All Forum Posts by: James Mc Ree

Hi Brent!  Congrats on your almost-first-purchase.

Most folks think establishing an LLC for 1 property is overkill. There is nothing wrong with what you are proposing and it should work fine, but you will have an LLC to manage that is a separate entity from yourself. You will need to maintain separate books, separate bank accounts, prepare separate tax returns, etc; just like you are running a separate business. Failure to do so can leave you with no legal protection whatsoever.

Your LLC probably won't have much income on just 1 property. If you make $500/month profit, you will show $6,000 for the year. That might not be enough to buy another property. Fannie Mae & Freddie Mac are quasi-government entities that provide a person with up to 10 lower rate residential mortgages. An LLC does not qualify for these. You cannot easily transfer them into an LLC without triggering the lender's due on sale clause, though I read recently that may be changing. If this is the case for yourself, you will have #2 through N in your name and #1 in the LLC's name. There is nothing wrong with that either, but just something to think about regarding getting the value of your LLC.

It looks like it will be a single entity LLC which with just be a pass through to yourself. The IRS will just ignore it and consider it part of you for filing purposes.

Consider why you want an LLC. If for legal protection, consider liability insurance first. My insurance company quoted me a $1M umbrella policy over 4 properties for about $400/yr. Insurance companies can quote this to a common owner, but you and your LLC are not "common" owners. They would be separate owners.

Good luck!

I set my due date = late date = 1st of the month so there is no grace period.  This made life easier for me as everyone knows when the 1st is coming.  It works fine to be any date if the 1st of the month doesn't work.

Setting a trailing late date often gets interpreted as the late date is the real due date, as mentioned above.  Don't be surprised to hear your tenants say they were only a day late when they paid on the 6th and your late fee started the 5th.

It depends on your market and the condition of the property.  A high-end market may require some of these upgrades.  A marketing plan for a "newly renovated home" may also require them.  One-off upgrades, like a high end countertop in a ho-hum kitchen probably won't do anything.  Low-to-mid market probably won't see much of a benefit in rent.  You probably will see a benefit in shorter vacancy time if your property has a great "Wow!" effect.

In general, tenants don't pay attention to high-efficiency anything.  They want heat, hot water, air conditioning, etc.  They expect it to be there and the air is warm/cold whether it is efficient or not.

I don't have any market data to share with you, unfortunately.  It seems like it would be difficult to get such data as finding identical properties and tenant prospects at the same time, situation, etc.

Check your loan docs.  They will spell out the owner-occupant requirement.

Why are you refinancing out?  What are the lenders telling you who aren't offering what you want?

It looks like you have a 15% loan and you are looking to refinance to a 65% LTV to invest more money in real estate. Your new loan is going to require you to bring money to the table which will make less money available for your investing, at least in the short term. A Fannie/Freddie mortgage will likely give you the best terms.

Lender security will be a consideration. A dollar-for-dollar match would imply you borrow $50k and add your own $50k and put $100k into a property. Is the lender a co-owner with you or have a lien on the property? That will lower your rate, versus it being unsecured. The as-is and ARV ratios are also important to assess lender risk and will drive your rate. Are you offering a personal guarantee such that the lender can sue for your personal assets if foreclosing on the property does not cover the debt? That will lower the rate. "No" to these questions raises your rate.

I am sure your intent is to pay back your lender family member or friend.  Unfortunately, things happen.  Make sure you don't jeopardize a relationship if "things happen."  Go into this with your retiree lender or friend knowing there is risk involved, as compared to "Hey, it's me - you know I'm good for it."  Be sure to give your lender awareness and legal security in case you are run over by @Account Closed's vegetable truck.  ;-)

You could offer a 20Y or 30Y regular amortization at 10%, but with a 10Y term.  It would balloon at 10Y.  The lender advantage is some principle is paid back each month which lowers risk.  That might be preferable to a 10Y interest only loan in which all principle is at risk for 10 years.  You would have a payment of $438.79/month.  Just a thought.

Question on this theme: Does it make sense to turn central air off or raise the thermostat significantly when going away, such as for a week?  I get that the start/stop within 8 hours or so isn't efficient, but there seems like there is a break-even point at some duration.  I am thinking that is a 2-3 days of 90-degree temps.  Naturally, it depends on the temps.

I think you are going to need to describe your concept in much more detail.  It is not clear to me what a buyer of a token actually owns, the ownership structure and what a token owner can do with the property.

My guess is you are proposing some type of joint ownership model, such as 10 coins own $100,000 property @ $10,000 each. If so, you will need to describe the operating model for the business. Presumably you will have a property manager. Consider the legal ramifications if a coin owner sells a coin: legal agreement updates, transfer taxes, etc? You may be able to avoid some/all of that by forming an LLC as the entity investors own, but that is a question for an attorney.

In the end, you put together a pro forma showing what an investor gets for an investment and that will determine viability.

@Alvin Mcbride Not true, Alvin.  In my leases, insect and rodent issues are the responsibility of the tenant as they are often  the result of cleanliness of the home.  It is not true that renters can legally stop paying rent because there is a mouse in their house.

I take responsibility for the structure itself.  In my case, I paid to seal the structure to the extent possible.  Keep in mind that a mouse can enter through a space the diameter of your pinkie or less. Properties are not built to stay completely sealed so tight such gaps never occur, much less decades after they are built, so some maintenance is needed.  A mouse that does get in, but finds no food reports back "Don't go there." to the family.  A mouse that finds food brings everyone along and starts a new home.  That is usually the problem.

@Account Closed I thought about that, but I get $1,225/month and all but $35 if guaranteed through Section 8.  I looked at it as a temporary hit that does improve the property by sealing it, but it went longer than I expected with quarterly bills of about $100.  I cut off the service today, which would have been another quarterly treatment of nothing more than reloading traps and bait.  I told my tenant she can do that or hire Teriminix to do it for her.  The risk is a mouse infestation in late Fall.  I have to watch for that.