All Forum Posts by: Anna Laud

@Evan Hacker

Hi Evan!

It's going to be really based on your DTI (debt to income ratio) and the property you're trying to finance - $40K as a down payment can in some areas be a 50% down payment which is great and your income should be offset by this %, in other areas/purchase price this is going to be closer to 20% down, so I would get a clearer idea of where you're going and what type of purchase price you'll be looking at first.

For low income OR low credit score a government backed FHA loan may work. These loans are guaranteed by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD).

These loans typically have less strict lending requirements- lower income included

With an FHA loan, it's often less than 4% down on your home purchase, even with a credit score less than 600 in some cases - which doesn't apply to you in terms of low credit score or down payment but does cover your basis for lower income.

If you were to be in the market for a ‘fixer upper' and getting into the world of REI (thinking ahead to using this as an investment/house hacking down the line) The Good Neighbor Next Door loan is another one that could work for you as a teacher (even if you worked part time and taught even a co-teaching half time schedule to maintain teaching status- I would verify that with a lender and still obtained real estate license (I can try to help you connect with some if you'd like) but for you specifically as some lenders you won't be able to qualify with a commission based (potential at that for now) income for two years (two years of tax returns) in a lot of cases.

https://www.hud.gov/program_offices/housing/sfh/reo/goodn/gnndabot

Along these same lines a Homestyle loan product may work for you too, having a decent down payment and great credit score. There would be (again, depending on purchase price) be no PMI with your down payment size as a % base ‘offset' to the loan size and you might be able to take a smaller ‘as it' property and use these borrowed funds for rehabbing to more of your end user needs.

Hope that helps!

@Benjamin Enriquez

Hi Benjamin! 

You bet and yes, I do get that logic to it, which is accurate. In some cases you can have the wrong deal, at the wrong price, in the wrong location, at the wrong time, and it still work out well over time if you've got the right PM/PM Group. Just as in some cases you can have the right deal, at the right price, at the right location, and the right time for a PM or PM group to run it into the ground. 

I guess that was my point too in that yes, it's basically costing investor no.2 this 5% more, but it may not cost 5% more overtime in level of PM quality that transpires. If it's truly a situation where investor no.1 would be providing a level of care/attention to the property as they have more invested than an independent/for hire person or group, it still might be worth it. 

But yes, see both sides here to what each investor is saying = ) 

@Benjamin Enriquez

Hi Benjamin! 

Well it sounds like this is not maybe an ideal JV in terms of finances but I would say (unless I'm missing something) that investor no.1 is correct.

A PM fee is usually around 10% depending on where you're located of course. So the 10% isn't out of the realm of reasonable. Having said that if investor no.2 is paying 5% out of the profits, it's basically investor no.1 doing this at a 5% discount. 

As you said in your message here, investor no.2 is willing to pay 10% (in total) and sees this as a reasonable amount, yet only willing to pay 5% to investor no. 1 to do it. 

Why would it be of any benefit to investor no.2 to do this for 5% and take on the extra work of the PM role, when he/she could pay out this same 5% out to hire it done without any of the responsibility? 

So investor no. 2 will be out 5% no matter what here and the VAST difference between the level of care/diligence of a PM with skin in the game vs someone hired to play the PM role would (in my book) be worth the extra 5% to be paid to investor no.2

Having said all of that, it doesn't make sense for investor no.1 to do this for 5%- they are out 5% no matter what if a PM is hired, so why take on that extra work for free basically? 

Unless I'm missing something, it wouldn't make sense to me to proceed as investor no.1 for 5%

Hope that helps! 

@Joe Mark

Hi Joe!

Pending any laws in GA changing as you mentioned, it seems like you would be okay to do this at lease renewal (when any typical lease terms would change anyway). 

If you've worked out with them the details of this as far as the cost goes, the difference (in cost) is what some might consider general maintenance vs honoring a specific request.   

It might be beneficial to have another walkthrough as well at the time of new lease signing and take pictures of the flooring in it's pristine state, just as some folks do with new tenant walk throughs upon initial lease signing. 

This could also be a time to remind them that it does look like the security deposit will already need to be kept for the flooring downstairs that is going to need to be replaced (motivation to keep the new floor nice, on top of the motivation of them paying for it already in the cost difference).

With this in mind, if the flooring can stay in nice condition, most landlords would prefer to have zero carpeting in a rental and it could be a move in the right direction as far as having the laminate already down and not messing with carpeting again in the future. 

You could also further shop around and install laminate with a longer consumer warranty that could be used in the future as well if it were damaged. If you were offset in the cost difference at install by the tenant and still ended up with a warranty claim in the future, you might still be ahead in terms of overall cost.

If you were to also maybe buy a box or two extra of flooring, it could help you out in replacing a few pieces here and there if need be- things that aren't the tenant's doing like an overflowing toilet that causes a few boards to sustain water damage - if you already had some pieces ready that's a pretty quick swap as as most of these are just floating floors you lock in place and the subfloor is protected by the underlayment.

Hope that helps!  

@George Rodrigues

Hi George! 

This is a little out side of the box, but it occurred to me as I recalled a story I had from a teacher in elementary school who was from the Soviet Union (not to just give away age totally, but say post Cold War). She was eager to have friends soon flying to the States to go shopping for clothes (jeans specifically if I recall correctly), and explained (as we were in awe at how wealthy she and her friends  must have been) how it was cheaper to fly here, buy clothes and return home then to buy them within the Soviet Union. 

I'm wondering if the same logic here applies to you maybe? Storage looks to be around $300-$800/mo (that was just a quick search from Newark to the Bronx)

I know here in Indianapolis for example, it's currently listed at $103 for the same 10'x10' unit size. If you don't need to use these items regularly, and it will be a decent amount of time for renting, it seems like it could be worth a rental truck trip outside of your normal area to store items in. 

I'm sure there are cheaper places that are closer to you, just giving perspective of how the prices change could make a difference. 

Just a thought and hope that helps! 

@Franklin Fletcher

Hi Franklin! 

I think  that could be recorded with the county recorder's office. 

https://www.bexar.org/2946/Cou...

Usually seller has to sign off on these I think as they are supposed to provide all documentation about it accordingly, but at least start here with the recorder's office. 

A title search would also seem to give you more details as it relates to encumbered assets and the specifics as it relates to this property prior to purchase- having said that maybe I totally misunderstood your question and am not clear on what you mean, but I hope this helps! 

@Jonathan Drolshagen

Hi Jonathan! 

It depends which state you're in, but you may not even need that. While it's almost a given that in each state it's going to have to be written contract for purchase, most of the time you can do this with a title/escrow company alone. 

Now almost each state has some disclosures that you'll need to make sure your buyer has (just signed and dated) and delivered at the correct (per state law) days prior to closing- but again, this sounds pretty easy for you as I'm assuming this cash sale is 'as is' and not going through inspection. Again- you as the seller want the 'as is' in writing, and just speaking with a local title/escrow company should suffice. 

I'm not sure how you've determined who is paying what here, but your cash to close is going to run 1-3% of the purchase price on a cash deal. If your buyer has enough cash on hand to buy property, seems unlikely that this 1-3% cash to close amount will be a deal breaker if it's buyer pays closing. 

I would recommend just calling a few title/escrow companies and ask them if they are used to working cash/investor deals- most of the time they all are, but they will usually connect you with the closing agent that does this the most often and be the best help (opposed to the closing agents who primarily works with end users using traditional financing).

Hope that helps and should be a pretty smooth process for you it seems! 

@Jim S.

Hi Jim!

There are not only tax advantages involved in the benefit of an LLC, but also protection offered as well. Just a quick 'protection' in what I mean- if you currently hold these three properties in your personal name, do not have an umbrella policy, and someone falls in a hole on one of the properties and breaks their ankle - it's you personally and your personal assets on the line.

(I say this as I own tillable ground and it's inevitable once every five years or so a hunter that's 100% trespassing on my property will get hurt by their own devices(falling in drainage ditch, from a tree stand, etc. and think it's on the owner of the land to pay for medical bills - even with 'posted no trespassing' signs up.) So yes, anyone could come after you personally (or you and any partners) if you're not protected- LLC/umbrella policy for sure there, tax benefits in the LLC as 'pass through income' for your personal taxes as well.

You wouldn't need to be be thinking along the lines of a S/C-Corp situation and  here's why;

Moving real property out of a S/C- Corp is taxable when it comes to capital gains and a personal suit of judgment against you  or one of your shareholders (personally) can filter through to the corporation/it's holdings in how some are set up. Not the other way around as the 'corporate veil of protection' is still valid while incorporating a business entity. 

Alternatively, an LLC (perhaps married with an umbrellas policy) would be the way to at least organize your 'business entity'. Many investors choose to have LLCs registered in the state of Delaware (expeditious, minimal fees, separate court for business capacity dealings to make any suits as timely as possible).

When you go to organize this, while filling out your articles of organization, you can choose to obtain an EIN for tax purposes, as well as being able to have a business banking account.

While obtaining funding with an LLC can be trickier if you should acquire more properties in the future. The business account would be best suited however as this does further separate an induvial member/owner from the transaction(s) and keep the veil of protection intact of the LLC (no commingling/allocating of business funds for personal use).

You will have ongoing fees (mostly annually, others at set up alone)

1. Set up/original filing in state or origin

2. Tax prep

3. In most states a business entity report (not an outrageous fee usually)

4. Ongoing filing fees yearly (again, not outrageous) in state of LLC(s)

5. Umbrella policy premium (if you choose to go that route)

Having said this, set up would be best discussed (especially if this is beyond yourself alone as a sole proprietor) with a CPA/real estate attorney maybe. If nothing else, a free consult on the matter would give you more (and include any state specific) answers- but you can easily set up online as well.

Hope that helps!

@Nancy Stark

I would say that you're fine to go ahead and put the name of your LLC on this lease, especially as already you're in the process of moving the property into the LLC's holdings. Even if these tenants know you're the owner, it really doesn't matter that much moving forward on this one it seems. Having said that, less of an issue or concern if you're the sole member/owner of the LLC.

Moreover in doing this now (in LLC name) if you have an EIN or DBA business account set up- makes more sense this way as you're accepting funds as the sole member/owner of the LLC- bc technically the payments are being made to the LLC and not you personally (your passthrough income)

Transferring the properties from LLC to LLC on title is a little different in Quit Claim Deed filed with county recorder (at no sales price in most cases) at this isn't what you're talking about and I only mention for future reference of you do get an LLC organized for each individual property.

For your immediate needs however (while deciding what to do in either the organization of further LLCs or not), it would seem most logical and expeditious to give your insurance provider a quick call and simply get an umbrella policy - protect the one LLC further now, overlaps to each property in the meantime.

Hope that helps!  

@Charese Allen

Hi Charese! 

At first glance it may seem like you would be thinking along the lines of a S/C-Corp situation, however this may not be the ideal set up for you. (I say that as you used the word "company") 

With that in mind here's why; 

Moving real property out of a  S/C- Corp is taxable when it comes to capital gains and a personal suit of judgment against you or one of your shareholders can filter through to the corporation. Not the other way around as the 'corporate veil of protection' is still valid while incorporating a business entity mind you. 

Alternatively, an LLC (perhaps married with an umbrellas policy) would be the way to at least organize your business entity. Many investors choose to have LLCs registered in the state of Delaware (expeditious, minimal fees, separate court for business capacity dealings to make any suits as timely as possible).

You question indicated numerous people involved in this particular business plan and is covered under the LLC as well in the ability of 'unlimited owners' (people involved).

When you go to organize this, while filling out your articles of organization, be sure to obtain an EIN for tax purposes, as well as being able to have a business banking account. 

While obtaining funding with an LLC can be trickier, it sounds like there would be enough 'pooled funds' to eliminate this step. The business account would be best suited however as this does further separate an induvial member/owner from the transaction(s) and keep the veil of protection intact of the LLC (no commingling/allocating of business funds for personal use).

Another benefit of going the LLC route over an S/C-Corp will be the exclusion of no reporting to the SEC (Securities and Exchange Commission) if you can say you'll adhere to things like less than 100 members/owners, no public 'call outs' to join (i.e. Facebook) etc. as generally speaking an LLC like you would be organizing doesn't fall under these parameters.

You will have ongoing fees (mostly annually, others at set up alone) 

1. Set up/original filing in state or origin

2. Tax prep

3. In most states a business entity report (not an outrageous fee usually)

4. Ongoing filing fees yearly (again, not outrageous) in state of LLC(s)

5. Umbrella policy premium (if you choose to go that route)

Having said this, set up would be best discussed (especially if this is beyond yourself alone as a sole proprietor) with a CPA/real estate attorney. If nothing else, a free consult on the matter would give you more (and include any state specific) answers. 

If your group should shift into a more passive approach and go the route of pooled funds for (syndicated) lending to investors you would be very well suited (and much safer) to get in touch with proper legal council to organize (SEC attorney, CPA)

As far as organizing however, this is where I would start; 

Define the active or passive REI approach and proceed with legal formation accordingly.

Hope that helps!