I recently purchased a 2-family rental property in Massachusetts in cash with my younger brother. This is my first ever real estate purchase (paid for by a gift from our parents) and my brother's third (owns 2 other properties in Massachusetts, one of them rented 2 years).
The house is a fixer-upper, and will need several more months of work before it can be inspected and rented out. We're doing most of the work ourselves, with the help of an occasional contractor. I'm guesstimating that it should be ready sometime in the first quarter of next year.
We are splitting the profits and expenses 50/50. I will be handling all the paperwork and phone/online correspondence, while he will be responsible for maintenance (he can do construction and plumbing) and driving to Massachusetts (we live in Brooklyn) should the need arise. He's also more knowledgeable about real estate than I am, and will pick up any slack from me.
Questions:
- Our house is not yet insured. What kind of insurance should we get to cover fire, floods, natural disasters, tenant issues, lawsuits, etc. 'Homeowner's insurance' won't be appropriate here, so what is the name of the insurance we need? Any recommendations?
Also, my brother is suggesting that we get an LLC, in addition to insurance. Is he right, and what is the benefit of an LLC that insurance doesn't already provide?
- This is a basic question, but I'd like your feedback: How do we automate rental payments from tenants into a bank account, so that my brother won't have to drive to Massachusetts every month to collect in person?
Do we just open a new bank account solely for our real estate business (we're planning on purchasing more properties in the future) and send a letter to each of our tenants, with our bank account number, informing them to deposit their rent there every month?