All Forum Posts by: Joe Smith

I'm considering delving into small multifamily or mobile home parks (for rental/cashflow) in the $500k - $1.2M price range.

My questions:

1. Since commercial financing consists entirely of balloon loans from what I can see, is there ever really an "end game" of having a paid off loan someday and retiring on the cashflow?

2. Assuming it cashflowed well enough to do so, would there be any financial reason to attempt a faster paydown of principal?

3. Are commercial loan prepayment penalties of the type that kick in with the first extra dollar of principal paid, or does it have to be 20% or so of the loan amount before it comes into effect?

Normally, I'd have no issue with the idea of just refinancing at the end of the balloon, but after this last lending fiasco where we *almost* reached a point that commercial financing was just not available (it's still tougher than it was), I fear being unable to obtain loans and losing everything at that point.

I still work a "day job" and plan to continue to do so for at least another 10 - 15 years, but, at 31, it would be nice to be able to retire by, say, 50 and live off incoming rental cash flow.

Thanks, Steven.

I'm thinking this then, based on your comments:

1. Create a single member LLC.

2. Deed the 2 duplexes over to the LLC, using a warranty deed, not a quit-claim, as I've heard recommended here and elsewhere.

3. Complete the 1031 and buy the new building.

4. Effective 1/1/2013, add my wife and make the LLC a 2-member LLC, with my wife and I as 50/50 owners (how difficult is this to do?)

The question then becomes, if the IRS sees my wife and me file MFJ (we we always have) a Schedule E (as a sole individual titleholder) for 2011, a Schedule E (under single member LLC) for 2012 with a 1031 exchange thrown in there, then, suddenly in 2013, my wife and I are both filing K-1's with a Form 8825 and 1065 (we'd file as a Partnership for a 2 member LLC) with no schedule E...will the IRS blink at that?

OK - I have 2 duplexes I plan to sell, and do a 1031 exchange to buy a larger multifamily, something in the 6 - 20 unit range, depending what i can find in a price I can afford.

My wife and I want to form an LLC as equal partners, but the duplexes I am selling are titled only to me (not my wife), which makes the 1031 problematic, since the new property won't be in the same entity. A single member LLC, from what i understand, would work, since it would fall as a "disregarded entity" but not a two member.

So what are my options?

My thoughts:

1. Move the duplexes to the new LLC before selling them, that way the 1031 involves the same entity. However, if I do this, would the IRS see that the duplexes went into the LLC only a few months earlier and consider this a problem, or, too "short term" of a sale and therefore call it an inventory sale instead of sale of a rental?

2. Create the LLC as a single member LLC, then, sometime down the road, add my wife as a new second member of the LLC. Would this work? If I did that, would that mess up my taxes for that year?

3. Buy the apartment individually, then move to LLC. Not sure the commercial lender I have in mind would like this, plus, the IRS can catch on here too, I've read about it.

We're in Ohio as are all properties in question, so its not a community property state.

Hopefully someone who has dealt with this can chime in.

Thanks!!