All Forum Posts by: Stephen Chittenden

@Patrick Nuciforo

In general, assuming that you have not elected to be taxed as a corporation, and you are the sole owner of the LLC, the entity is disregarded as an entity separate from you. So, for tax purposes, the entity does not exist and there will be no tax consequences to moving money out of the business account. All of the income of the business will be shown on your personal tax return. However, using the LLC's funds as your own and not keeping adequate books and records is a recipe for allowing someone to "pierce the corporate vail" and attach your personal assets in a lawsuit.

You can have the three properties share an account.  That would be fairly normal.  If you have good accounting/property management software, you can keep track of income and expenses on a per-property basis even if they share a bank account.

This is general information only and is not intended to be legal or tax advice, and you would be well-advised to consult a tax professional and lawyer to discuss your specific situation.

 The entire purchase and rehab were paid with cash. We financed the property after the rehab was complete. The cash out of pocket is the total spent less the cash out from the refinancing. 

@Alex Stewart  We have received multiple applications at that rate and are currently evaluating applicants.

@J Scott @Todd Whiddon I just want to say this property is gorgeous. I'd buy it for myself if it was in the right area and I wanted to move. Great choices all around. 

My wife and I have two rental properties that we've converted from our personal use. One is our old townhome that we used to live in and the other is a single-family home that we bought for my parents to live in. They moved out of the area and it's been a great rental ever since (knock on wood). Last year, we partnered up with a coworker of mine and his wife and formed an LLC with the goal of acquiring buy and hold properties. This was the first purchase we made, and as of now, we consider this a success.

Purchase Price: $69,000

Closing Costs: $3,200

Rehab Budget: $55,000

Actual Rehab: $94,000

Carrying costs (utilities and grass cutting): $500

Total Investment: $163,500

ARV: $ 205,000

Cash-out: $ 147,000 (after finance closing costs)

Total Cash Invested: $ 16,500

Rent: $1595/mo

We found this VA foreclosure on the MLS in March 2014, with a list price of $89,000. By April 2014, it had dropped to $84,000. We made an offer at $65,000, which was rejected by the VA. We made another offer for $71,000, which was also rejected. Sometime over the summer, it was relisted at $72,000. We made an offer of $69,000, which was accepted, and we closed on July 25. The house was listed as a 3-bedroom 2-bath, but had 5 potential bedrooms (none of them had closets).

We spent the next two months bidding the job out with various contractors. The original rehab plan came back with bids ranging from $110-150k. We scaled back our design plans, and went with a bid for a $55,000 rehab. The plan was to rehab the house to a 5-bedroom, 2-bath home with a main floor master suite (the existing layout did not have a master suite).

What was supposed to be a 3-month rehab stretched into a 6 1/2-month rehab. During the rehab, we encountered… a break-in that removed old radiators (fortunately, we were planning to remove them anyhow); a complete failure of the relatively new boiler; a complete failure of the A/C system; rotten floor joists in an existing addition; missing ceiling joists in an existing addition (only 4 joists over a 20’ span); a rotten subroof covered up by 5-10 year old shingles; and more. In the end, we put in an entirely new central A/C and forced air heating system, all new pipes, new sump pump, and a lot of new electrical.

In any event, despite being way over budget, I think the rehab came out pretty nicely…

The exterior:

(Before)

(After)

This laundry room space later became the breakfast nook and part of the kitchen.

(Before)

(After)

This bedroom became the master bedroom:

(Before)

(After)

This odd utility space is what became the master bathroom:

(Before)

(After)

This was the hall bathroom:

(Before)

(After)

(Dual Vanities)

Second Bedroom:

(Before)

(After)

Study and Foyer:

(Mid-Demo)

(After)

Living Room and Foyer:

(After)

This is one of the three upstairs bedrooms.  It is by far the largest.

(Before)

(Mid Demo)

(After)

Some banks and finance companies will require 6 months or a year after the original purchase before they will finance the property based on appraised value versus the cash invested. Before that, they will often calculate the LTV based on the purchase price + rehab cost. So, if you bought for $100k and spent $50k on the rehab, they might only finance 75% of the $150k, even if the house is worth $200k. I've found some local banks are willing to do it with 6 months or less hold time. You need to call around and talk to a lot of banks, credit unions, and finance companies to find the best option.

I'm not sure why you couldn't draft a standard contract that specifies specific performance is required.  The contract would require the owner to list the house for sale upon rehab at an agreed upon price of not less than $X, cooperate with the showing of the property, maintain the property in good order, etc.  You wouldn't have to foreclose on a note if the owner tried to back out, you would just sue for specific performance of the contract.

I haven't had to talk to either of our property managers about it.  I think they know that my expectation is for a new tenant to be in as soon as possible.  If they want me to keep paying their fees, then they need to do a good job of getting tenants in.  That's the primary service they provide (unless it goes bad, then they do a lot of work getting a bad tenant out).