Author Topic: Fell into rental property  (Read 1881 times)

Much Fishing to Do

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Fell into rental property
« on: December 22, 2019, 06:52:15 AM »
Have questions I bet the many rental real estate investors could help me with.

My wife and her sister inherited their childhood home after their parents fairly passed away relatively young and just a few years apart, I was the executor of the estates as I've always been the 'money guy' in the extended family.  They couldn't really decide if they wanted to sell it or not.  Its very local and pretty easy to rent furnished (so didn't have to get rid of the furnishings) to grad student families as its near a large university.  So I said there's no reason they had to make that decision now as we could just rent it, so formed a LLC holding house w/ wife and sister as partners, put some starting funds from the other inheritance in the checking acct as starting money (25k).
Its rented now after some initial needed repairs were made and has been a generally good experience with the first rental family in there now.

Its very possible this continues for years, and even some of our kids end up using the house, or they decide to sell at some point, or even that my wife buys out her sister's half.

Right now its found money with obviously a lot emotions wrapped around it and so no one is particularly looking at it as an investment and deciding whether its a good one or bad one. I think the main thing for this to continue working in the short term is that it continues to never need capital and occasionally gives off some income. 

Here's my questions, with everyone understanding it'll probably be the only real estate investing I'll ever do so I'm not looking to learn all the ropes.....

1) so the sister has asked me, well is this a good investment anyway? (keeping up with the bills/taxes on this has fallen on me which is fine as I just do it on quicken and have my tax guy do the return, but again I know nothing about real estate investing) and I don't know how to answer.  The house is prob worth about $300k.  Its renting now for $2k month furnished with all utilities included (it was just easiest), and it costs around $1k month on average for taxes, utilities, lawn/snow maintenance & insurance.  As an investment is this good/bad etc?  It seems 'fine' to me as the $12k profit/year which we could draw out of the LLC acct represents 4% of the $300k value, which is the same draw I plan take on my equity investments, and the house will appreciate over time approx around inflation, just like I hope my stock portfolio does as I'm taking the 4% draw, so it seems very similar to me. 

2) Everyone is happy now seeing this as its own little entity (I think the sisters are kinda enjoying working together on it) and I think the most important thing is it never requires anyone to put any new capital into it, I think that is when someone would feel its a real burden.  Currently there is about $15k in the checking acct. (it fell with initial repairs, and is now rising being rented).  What balance should I feel good about keeping in there as a minimum to achieve this goal? (I guess my question is how large an expense can normally come up, I imagine something like a new roof being the max buffer needed? etc.)   Starting next year I figured I could have a draw start going out once a year to distribute profit above the needed buffer to almost assuredly prevent the capital needed as discussed.

Thanks everyone for your help




SwordGuy

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Re: Fell into rental property
« Reply #1 on: December 22, 2019, 07:52:57 AM »
Gallinelli has a book entitled something like "Cash flow and other other measurements" available on Amazon.

I suggest you get it and read it.   

It will tell you how to run the numbers and then you will (a) know for sure whether it's a good investment and (b) know why or why not.

As it is, you don't know what you don't know.

FYI -- you are NOT making $12 profit per year.   You just think you are.   You have to set aside funds for future repairs and for future vacancies, among others.

Much Fishing to Do

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Re: Fell into rental property
« Reply #2 on: December 22, 2019, 03:32:55 PM »


FYI -- you are NOT making $12 profit per year.   You just think you are.   You have to set aside funds for future repairs and for future vacancies, among others.

Yep, agreed, I definitely don't think its as simple as this as I certainly know I dont know what I dont know...appreciate the cite!  I guess my current situation is I'm assuming this is at least a zero net deal and will learn from there....
« Last Edit: December 22, 2019, 03:35:43 PM by Much Fishing to Do »

Zamboni

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Re: Fell into rental property
« Reply #3 on: December 22, 2019, 08:43:11 PM »
Bigger pockets is a website that also has tons of useful information, including spreadsheets for things like factoring in (and writing off on taxes) depreciation of the contents of the home (appliances, etc.) Your tax guy may or may not be fully up to speed on that, so probably worth investigated that website yourself. Good luck!

YttriumNitrate

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Re: Fell into rental property
« Reply #4 on: December 23, 2019, 10:50:33 AM »
1) so the sister has asked me, well is this a good investment anyway? The house is prob worth about $300k.  Its renting now for $2k month furnished with all utilities included (it was just easiest), and it costs around $1k month on average for taxes, utilities, lawn/snow maintenance & insurance.  As an investment is this good/bad etc?

For a rental, unless you are betting on appreciation that's not a very good investment. If you can get the tenant to pay the utilities, have them cover lawn/snow maintenance, and still collect $2,000 a month in rent, then we're getting close to where it is a good investment.