Income property - any good resources for start ups?

[mjimport]

I see alot of recommendations supporting LLC, but as I'm investigating, it becomes much more difficult to justify the financials going with commercial loans and what goes along with it. I have also been told a few times this last week that for my scenario it is not as necessary.
The thing that gets me thinking is that, at least initially, my LLC would consist entirely of personal asset/ equity anyway. So financially, I could get tagged anyway in "worst case" scenario.

What would be the issue of just purchasing an umbrella policy for those "worst case" liability scenarios?

Also, with relatively low "profits" of under $10k (after writing off expenses, repairs, etc.) what tax benefits are there for LLC vs personal?

And yes I am also consulting with industry experts/forums but I always trust R3V!

[GasBuggy]

Consider setting up your LLC in Montana, no sales tax on car purchases, no annual inspection.

[mbonder]

Yes, set up an LLC so that you are not personally liable if someone sues you.

[jrossowvue30]

Yes I'll definitely make sure that issue is resolved prior to taking ownership.


Have any of you set up LLC for dealing in rentals? Reasons for doing so or NOT doing so?

Definitely set up an LLC for many reasons. Insurance, taxes, personal liability, etc. You can set up an umbrella insurance policy with an LLC, that covers and protects you way more than just traditional home owners insurance. You can also set your LLC to be taxed as an S-corporation which allows you to save yourself some on pay role taxes every year depending how you plan to pay yourself. Also, should anything happen and someone wants to sue you, if you have an LLC you are protected so you don't loose your personal assets.

[mjimport]

Yes I'll definitely make sure that issue is resolved prior to taking ownership.


Have any of you set up LLC for dealing in rentals? Reasons for doing so or NOT doing so?

[mbonder]

I honestly would tell the current owner that he needs to give the current residents their notice so that they are gone by the time of the closing. That way he has to deal with it and you don't. Make sure to do a final walkthrough so that if they screw with something you can always force the current owner to fix their mess before you take ownership.

You may need to eat a month's worth of rental income, but you can bring in your own vetted renters on your terms with proper contracts and security deposits. In my mind, it's worth the initial money lost to have that kind of peace of mind.

[apm]

so it turns out the deal is at least financially feasible for me to buy this property.

One catch is that we have been told the current landlord has no annual lease contracts for the tenants, they pay month to month. On that note, now I'm wondering if he even collected security deposits.
I see this as a significant risk, but do you think that is a deal breaker? How easy do you think it would be to implement an annual, or at least 6 month commitments from the tenants? Is it possible to retroactively collect security deposits?
One tenant has been there for over a decade, not sure how she would react to a new landlord with new requirements.

I actually bought a rental house almost a year ago with this very similar situation. They were paying month to month, no security deposit and I let the house closing be like that.

I trusted the current tenants since they've been living there for more than 4 years. 3 months later they gave me headaches until finally they moved out. Took few months also before they got out of the house. They need 90 days notice after living there over a year per local laws.


Didn't pay 2-3 months rent, garbage everywhere, it was awful. I paid about $500 just to clean their left behind.

Lessons learned, don't assume put everything in writing and think about your move long and hard and don't always bank on your emotion and treat it as business to protect yourself and your assets.

My friend has been doing rentals for almost 20yrs and paid off the quadruplex last month. But he still got some deadbeat tenants..guess what... He assumed, thinking he knows the friend of the tenant. He bailed out and owed him $2k..didn't get a dime.

I have a few rentals currently and want to get some more...it's a lot of work and stress, but very rewarding as well. The rental house that I renovated increased 2-3 fold in value in a year's time if I sell it at today's market.

If you have time and money and still young, I'd say go for it. If the price is really really good and you're handy.

[mjimport]

I won't let a few unknowns keep me from going after something, but I will learn more than I ever need to know about the industry as I move forward.

Heck, I never thought I would be living in central PA in the industry I am in, but I saw an opportunity, with plenty of risk attached, and jumped in. By God's grace, it paid off tremendously.

Thanks for all the advice!

Edit: This reminded me of a Richard Branson quote:
"If someone offers you an opportunity you're not sure how to carry out, say yes, and figure out how to do it later"

[TimeMachinE30]

If this was easy, everyone would be doing it. Find a mentor. Know the laws. I can tell you PA tenant and rental laws and the courts overseeing them are very favorable to the tenant, paying or not.

There are folks living in foreclosures or rentals that are current or never plan to be. They are buying time in a free house.

As a starter, don't let a deadbeat who knows the law, the game, the swing of the courts better than you do.

[Kershaw]

No one can know better than you can in that situation. And at the end of the day, it's your decision that you have to live with. I would collect the security deposits from the current land owner, not the tenants. Lol.

It sounds like you REALLY need to read up on PA tenant law.

[mjimport]

so it turns out the deal is at least financially feasible for me to buy this property.

One catch is that we have been told the current landlord has no annual lease contracts for the tenants, they pay month to month. On that note, now I'm wondering if he even collected security deposits.
I see this as a significant risk, but do you think that is a deal breaker? How easy do you think it would be to implement an annual, or at least 6 month commitments from the tenants? Is it possible to retroactively collect security deposits?
One tenant has been there for over a decade, not sure how she would react to a new landlord with new requirements.

[jrossowvue30]

For now I'm just looking at a rental that is just about to come onto market to create cash flow but buying via mortgage (80% most likely) and it already has 2 of 3 units rented out.
It seems like a good way to create consistent cash flow considring how dry the market is in my area right now. It seems there are way too many realtors and not enough sales, especially homes over 200k, and people are sitting for months or even years on 300k homes.

That's the exact opposite of how it is here. We are seeing a serious lack of inventory in any price range so nothing is sitting on the market, many are going multiple offer during the first weekend if its a good house.

The people I know who are in the rental game say it is all about how many units you have, nobody is getting rich off of one or two rentals. At the same time, more units can also mean more headaches. It is nice to have multiple units in one property because as long as you don't have all three sitting empty you'll still get some cash coming in, if you can consistently keep all three rented then you're hopefully you'd really be bringing it in.

[flyboyx]

that doesn't bode well for the flipping program. sounds like the market in michigan. if the numbers work, i say do it. hopefully, once the bills are paid every month, you can make a profit of 200+ on each unit.

[mjimport]

For now I'm just looking at a rental that is just about to come onto market to create cash flow but buying via mortgage (80% most likely) and it already has 2 of 3 units rented out.
It seems like a good way to create consistent cash flow considring how dry the market is in my area right now. It seems there are way too many realtors and not enough sales, especially homes over 200k, and people are sitting for months or even years on 300k homes.

[jrossowvue30]

What types of houses are you looking to buy? Are you planning to buy fixers or turnkey? What types of renters are you looking to rent to? How long term do you plan to hold your properties? Cash or mortgage?

I have experience with both buy and hold and fix and flip. I am also a Realtor and I do more business for myself and other investors than I do normal "retail" home sales.

I am a flipper only because I am all cash and I need to sell the current one to buy the next one. I'm also a little different than most because I am in a much lower price range, I buy in the "bad" areas or areas that haven't quite turned around yet. I buy at rock bottom knowing I'll need to do a lot of rehab but set my budget accordingly. I buy very cheap, do a quality budget rehab then sell at a cheaper price point. I know going in that I'm only going to make $20k-40k per flip and I am fine with that, I do not go overboard on the rehab and keep my costs down. My target buyers are either investors who look to add a quality house to their portfolio and plan to rent to low income families (section 8 is like gold in my city) or first time home buyers who don't qualify for big mortgages. My city has a big problem with housing projects and has been trying to eliminate them so many non-profits have stepped up and created programs to help buyers move from low income hosing projects to home ownership, my houses fit right in that target group both price point and location. My city also has a huge hipster population who love to live in the seedy areas so my flips are also perfect for them.

One website that I have found that is dedicated to real estate investing is a site called https://www.biggerpockets.com/. It has a forum style format where you can ask questions and others can respond. There are also city/area subforums if you live or are working in an active enough area. I am not active on the site but it often pops up when I google investment related questions regarding my area. The community seems to be made up of mostly investors and real estate agents that work with investors. One thing I have noticed in my area at least is that there seem to be some wholesalers on there who post their properties up for sale on the site. Maybe if I took the time to sign up and explore the site I could explain it a little better but there is probably a good wealth of information on that site if you dig around it.

I also search craigslist in the real estate section. If you know what you're looking for you can sift through the bullshit postings to find some good candidates. Yes some of the houses posted there are the same as the ones in MLS but many investors just FSBO their properties when looking to liquidate and they post them all over craigslist, in my area at least.

As for having all of your money tied up in holding a house to rent. If you are buying cash you can always borrow against the house or take out a home equity line. I have an investor friend who I work with and he buys all cash then after he closes he turns around and takes out the equity line on the property. That is nice because he has the money sitting there waiting when he needs it. He adds two rentals to his portfolio a year and does very well on cash flow. This is also his only job and he himself can do any renovations or updates the properties might need. If I had the kind of cash he has I'd be doing more buy and holds.