All Forum Posts by: Matt Vogt

Unless there is a very good reason to have a corporation, an LLC would likely cost you less to file taxes, setup, maintain than an S-Corp. A C-Corp would have double taxation... so that's probably the worst possible entity unless there is very good reason to justify it. An LLC will allow you protection from lawsuits etc, while not penalizing you with double taxation.

Probably the most important question is what is your business/investment strategy. Usually your business activities will better narrow down the best entity choice for your specific need.

Here's an article from Forbes that might give you some insight and help you figure out what's best for your situation.

http://www.forbes.com/sites/kellyphillipserb/2015/08/19/llcs-s-corps-and-pcs-choosing-a-business-entity/#1f90c72f247f

If you have excel, a good way to calculate payments/amortization would be to write a payment formula. =PMT(rate,nper,pv,[fv],[type])

Although this may seem cumbersome, it's really not bad. 

We're looking for monthly payments, so you need monthly rates, periods in months. 

net periods (nper) would be 7 years * 12 months/year = 84 months.

monthly rate would be annual rate/12. Example, if you have a 5% loan, your monthly rate would be 5%/12 = .416666% per month.

pv (present value) = 300,000

fv (future value) = 0

type (beginning of period vs end of period payment) = 1 (beginning)

Strictly the mortgage (excluding PMI, taxes, insurance etc) would be $4,222.58/mo in this scenario.

Microsoft PMT Function Explanation

I suppose you would need two separate loans; one for the rental property and one for the residence. At that point, you could try for a conventional loan (say at 5%) or an FHA for the one, and a conventional (20 or 25%) for the 'investment' property. Either way, you're going to need around 25% of asking to be able to acquire both.

Jesse, 

I understand your concerns and am not in your shoes. You've worked hard and saved a lot, and want to protect your investment. We take risks in hopes of returns, but we also mitigate risks as best as possible. If you're more comfortable dipping your toes in and easing into rentals, then (1) single family house might be a better way to go about it until you're more comfortable. Being green in any new venture is going to have it's learning pains, and it's good to be honest with yourself upfront (which you seem to be). Know your strengths and weaknesses, then get help with your weaknesses. If you're confident in your analysis, then have several other people look at it and provide feedback. Do this again and again without buying property, just learn the numbers. 

I am fairly young and can handle a lot of risk... I don't have a tremendous amount to lose, and I can rebound in a few years. Two years ago I was looking at buying my first personal property, the thought of having that amount of debt made me sick and I missed out on a few deals because of it. In reality, I wasn't ready. Now I have two properties and am anxiously awaiting and planning for my next deal. I eased into it, and it helped me be comfortable with something new with relative risk. Looking back, I wish I would have been a little more committed.  

Perhaps a good solution would be buying a SFR with leverage, keeping as much available for funds as possible. Manage the 1st SFR for a bit until you're comfortable.... Very low risk if well researched etc. Once you're comfortable, re-evaluate your situation, experience, and tolerance for this type of risk. When you re-evaluate, once again look into the pro's and con's of either a SFR or Multi-family, and cash vs leverage.

You can always pay off your mortgage early too... rates are low, and I would take advantage before we see rate increases and inflation increase.

It would probably depend on if the 'office' is attached to the other units and could be considered as one of them or not. If it's a stand-alone office, you're likely going to have push-back from the bank, as they could see it as a 5 unit. I would meet with a banker and discuss, you could always suggest that you'll re-attach the office to a unit so that it's part of that unit. 

The bank may also have issues doing one loan for two properties. I would almost bet on that. Your best answer is going to come from your potential lenders... start talking with them to see what their criteria is. 

If it's coming back as a commercial property, perhaps hard money could be used to close and convert it to a 'conventional' property before refinancing with a traditional institution.

Another option to consider would be applying your cash to a larger multi-family deal. Since you have the funds available, you could leverage them to purchase a multi-family with 20-25% (depending on lender requirements) down. I would expect some economies of scale from a multi-family, and therefore a potentially higher cash on cash return. Another thing to consider with cash properties is that your COC return decreases substantially due to the significantly higher (5x if comparing 20% down to 100% all cash deal). With a lower COC return, you're making less money for how much 'skin' you have in. Although leverage isn't free, it allows you to invest in more expensive, potentially better investments.

I am with @Andrew Herrig and would take a loan if that's a possibility. 

If you were looking at 3 80K properties in cash (240K), and are making $500/door cash flow, you're making $1500/mo in cash flow. 

Take the same 240K, use it as your 20% down payment, you now have 1.2M available to buy. Look on loopnet.com to get an idea of what kind of returns you could get with a leveraged 1.2M property to compare the results... my bet is that you'll make FAR more than the $1500 with a large multi-family using leverage than you will with 3 all cash deals. 

How is your credit, what is your DTI, do you have enough room to add a new liability? Consider the application from a bankers view, or you could visit a few local bankers and get their criteria for DTI, credit, etc. Would you be making any improvements that would make the after repair value be at market comps? How much would these repairs cost?

How about installing some french drains yourself? You can rent a ditch-witch at home depot, get some gravel and french drain materials, and have it all done for WAY less that $8400. Probably a day of work with one or two helpers.

I just finished concrete counters in my personal condo (with the intentions of renting it out), however after doing more research and actually experiencing them, I would advise against it for a rental... tenants will not take great care of them, applying waxes frequently or cleaning up spills immediately. They will look rough in time if they are not taken care of properly. Probably the best bang would be large format granite tiles... cheap, durable, look nice, and require only resealing every year or so. Some people have issues with the grout holding bacteria and not being sanitary. If I were to do-over, I would do 18x18" black granite tiles with 1/8" grout lines.

@Levi Painter

There are no absolutes, but generally the nicer a property is, the better your tenants will be. Likely, at larger schools you're going to find more available money than at smaller state schools. Usually with more run-down properties students will be less likely to care about the property and you'll have more wear&tear from partying etc. With that, I've seen college houses that had the walls literally covered in painted OSB to protect the walls, and they were always rented out... they were also always party houses. 

My parents and I rent our college houses on 9 month leases (both semesters) then a much lower summer rental fee if they want to stay or keep their things for the coming year. The benefit in our eyes is that it makes cost comparison to dorm living a little easier, and gives you a few months to do repairs over the summer, or the ability to make a little extra bonus cash. If you go this route, make sure your costs are covered over the 9 month lease... as you cannot bank on a summer rental.

Check into local laws regulating how many unrelated parties can live together, a lot of local governments have regulations to prevent fraternities, sororities, brothels, etc.