All Forum Posts by: Brent Christensen

I'm taking over a property with an existing tenant and reviewing all the paperwork and doing a new lease agreement, etc. using the forms available here on BP. One form has me a bit confused, even after reading the statute (California Government Code section 8589.45).

What is unclear to me is WHEN I need to include this disclosure - (1) Only when I know that the property is in a designated flood zone or (2) always. (if the former, why have a tick box saying that I have no knowledge of status?).  The Excel in the folder says I have to use it every time, but other online sources seem to say that I only need to use it if it is applicable (e.g. the unit is in a flood zone).

The form itself is also a bit confusing (though it appears to conform word-for-word with the statutory requirements) - it is missing a third choice which is "The Premises is not located in a special flood hazard area or area of potential flooding"

Do I always include it, and if so, do I just tick the box for "Landlord has no actual knowledge as to whether the Premises is located in a special flood hazard area or an area of potential flooding." (which seems wrong, because I can look at flood maps and see that the property is NOT located in a designated flood area, nor am I required to carry flood insurance.)

Perhaps thew wording of the second option "Landlord has no knowledge..." is intentionally vague, since I don't want to be on the hook for some freak accident that causes flooding, and therefore I SHOULD include this form, but tick that box?

Thanks - I hope someone with CA experience can help clear this up for me!

@Eamonn McElroy great advice.  I guess one of the concerns I have is that sometimes if you start off "simple" (i.e. solo, doing everything on your personal tax return, assuming personal liability, etc.) it can be really hard to unwind later on.  I want to make sure I don't paint myself into a corner.

Perhaps I just need to have a sit down with my accountant and attorney.  But I like to make those conversations as productive as possible by educating myself a bit first.

@Dmitriy Fomichenko Thank you - I have a large personal umbrella, but I'd like to set this up as a separate business. Are you saying that a separate umbrella should be established for the "real estate investment company" (whatever it ends up being called). There will probably be two entities - My own personal REI co and the family partnership.

@John Underwood thanks for the recommendation on the videos.  Will check those out.

My elderly mother just turned over management of a 1 bd rental unit to my brother and I for day-to-day management.  In the past the income has flowed directly to her (separate bank account) and she pays the income taxes on the rental income (and will likely continue to do so, as the money will still go to her and she has a low tax base). However, it is currently rented without any lease agreement or any formal paperwork, which horrifies me (and which I plan to rectify ASAP).  Luckily it has a very good long term tenant (who pays 25% below market rates, I might add!)

In addition to this, I will be renting out a personal home of my own and planning the purchase of an out of state multi-family unit (probably several).  In addition to all this, I may create a partnership with my brother (and possibly our mother) to invest in additional properties that would become part of the portfolio along with the current 1bd unit.   As you can tell, this all gets a little convoluted and I want to make sure I don't head off in a wrong direction..

What do folks recommend for resources to get myself educated, so that when I sit down with my lawyers/accountants I can make those conversations as productive as possible?

I currently operate an S-Corp (single employee), but I'm not familiar with the details of an LLC. I've read about creating separate LLCs for each rental property for liability protection, but I'm unclear as to tax benefits.

Is there a consensus on this? Do people create individual LLC's with separate bank accounts for every property, and then some sort of "holding company" that manages shared services? I'm in CA and generally speaking, all this complexity comes at the cost ($1,200 to $1,600 per tax return for example).

Long winded question - thank you if you made it this far and have some advice to offer!

Have you seen this article?  Covers more than the basic questions you're asking, but lots of good info about vetting tenants.

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

I'm just getting back into real estate investing after a LONG hiatus (raising kids, putting them through college, demanding career, etc) so my thinking may be outdated, but in my opinion the biggest factor to consider is the appreciation rate for the new property.  You mention that you want to quit the day job soon, so you're probably focused on short term cash flow, but in the scenario you describe, the cash flow of the two options is the same.   In the second option (acquiring the second property) you also get the leverage (assuming you're not paying all cash) on the appreciation of that second property.  

Some example math:

Assume the property is $100,000 and you're putting $20k down.   If this sort of property in the area is appreciating at a rate of 5% annually you're controlling $5,000 a year of appreciation with an investment of $20,000.   Thats a 25% return on that investment in addition to the positive monthly cash flow.