All Forum Posts by: Tim Swierczek

@Patrick I. to clarify you cannot legally do it with any FHA, Conventional, VA, or USDA loan. As some had stated its very rare that a lender will call you out on it, but you run the risk if you do it. The issue is if you do it on an owner-occupied home within a year of closing you have also committed loan fraud which is a federal crime and a felony.

Most if not all portfolio lenders will allow you to close in the name of an LLC, and some require it because they classify the loan as a business loan and do not have to follow Dodd-Frank protocols. These same portfolio lenders should also all allow you to transfer it but that shouldn't be necessary if you start with an LLC upon purchase.

I work for a lender that offers a line of portfolio products along with the other loans mentioned above. Our portfolio loans are very "creative" but also higher priced than community banks. They do allow to close in the name of an LLC.

Community banks are all over.  Some examples of bigger ones are Bremer Bank, Sunrise Bank, Deerwood Bank, BMO Harris Bank, First National Bank Hastings, Community Resource Group & Citizens State Bank, but there are hundreds more.

I just want to be clear that I would not chase the LLC designation to get the property into an LLC. I know of no community bank that allows you to put down less than 20% even if you are owner occupying. They only offer balloon loans with variable rates. These products are good and necessary for seasoned investors but should have no place in your early plans.

@Patrick I.

1. Is there a bank or lender in MN that allows property transfer under LLC?  

Yes, but not if you are house hacking/owner occupying the home.

2. Is a LLC even necessary? 

I don't think so.  Certainly not on your first few deals and especially if you have proper insurance and make a concerted effort to provide a safe rental environment.

3. If transfer under the LLC of the property is not an option, how do you protect yourself against a litigation? Is an umbrella insurance enough?

Nothing will protect you against fair housing claims and other legal mistakes you make.  The first and more important step is to learn MN law from a legal source (not BP).  homelineMN.org is the best source for this.  They have a class and publish a book for landlords.  You also need good insurance.  Third, you need to follow #1.

4. At the end of the year, are you providing the rental m1pr form to the renters? How would you go by doing so without a structure such as a LLC?

There is absolutely no difference with the M1PR form between LLC's and individual owners.  The owner's name must be stated but you simply list your name.  The reality is LLC's have positives for sure but they do have some negatives.  One such negative is that in Minneapolis, an owner cannot pull their own permits for repairs since only natural citizens have that right. This means if you have your property in an LLC you legally are supposed to use only Minneapolis Licensed contractors to do all permit required repairs.  This is not true if you own it personally. 

In addition, an LLC must be represented by an attorney in Hennipen & Ramsey county housing court.  The owner cannot represent its self for an LLC, but is allowed if individually owned.  By the way, this is a  state law that most people will not know and will challenge but this is why you must learn MN law on your own.  It's more important than you think.

Cheers,

~Tim

@Michael Dorr If only one of you was on the loan then you are in great shape. Accident or not it was fortuitous. Most people in your situation would go out and buy another duplex using FHA with the 2nd person. Do not do that! You have a better option. Have the other person use the 5% down conventional multifamily loan, this will preserve the FHA loan for the 2nd purchase and will save 10% down on the second purchase by borrower #2.

This is because the 5% down conventional duplex-fourplex loan is only available if it is the person's only loan at the time of closing.  By using my strategy this person's 2nd multi-unit purchase would be 3.5% instead of 15%.  Here's how it looks:

99% of investors strategy (if house hacking muti-units)

Purchase #1- 3.5% FHA

Purchase #2- 15% Conventional

Total % down 18.5%

The savvy well informed investor's strategy

Purchase #1- 5% Conventional

Purchase #2- 3.5 FHA

Total % down 8.5%

I'm sure you were not given this advice because 99% of LO's are not investor friendly and they simply do not know this option exists.  It's a bummer because this one mistake will set the beginning investor back a few years.

~Tim

@Kyle Soderman Welcome back.  @Lee Fahy invests in St Cloud, maybe you two should connect

@Samuel J Claeson I have seen the advice to just go to office max many times.  It is incredibly awful advice.  Those leases are not satisfactory for MN law.  This lease is free and written by the MN bar association.  It's a great lease to start with and then add clauses, which ideally you would have reviewed by a landlord law attorney.  https://eforms.com/download/2015/11/minnesota-stan...

Thanks @John Woodrich 

@Michael Dorr  

"Since we purchased as FHA owner occupy, we must reside in this residence for 2 of the next 5 years to fulfill our lender requirements. However, is it possible to sell before we fulfill the 2 year residence requirement and use a 1031 exchange toward our next purchase, which would be a bigger owner occupy multifamily?"

Your comment here is a misunderstanding.  Your lender requirement is only one year in the property.  The 2 out of 5 years is an IRS requirement.  Yes, it does affect taxes but I just want you to know the lender requirement is only 1 year.  Yes, you can sell at any time.  Did you both go on the loan for this home?  If not you have more flexibility.

"Does it make sense to leverage our duplex to scale into a bigger multifamily? Or do we hold our duplex and take out a second loan to purchase the bigger multifamily?"

This cannot be decided without a total picture of both the duplex finances and your finances as individuals.  If I were to guess I would speculate that purchasing a second duplex would be more likely but that is a very gross generalization.

@William Springer in the Minneapolis market you should be able to get 2 condos for $300K.  They will be modest condos in B/C areas.  Much better cash flow than 1 great condo in  B area, and hard to find a bottom of the barrel condo in an A area.

The other thing is if you are not managing it then why are you looking at condos?  Honest question, my impression is that condo investors do it to limit the time and complexity of managing the property.  I don't think you get much or any discount from a PM for management of a condo.  Maybe @Amber Gonion can confirm or deny this.

@Nick Jordan  That's at least an hour long conversation maybe 2.  PM me and let's meet for coffee.

@Nick Jordan be careful on rehabs.  The market is priced such that poor condition is currently overvalued.  I'm not saying you can't find a good deal, it's just the amount the house is discounted based on the condition is not likely as much as you will spend to bring it back up.

@Nick Jordan It's important to distinguish between ARV and your ROI. The ARV only has one on small MFR's (2-4 units) and that is they sold comps. Rent ratios are a way to determine the ROI, you can use $/sq/ft and location but its all based on the comps.