All Forum Posts by: Costin I.

@Ben Capone - if you self-manage, setting up a property management company to act as the public-facing entity is also part of a smart asset protection strategy. This shell company shouldn't own any assets and be just enough capitalized for normal operations; it should be the entity to interact with prospects, tenants, and contractors, while your asset-holding entities do just that (hold assets and nothing more). You should have PM contracts between your PM LLC and your asset-holding entities or yourself - and you can charge a PM fee that will generate self-income. Once you have self-income, and if you don't have employees, you can set up a Solo 401K (and Solo 401K Roth), the best option of SDIRA options, and contribute tax-deferred/free $69,000 per year (and $69K for your wife, if she's a managing partner in the PM LLC), thus setting aside a big chunk for more investments (private lending, notes, syndications, even more houses). Of course, run all this strategy with your lawyer and CPA (good luck bringing them to an accord); PM me if you want more details.

@Brandon Green - if you "set up a S-corp holding company that owns the LLCs holding the rental properties", and both are passthrough entities, and sell property, wouldn't the money pass to the S-corp and trigger the unfavorable conditions? 

 

@Ana Maria @Harish V. @Chris Seveney @Marcos A Miranda - you guys are playing with fire - https://www.biggerpockets.com/search?term=clayton+morris

@Hannah Joy - not to rain on your parade, but...

1. How do you calculate your cash flow? $400-550 cashflow sounds too good, and in CA. Are you accounting all this in your expenses? 

2. How are you doing on capital expenses reserves? (see this link how we forecast the average vs actual incoming capital expenses)

3. Have you run a risk analysis on your portfolio? What happens if you get a vacancy or more, an extended vacancy (like a squatter or COVID situation), a major repair or more, or a combination? 

4. Suggested reading - https://www.biggerpockets.com/forums/12/topics/1171104-the-m...

5.  Big risks, big wins. No guts, no glory. What's your risk tolerance? Personally, slow and steady wins the race.

@Dan LucchesiHere is a CSS Decision Diagram flowchart intended to bring together all the various questions when assessing the benefits of a CSS (via a professional or DIY). Hope it will give you some guidance in your quest.

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@Jon Mekeel - I'll give you two-in-one answer: get on the list of all wholesalers you can find and watch their emails - periodically, one will make the mistake of sending one with their whole list of recipients in the TO field. You'll be able to get your hands on hundreds of email addresses in one swoop. Hint: learn to use the BCC field or a CRM so you don't make the same mistake. 

Bonus #2: if you send cards or do cold calling and use VA, have a script for people who are not looking to sell, but to buy more - those are also cash buyers often. I get cards (and call them back) and calls to sell my investment properties, and I tell them "I'm not looking to sell, but to buy more and to add me to their buyers list", ...and they don't know what to do, don't collect info, etc. Wasted opportunity for the wholesaler.

@Michelle Curran - Here is a CSS Decision Diagram flowchart intended to bring together all the various questions when assessing the benefits of a CSS (via a professional or DIY). Hope it will give you some guidance in your quest.

@Mario Morales @David Tang - here are my 2¢:

1. You want to get that in place at the beginning as part of the lease's contractual obligations and make it a default condition. Hard to get that chicken back in the coop after. A reputable and experienced property management company will often present additional terms that require the tenant to obtain renters insurance and that the landlord be named as an "additional interest" on the policy. It is also beneficial to have the tenant show proof of such insurance coverage within X days of the date of signature of the Rental Agreement.

2. Very important to have them add you/your PM LLC as "additional INTEREST". This doesn't give you any coverage, just the right to inquire about the status of the policy and notifications if the policy is not paid or canceled for any reason.

3. You do not want to be added as "additional insured" - that will give you coverage, but that will also create a conflict of interest in the case of damage/claim, if the tenant doesn't want to pay, you'll have to sue...yourself.

4. If they have dogs, ask them to confirm there is no exclusion to dog bite liability. 

5. We explain to tenants the property is insured as a structure only (empty). 

We also specify the following points to prospects/tenants, either via the lease documents and addendums or "The Welcome Package":

The property management company or the owner shall not be liable or responsible for loss or damages to articles or property belonging to the tenant. It is advised that the tenant maintain fire and theft insurance for their personal property as well as liability insurance coverage. We are happy to refer you to an agent if you need one.

6. Protecting the tenant and landlord with insurance is a smart expenditure for peace of mind.

• - If the property catches fire, through no fault of the tenant, the owner's insurance does not cover the tenant’s personal property or expenses they may incur while the property is being repaired.
• - If the tenants cause their neighbors to suffer a loss, through bodily injury or property damage, their Renters Insurance will provide protection that would compensate the injured party. This protection can prevent arguments over liability, and who might the neighbors come after if they have no other protection.
• - If someone sues the tenant for monetary damages for some other reason, and they haven't done anything illegal, their Renters Insurance puts Insurance carrier money on the table and the landlord doesn't need to be involved.
• - The tenant's personal property is protected (less the deductible) while they are away from home, like in their car, or when traveling. If they lose something that is of value to them they may have fewer resources to pay the rent.
• You can get cross-line discounts on your auto insurance, saving money while protecting more of your stuff. Depending on how expensive their auto insurance is, the Renters Insurance might even be FREE! And, you might not even know that! That certainly wouldn't hurt your standing with them!
• - It gives you peace of mind to know that should a loss occur, having funds readily available to replace lost items will reduce the strain on your relationships.
• - It’s very inexpensive and easy to obtain a policy. A typical policy covering up to $15,000 in property damage and $100,000 in liability coverage costs under $200 per year

7. Clarification -- Landlords have no insurable interest in the tenant's "stuff." What the landlord SHOULD do is to make sure the landlord is added as an "Interested Party" (or "Interested Third Party") to the policy. This confers no insurance protections to the landlord, but what it will do is provide policy documents and the right to check on the policy to verify that it is in force. So, yes, a landlord can require insurance and a smart landlord requires that she is added to the tenant's policy as an "Interested Party." (If you have ever leased a car, then you will see that your leaseholder has been added as an "Interested Party" on your auto policy. This allows them to verify that coverage is in force while not conferring insurance protections.) If that policy is canceled and the tenant doesn't provide evidence of insurance as stipulated in the contract, the contract has been breached.

8. Other information:

http://www.zillow.com/blog/can-a-landlord-force-tenants-to-have-renters-insurance-106480/

https://www.onradpad.com/ask-radpad/can-my-landlord-force-me-to-get-renters-insurance/+

http://www.nolo.com/legal-encyclopedia/renters-insurance.html

For more information on renters insurance, or to compare renters’ insurance quotes from a handful companies, go here (https://quotewizard.com/renters-insurance).

9. Pet Liability Insurance

Although you might hate the idea that your dog needs liability insurance just because other people think he or she is potentially dangerous, it’s better to pay for the coverage than to face paying for injuries out-of-pocket or becoming separated from your canine friend due to housing restrictions.

If you don’t have pet liability insurance and your dog bites someone in your home, you have a lot more to lose than just your dog. Consider the statistics: dog bites and injuries accounted for one-third of all homeowner’s insurance liability claim dollars paid out in 2014, according to the Insurance Information Institute.

What’s more, the national average cost per claim for dog bites/injuries was $32,072 that same year. As a renter or homeowner, pet liability insurance is a must, unless you don’t care about your finances going belly up. The bottom line is – it’s much better to be safe than sorry.

To protect yourself with dog liability insurance, visit:

• InsureMyCanine.com (http://www.caninejournal.com/go/insuremycanine/) to learn more and get a free quote.
• Where to Get Dog Owner Liability Insurance:
  • - http://dogbitelaw.com/insurance-for-dog-owner/where-to-get-dog-owner-liability-insurance
•      - http://www.dogbitequote.com/about-us/

Ok, I guess it was a bit more than 2¢...

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Thanks @Dave Foster. Seems I was writing the reply to Bill at the same time you were writing your answer. 

The LLC question was Bill's assumption, I didn't bring that LLC structure in my initial posting because I didn't want to complicate things...but you both are right, it is part of the question (although not from, or not only from the 1031 exchange perspective): what is the best structure to hold these properties?

Dave, what do you think about my #2 point above?

Thanks @Bill B. for your reply. 

I see two possible problems with your LLC suggestion:

1. One LLC owning both homes could be problematic for liability purposes. If something is happening with one house, the other is also in trouble. If one partner does something, it puts the other partner in trouble too. For a scenario like this, I think it's better each partner to have own LLC, and the two LLC own the house(s) as TIC.

2. Since the LLC has to sell, there is the potential for capital gain taxes, and likely on both houses. Just because there is an internal agreement between partners, one house gets sold and there can be taxes to pay, by both partners. I don't think it's just an internal transaction and a wash in IRS eyes, nor same as a 1031.

I read something along these lines (but correct me if my understanding is wrong): that if you get into a partnership and purchase an investment property (e.g SFR LTR 50%-50% with a partner), and then some years later you sell said property, you can 1031 your 50% into a new purchase.

My question is: if I partner with someone and we buy two SFR LTR properties (let's say on the same 50/50 basis) and then 10 years later the partner wants out of the deal and to cash out his 50% participation (which normally would force a sell of the property or a buy out), can we sell one property and can I do a 1031 exchange my sold 50% to 1031 buy my partners other 50% in the second house and keeping it as an LTR, instead of having to sell both houses?

Or vice versa, maybe I want to get out of partnership, or that particular property or location, can I 1031 my 50% out of the first house (and leave it 100% to the partner) for the other 50% in the second property (which will become 100% mine)? Kind of, we dissolve the partnership (or maybe not, just the joint ownership of two houses), but we each keep a house, without selling taxes?