All Forum Posts by: Ethan Giller

A few thoughts:

1) Buying an existing building with long-term tenants and then forcing them out in order to renovate and push up the rents is unfortunately something that does happen often in RE investing, but you should consider carefully if that's the type of investor you want to be or not. It's the type of thing that gives landlords a bad reputation and can create hardship for the tenants.

2) Even if you could get it renovated for $20-35K to comparable condition to next door, $2,300/month for a $295K all-in is not a very good return, especially for Philadelphia, unless it's truly in an A class neighborhood.

3) Under your scenario, you're not buying it with any equity in the property, you're all-in for market value if the ARV is indeed $295K. If you're ok with this, why not just buy one that's already renovated instead of doing the renovation yourself?

4) Whether $20-35K is a sufficient rehab budget isn't really possible to say with the information you've provided, so much depends on the scope of work and the contractor setup. Most likely though, from my experience, it is not enough.

5) Make sure that the duplex is legally zoned, there are a lot of non-conforming multi-families in Philly and that presents a problem for legally renting it, for financing, and for resale.

Although there may be other circumstances that make this a good deal, given everything you've presented, and the potential tenant displacement, I would say this is not a deal that's worth pursuing.

Congratulations on your purchase! A few things:

1) Rental income is generally taxable unless it's in a sheltered investment vehicle like a self-directed IRA. This is rare.

2) Whether you have the income coming in through an LLC or to you personally generally does not have tax implications (assuming the LLC is structured as a partnership or a sole-member), that is primarily for legal liability considerations. There are some exceptions and you should check with your accountant, but as a general rule it's applicable.

3) The license that Philadelphia is asking you for is a Commercial Activity License, which is required regardless of the entity used to purchase the real estate (even if it's in your personal name). You register for a Commercial Activity License, which is Philadelphia-specific, and that number allows you to apply for a Rental License.

I'd encourage you to look into the rental regulations in Philly because you generally also need a Rental Suitability Certificate, and you may also need a Lead Safe Certificate if renting to children under the age of 7, and you want to make sure that your duplex is legally zoned for 2 units and for the commercial use that you're planning.

@Joe White is great.

John Sacks-Wilner (www.gopmr.com) is also highly recommended.

@Gerald Vaughn if you're looking for an inexpensive low-income rental market, then Philly is clearly your answer. You can buy row home shells in certain areas of Philadelphia for less than $15,000. However, you get what you pay for, so just buying cheaply in blighted neighborhoods is not always the best investment strategy. If you can post more information about your investment goals, real estate knowledge, etc. then you'll get more useful replies.

I would have said to ask @Troy Sheets ;-)

We have a lot of multi-families in Philly but for the most part we don't do anything with finished basements, and we mostly buy existing layouts and upgrade them instead of doing new layouts. So I'm not sure, I would check with your architect and zoning attorney to see what's allowed by right. And if you're trying for a variance, I would have a backup plan in place if you don't get it, I do agree that it's tough to get from what I've heard.

https://www.youtube.com/watch?v=wujVMIYzYXg

Unlike most other states, PA does require you to pay transfer tax to transfer between LLCs, even if the ownership structure isn't changing. If it's a related-party transaction, the transfer tax is based on the tax assessed amount, not on the amount shown on the deed. Check with your accountant or attorney for more detail though.

You can definitely just escrow these funds with the title company as part of the refinance transaction and still close the loan, this is fairly common practice, I've done it before myself for similar situations. The title company may require an escrow amount that is 50% greater than the disputed bill, but they should not have a problem with it and still issue a title policy to the lender without an exceptions which is all the lender requires.

Do not count on their "up to 30 days", it's likely that they will send you another letter stating: "We were unable to resolve your inquiry within the thirty days (30) as stated. Your account requires additional review and research."

Your best bet is to close the refinance and just put those funds in escrow with the title company, and then work to resolve the issue after closing.

In order to prevent in the future, you need to make sure that your bills show 'actual' for the reading, not 'estimated'.

@PJ M. @Yuriy Skripnichenko the actual law is pretty clear that only with a new lease signing is the lead cert required, a lease renewal doesn't require it. There's no specific language in there either about requiring a cert if a current tenant has a newborn and there is no new lease being signed. Or language that it's required when you are renewing a rental license.

"No lessor shall enter into a lease agreement with a lessee, other than a renewal lease... unless (.1) he or she provides the lessee with a valid certification..." (§ 6-803. Lead Disclosure Obligation)

https://phila.legistar.com/View.ashx?M=F&ID=220249...

HOWEVER, that being said, just because this is the letter of the law, does not mean that if you end up in Landlord Tenant court with this tenant that their attorney and the judge won't make an issue of the fact that you didn't provide them with a lead cert. So it's really a judgment call, follow the exact law and you don't need it, or get it anyway to be covered just in case.

I am not an attorney, this is not legal advice.