Author Topic: Future realestate investor need help  (Read 1451 times)

BORN SAVER

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Future realestate investor need help
« on: September 08, 2016, 06:17:21 AM »
So my girl friend and i are hoping to start investing in realestate within the next year but need a little guidence. the main thing is should I own the property under my name or should I make a busness like an LLC so that my assets arent at risk from tents possibly getting hurt and sewing. Our net worth is only 30k so it's not like we're risking a lot at the moment but I want to be set up for the future. Also I am hoping to live in 1 apartment and rent out the other 1 to 3 appartments. Any adivice u can give would be a big help.

sammybiker

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Re: Future realestate investor need help
« Reply #1 on: September 08, 2016, 09:13:39 AM »
I would focus more on maintaining high liability insurance coverage vs worrying about separated assets via LLC, especially for this first one.

The bigger risk I see here is purchasing a large asset with a S/O (a business partner with a lot more intertwined emotion vs a typical business partner) and the risk that any changes in the relationship status will also impact this asset that was purchased together.

Best of luck.

Landlady

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Re: Future realestate investor need help
« Reply #2 on: September 08, 2016, 02:04:41 PM »
Yes, focus on liability insurance as sammybiker mentions.
Even if you do buy a property you won't be able to buy it with an LLC because your LLC won't have credit or $$ to buy it with if it's new. You can put it into an LLC after purchase as long as you have no plans for refinancing it.

Your idea for living in one apartment and renting the other units is perfect. That means this will be your primary residence and you'll get a good loan rate and will be able to sell without capital gains tax if you decide to do so. You'll also be on the property in case something goes wrong. This is what I've done and it really will help you ramp up landlord-ing experience fast.

A duplex sounds like a good first property for you! Good luck!

zephyr911

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Re: Future realestate investor need help
« Reply #3 on: September 08, 2016, 02:17:34 PM »
Yes, focus on liability insurance as sammybiker mentions.
Even if you do buy a property you won't be able to buy it with an LLC because your LLC won't have credit or $$ to buy it with if it's new. You can put it into an LLC after purchase as long as you have no plans for refinancing it.

Your idea for living in one apartment and renting the other units is perfect. That means this will be your primary residence and you'll get a good loan rate and will be able to sell without capital gains tax if you decide to do so. You'll also be on the property in case something goes wrong. This is what I've done and it really will help you ramp up landlord-ing experience fast.

A duplex sounds like a good first property for you! Good luck!
Concur that buying with owner-occupant financing (4 units or less) and living in one is a great way to get your feet wet with a lower cost of capital and convenient access to your rental units for maintenance and other issues. Just a caveat, though: the tax reporting is a little more complicated that way, so I suggest professional help for that.

I co-founded an LLC with two other guys and got a couple of mortgages almost immediately. Is that really 100% impossible where you are?

bpleshek

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Re: Future realestate investor need help
« Reply #4 on: September 09, 2016, 09:41:38 AM »
I would second the comments from sammybiker.  You need a good liability policy($1M).  I wouldn't start thinking about an LLC until:

a. You have a significant net worth to protect.
b. You own a number of properties(5+).

I also agree that purchasing with someone that you are not married to can cause issues.  People break up.  Regardless of how this one is different, you have a business partner that you're not related to.

Aside from that, you are lowering your risk by purchasing a multi-unit property.  It's not likely that your entire investment might go unrented at once as it might if you were to invest in a single family property.  Ask yourself this, can you afford the entire mortgage on this property if one unit is vacant?  How about two?  Depending on your answer, you might still be over reaching your ability to afford this.  Remember, if you can't make the mortgage, you're out of a house too.  Safety first.

Brian

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Re: Future realestate investor need help
« Reply #5 on: September 09, 2016, 11:26:20 AM »
I just have a little to add:
I started an LLC for my properties from the beginning, because I'm a tax guy so I'm very familiar with them. I'm aware that an Umbrella Policy generally offers more protection. I've seen this debate several times, and I have not found a clear winner. I would say it depends on what helps you sleep at night.

If you purchase in an LLC, you can get credit right away. Your best bet is a local bank, and they'll usually require 20-25% down (unless you get lucky), and you will need to personally guarantee the loan. I think I only had to visit 3 or 4 banks until I found one. If you buy in your name and it's 4 units or less, you are eligible for most of the typical consumer/homeowner loans.

Regarding not paying capital gains tax if you live in one of the units, it gets tricky. You still depreciate the part of the building being held for rental, so you would pay the tax on depreciation recapture for those units. You would also have to allocate the gain on sale between the number of units, and your exemption would apply only to the unit you live in, not all of them. To keep things simple, we won't talk about like-kind exchanges yet.