Originally posted by "Sheppie":
My girlfriend and I are planning on investing in a rehab project. This would be our first time and we have a few questions. We have spent the last year reading and learning as much as we can about the business and we would like to get our feet wet. We don't have much money to use as far as a down payment or for actual rehab. Although we understand this is a large hurdle, we have to start somewhere. Now, for our questions...
1) What are the best financing options, if any, available for rehab projects that do not require a ton of $$ up front? I already own a home, but my girlfriend does not, so she has a better Debt to Income ratio for buying another home... although we are not sure if that matters when buying a home that will not be your primary residence??
2) We have researched starting our own company quite a bit. We researched starting an LLC vs. an S-Corporation or both and the benefits/pitfalls of each entity. Down the road, we hope to be involved in a wide range of real estate investments. Would it be beneficial for us to start the business before we start our first rehab project... to protect our personal liability, or should we wait? If it helps, we live in NC.
3) For the last 3 months we have been looking at different homes in our area and are ready to finally make the step to purchase. We have found one house in particular that we are interested in (if it is still available) that looks to be priced under the market value. It looks like all major rehab issues are ok; ac, water, heating, etc., but of course we will get a full inspetion. What are some tricks of the trade to get the most out of our investment for this home?
Thanks!
Sheppie
Just to chime on additional information that might be helpful. I use to think that financing was the hardest part of the deal but as you will see it is not, it's actually the easiest to obtain. The hardest is finding the deal. there are plenty of options out there that can work in your favor. Its great to start planning the financial aspects of funding the deal from the very beginnings.
With that said i will say this that you must contact a real estate attorney to verified this or do some dual diligence on your part to see that entity is best for buying real estate. I will say this pretty much across the board LLC fit the bill to hold property. S-Corp are very similar to an LLC as they provide pass through income to its share holders or board members if you will. Meaning that the corp. does not pay taxes but the share holders do, so you only get taxed once and not twice as you do with a C-Corp.
You would only need to create on entity and not two. Go to the local library and check out books on LLC creation by Mark Warda or Anthony Mancuso. You can also find them at your local books store or buy them on ebay. Warda and Mancuso have really good books out on LLC and will help you guide you in making a better inform decisions.
When transaction business it’s always best to be incorporate because corporations help shield you from liability and help buffer taxes.
When partnering up with someone its important that you spell everything out on paper, that way all parties know what they are getting into and they are no surprises.
Partnering up with your girlfriend may or may not be the best ideal only time will tell. It will all depend on your relationship and where its headed. If you have any doubts let me save you the trouble right now and tell you don't do it. Even people who have been married have gotten divorce over finances. Throwing this into the mix might put a strain on your relationship and once things sour up you will wish that you never would have gotten involve with that person in business.
Think about it long and hard before you work on this business together. Sign documents stating your expectations and in the event of a break from the company and relationship who the assets will be divided amongst you and so forth, you get the picture. This will protect the both of you.
For the latter question make sure the inspection report present a solid picture of the property and its foundation. When rehabbing you need to do the cosmetics of the property with out breaking the bank. Try to keep your rehabbing costs as low as possible but bring the property to its nature beauty as great as possible.
Anything that is eye appealing and noticeable is what need to be taken care off. Don't over spend and useless upgrade on a property that will not bring a higher dollar amount in the long run such as when you sell. If it will not add to the value of the property don't spend it.
