Author Topic: first rental - now what  (Read 1942 times)

ryanht13

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first rental - now what
« on: April 13, 2016, 08:55:16 AM »
I bought this home as a primary residence a year ago. Relocated for job, wanted to rent. Secured a tenant @ $1600/mo.
Would like to transfer the property into an entity, but don't know how to do that cleanly and inexpensively. Numbers are below. I'm a little light on cash at the moment due to heavy investments and timing. Will receive about $10,000 in bonus over the next couple of months. Tenants are moving in a week so help! Is the transfer urgent? What tax implications do I need to be prepared for? Should I draw some equity out on the sale to beef up cash position?

Market Value: $190,000
Original Purchase price:$187,500
Original Mortgage Amount: $127,000
Interest Rate: 3.8%
Mortgage Term: 30yr
Term remaining: 29yr
Amount remaining on mortgage: $125,800
Gross Rents: $1,600/mo
Principal and Interest (the P&I of your PITI - should match with the above info): $600/mo
Taxes and Insurance (the T&I of your PITI): ~$150/mo
HOA costs: $100/mo
Property Manager: 10% of rent, tenant placement commission 75% of first full month rent

HELP!

MetalCap

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Re: first rental - now what
« Reply #1 on: April 13, 2016, 11:36:17 AM »
Sounds like you jumped before you saw the pool.  You can do it cleanly or inexpensively but I don't think this is something to do haphazardly.

The entity is a good idea to protect yourself but isn't required. In order to transfer, you'll need to create the entity (I prefer LLC) and then have a lawyer draw up the transfer assignment.  Before this happens, you need to discuss it with your bank.  They have the right to foreclose/call your mortgage in the event of a transfer making anything owed due immediately.  I've been able to work this out with banks before but don't leave it to chance.  Either way make sure you get better insurance than just your standard Homeowners insurance in case  something happens to your tenant to protect you.

In most states if you use an LLC and you're the only member (or just you and your spouse) any profits will just be integrated into your personal taxes.

I'm not sure what you mean by drawing out equity on the sale.  If you're transferring to an entity, the sale will be for $0.00 because your brand new entity will have no money. If you're talking about selling (not transferring) to an entity, that entity has to secure a new mortgage which won't happen for a company with no credit history.

TL;DR Do some more research; talk to a lawyer.  Luckily your rent price looks like it will break even based on your info.

PadAdventure

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Re: first rental - now what
« Reply #2 on: April 13, 2016, 12:02:47 PM »
I agree.  LLC formation, but not imperative.  I agree with discussing it with an attorney, these things vary from state to state, as well as the protection afforded.  There's also more than just filing.  You usually need to put together a company agreement, etc., to avoid looking like an individual and allow "piercing of the veil."

Remember, the protection is only as good as it is constructed.  Well worth the $$ to talk to an attorney, but again, I don't think it's as time sensitive as you're making it.  I would discuss it with your insurance agent though, to make sure your policy covers you as a landlord.

Good Luck!

clarkfan1979

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Re: first rental - now what
« Reply #3 on: April 14, 2016, 03:54:49 PM »
I agree.  LLC formation, but not imperative.  I agree with discussing it with an attorney, these things vary from state to state, as well as the protection afforded.  There's also more than just filing.  You usually need to put together a company agreement, etc., to avoid looking like an individual and allow "piercing of the veil."

Remember, the protection is only as good as it is constructed.  Well worth the $$ to talk to an attorney, but again, I don't think it's as time sensitive as you're making it.  I would discuss it with your insurance agent though, to make sure your policy covers you as a landlord.

Good Luck!

"Should I draw some equity out on the sale to beef up cash position?"

I don't understand this statement. What sale? I thought you were renting it. You can typically do a HELOC with a primary residence, but not with a rental house. 

Jim2001

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Re: first rental - now what
« Reply #4 on: April 15, 2016, 08:28:44 PM »
+1 don't rush
+1 LLC
+1 talk to an attorney (do it yourself on Legal Zoom and you'll likely get what you pay for, which may not be the protection you're looking for)

Make sure the rental agreement has an assignment clause that says you can assign it.  If they ask what it's for, let them know you may assign it to a management company (you don't need to tell them it's yours).

Congratulations on joining the landlord club!