Hi all, sorry in advance for the long post.
I have been lurking on MMM forums for a while, in addition to following the blog over at Bigger Pockets and talking to friends and other associates who have been doing landlording for some time, and I think I'm almost ready to get the ball rolling on an LLC for doing rentals with my parents.
Background:
I'm still in college for another year, but scholarships and work mean that I support myself and have saved up a couple thousand bucks over the years after putting money into my IRA. Afterwards, I'll be in the military as an officer (and I have plans for getting 0 down VA loans on multi-family places--more on that other time, I guess) and I will have much more money to save and invest.
My father is a dentist, and my mom currently doesn't have a formal job since she's still a full-time mother. They have an SEP-IRA that has been maxed out for a while, and I have done the math--via the 4% rule, they're pretty much set for life as long as they make a few reasonable adjustments. They own their own house and they also have over a half million that used to be in a savings account earning about 1% a year, until about six months ago when I got them to put it into a few mutual funds (mostly indexes). Within another six months, my mom will get a real estate license and might well start to be a broker full or part time. In the future, my dad might start another dental practice or something like that. In other words, they're in superb financial condition and they live a relatively reasonable lifestyle, except for a large house and nice cars, but that might change in the foreseeable future.
The Plan:
As of now, we have agreed to start an LLC that's owned equally by each of us (50% me, 50% them). My dad's accountant is able to set this up for us, and will be able to do our taxes and stuff like that going into the future. My parents also might set up another LLC just for them, or for themselves and other investors, so that they can get really large apartment buildings, but that's outside of the scope of this post.
I have a little over $20,000 outside of retirement accounts, so I plan to put all of this into the LLC, while my parents will match that contribution to give each of us a 50% stake in the enterprise. I understand that it's tougher and more expensive to get mortgages as an LLC until you're established, but I am hopeful that since my parents have such excellent credit and financial histories, we might be able to get a decent deal. I'd love to hear your opinions and experiences with getting a good mortgage as an LLC.
As this is our first time landlording, we're going to do something very close to where my parents live, as in, within five or so miles. I've done a ton of research, and there are plenty of condos, townhomes, and single-families that meet or beat the 50% rule... for a thirty year FRM with rates of about 5%. I'm not sure how the math will work out at commercial mortgage rates for potentially shorter periods of time, but once we start to look at foreclosures and short sales, I'm confident that we'll be able to get a good deal. Ours is a great area with low crime, an excellent schooling system, reasonable costs of living, a good job market and more, so I don't foresee long periods of vacancy in the future. Friends of ours in the area who do some landlording have had pretty good experiences overall.
Since I won't be in the area and since my parents won't be doing renovations on their own, we will have to hire contractors, but we know a couple of reasonable guys in the area, so the profit margins should be more or less okay. I really have to do math for particular cases, I suppose, but I can only do that once we start to look at specific properties and we have mortgage pre-approval, so we know how much of a financial burden the mortgage will be.
Our goal with this LLC and our joint investing is a relatively hands-off approach that will produce passive income. My parents will both have full-time obligations in the future, and I won't be in the area, so this isn't really subject to change. I understand that we might miss out on the best deals and greatest opportunities, but even a few hundred dollars of cash in the bank a month is great, plus extra money from appreciation and tax benefits. We don't intend to hire a property manager (until we have multiple properties, if and when we get to that point) and I am confident that I will be able to get a system up and running for collecting rent, advertising, and doing background checks very soon.
Whew, thanks for reading all of that! Anyway, I welcome any feedback, especially from those of you who have used LLCs to own property in the past and those of you who own properties with your parents or other family members. Thanks in advance!