nice soft/cool white sheets and a plush white comforter. My previous employer used Cuddledown sheets & comforters in his beach house that always got good reviews when mentioned.

https://www.thetaxadviser.com/issues/2014/jul/skarbnik-july2014.html