All Forum Posts by: Richard Cohn

Oh, I forgot to add, there is a free PDF entitled "R.I. Landlord Tenant Handbook". It's available at www.brown.edu/Administration/Auxiliary_Housing/documents/LTHandbook.pdf or through a Google search. The handbook agrees with me - nothing prohibits asking for last month's rent. Here's the quote from the Handbook; "Separate amounts of money can be requested from a new tenant for prepaid rents, etc."

The law is clear that security deposits are limited to one months rent.

§ 34-18-19 Security deposits. – (a) A landlord may not demand or receive a security deposit, however denominated, in an amount or value in excess of one month's periodic rent.

So you cannot also ask for a key deposit, pet deposit or cleaning deposit if it exceeds one months rent. However, last month's rent is not a security deposit, It is prepaid rent. In fact, I don't see anything in the law that says you cannot ask for 12 months rent in advance - if you could get someone to pay it.

Tenant advocates (R.I. Legal Services) have taken the interpretation that you cannot ask for first and last month's rent. I would disagree and to my knowledge neither interpretation has been tested in court.

All of this is fairly moot. As a practical matter, most of the R.I. landlords I know only collect first month plus security deposit.

I'll also add that unlike Massachusetts we don't have to maintain separate escrow accounts for deposits or pay interest on the security deposit (Do you guys still have to do that)?

I agree with Anthony's analysis. I would add that R.I. currently has the highest unemployment rate in the country and it has had that distinction for the last few years.

Hi Elizabete,

I run the R.I. Real Estate investor group. If that is the REIA you'll be going to, I look forward to meeting you.

You asked a number of excellent questions but it would require a book to answer them. Fortunately the book was written and it is titled," The Ultimate Beginner's Guide to Real Estate Investing." I'd urge you to check it out. It is free and can be found under Bigger Pockets REI resources.

Warm Regards,

Rick Cohn

Lots of excellent questions. The answers might require a book. I agree with the other answers - do it through the counsel of a lawyer.

The custodian you are thinking of choosing, or who you do choose, will be the best resource with answers. The 3 custodial companies that have been around for a long time (Pensco, Equity Trust, Entrust) have well trained staff to assist you.

1. It depends on how you structure it - and this can be done a lot of different ways. Will the IRA own the deal, or will you own it as partners with the contractor? If it's a partnership he gets paid at closing.

2. I'm not sure what the question is, but I generally am not in favor of trying to profit based on guessing an area's appreciation rate. I think this becomes speculation.

3. how should he be compensated? Entirely up to what you negotiate. It can be a proportion of the rental income, or a flat fee. This is true of any deal, and not any different for an IRA.

4. Pretty much yes, you are free from tax, but there is a complex school of tax law that says that if your IRA is in the flipping business then you pay a UBIT tax. Not an easy questions. See discussions of "are you a dealer?" throughout BP.

5. Can I use other monies outside of the IRA to fund a portion of the project? Who's money is it you will be using? If it's yours' you have to be careful of self dealing. You can borrow, but only if it is nonrecourse (that's another story). Another alternative is you could bring in another partner.

6. Is it okay my adult son works for the contractor. - Probably a bad idea. You run the risk of being guilty of self dealing. It might not be a problem, but starting out for a self directed IRA I'd recommend something a lot cleaner. Someone else suggested a straight mortgage loan and I think that is a better approach..

Johna,

I run the R.I. Real Estate investor group. We are a networking and educational group with nothing to sell. You can find us on Biggerpockets under "companies", or through a Google search. As it turns out our main speaker at the next meeting will be discussing flipping.

Regards,

Rick Cohn

Todd,

The key question is, is the house underwater? You say the house is worth $140,000 but you don't really know the amount of the first mortgage. What was the original amount of the first mortgage? That will give you a start point.

Here is how I interpret part of what the attorney is saying.You mortgage may be properly secured legally, but you may have no security financially. If you foreclose the amount that the house goes for at foreclosure sale may not even be enough to pay the first mortgage.