I Inherited Properties! How do I start? LLC? HELOC? CPA?

Question

Hey Everyone I'm 24 years old trying to figure out REI. I figured after searching through forums on BP I'd ask some of my personal questions.

My father passed away unexpectedly and my mother, brother, and I inherited the properties. (Some People Suggest Not To Invest With Family Members But My Brother and I know Our Goals) The properties consist of 2 land properties, 5 mobile homes, and 1 house. Everything is paid off.

My Goal is to take on my mothers expenses and getting her a new SUV with these properties. I love how versatile REI and would love to grow this family portfolio. House hacking best suits my personality but would love to branch into BRRRR

One idea my brother suggested  is to quit claim the properties onto a LLC have the reported rental income pay us back at the end of the year.

I had an idea on opening a HELOC from my mothers primary residence (House) and using the credit on repair cost on the 5 mobile homes and rent them at fair market price. Have those rental homes pay back the HELOC.

I'm also very new to all this such as dealing with upcoming tenants and becoming a landlord especially on how to do taxes in rental income and how to provide the income gains and expenses. What are the best ways to keep up with it with or without a CPA? If i choose to go with a CPA i would love to make it easier on them when tax season come around.

I work at a beach service job that shows my income (I've just been there for 18 months) I have 15,000 in liquid cash

Getting loans is difficult for homes when i need to show at least 2 years worth of income and i want to know how i can use these properties to show net income and help show more income than just a w2.

Any Advice is greatly appreciated.

Tyler Fontaine · Answer

First off, i'm sorry for your loss. That's super tough. I hope you and your family stay blessed.

Lots of moving parts here. So first you have to talk to the attorney handling everything and see if the houses are in probate. If they are you will still be able to inherit the properties but it's going to take longer to get things properly thought the court system and such.

Next get with your attorney and see what vehicle will be best to move the assets into for you to make money, share ownerships, attain loans etc. Could be a trust, an LLC/multiple LLC's, and so on. Make sure you set it up right if you and your brother will be receiving proceeds. You can also involve an accountant/book keeper on this so you can get paid, minimize your tax burdens, and keep money in the business... also be sure to talk to your attorney about the quit claim deed. Those types of deeds do not protect the "new owner" if there is a cloud on the deed of any kind. Be sure that is not the case if you choose to go that route.

A heloc is a great tool if you can have access to it in order to do the updates needed. Your immediate primary goal should be to stabilize these assets and get top gross rents asap. Then you should use the funds/loans/what ever you can get to try and grow the portfolio with what you have. Next would come the SUV for the mom. Make sure you can grow and also then use the cashflow for liabilities as a bonus.

If you're new to dealing with tenants you will want to become friends with an investor who is who can help guide you. Also, a property management company is very much worth considering. How ever you do it, remember this is a business. Treat people fairly, make the tough calls, don't get too emotional. Tenants will try to make you feel bad, skirt standards, and etc. Don't play that game. Be firm but fair.

In terms of your accounting... don't play hero and do it yourself unless you TRULY know what to do. Get a book keeper to organize all the monies in, monies out, monies to the business, monies to you and your family, personal funds versus business funds. Then get a good accountant. They will make sure you save the most and mitigate errors.

Another benefit to doing this is that your money in the "paper world" - what shows on taxes, in-flows/out-flows on a P&L, balance sheets - will all be in order. This will make it much easier to attain loans through an LLC or even personally once you have control over the units.

Henry Clark · Answer

As @Taylor L. mentioned you should sit tight for a year.   Let the situation settle, before taking any financial actions. Unless you own the lots where the trailers are , I would also recommend selling them.  If you own the lots keep them.   The lot rental is where the income is in mobile homes.

Sorry for your fathers loss, but because of that here are some thoughts.  Your brother and you are in the wealth accumulation stage.   Your mother is probably at the beginning of the protection stage. Don’t know your families situation.  Either way recommend you don’t tie her to you and your brothers financial decisions. If you’re going to keep property with your brother recommend you do that within an LLC.  They will have Operating agreements to address whatever you want.   You need to understand one of you will get divorced or married.  There might be a death.   One of you might choose to go a different route.   Set up the operating agreement to decide how to get out.   Don’t do that later.  What if one of you is in a wreck or coma?  Make the operating agreements to address these life situations.

Talk with your tax accountant.  If your mother or whoever owns the house has lived there 2 years as their primary residence out of 5 you pay no taxes.   Also talk with your tax accountant about stepped up basis on the mobile homes and land for your fathers portion.  Recommend you capture that value now versus later.

On the two pieces of land please describe.  There is a lot you can do with land.

Great job saving up the cash.   That habit is more important than anything you can learn on BP.

Taylor L. · Answer

I'm sorry for your loss.

I would be incredibly slow to take on any new debt until you get your bearings on being a property owner. Particularly debt secured by someone's primary residence. Personally, I would rather sell the mobile homes and invest in stick built properties.

As far as maintaining your books goes, start with an accounting software like Quickbooks. There are many options, that's just one example. The more you can track & document your income and expenses, the easier your taxes will be when the time comes.

Mohammed Rahman · Answer

Hey @Anthony Alvarez - I'm glad to see you're stepping up and taking this head on, condolences to you and your family.

Based on what you're describing, my recommendation would be to wait at least 8 months before pulling the trigger on anything. I say that because you'll need a few months for the "dust to settle" to get a clearer lay of the land in terms of what work is needed, what financing options are, etc.

For example, you might find out after 8 months that you actually don't need to put in as much money as you thought into the repairs of the mobile homes. I understand that you've maybe been around your father's properties in the past and have a good idea on what to do, but being directly responsible for tenants and homes is different than being around it.

Give it some time, you'll come across a lot of opinions and options in the meantime.

Andrew Garcia · Answer

Hi @Anthony Alvarez, first of all, I am sorry for your loss.

As for your strategy, a HELOC is a good option to fix up the properties and then refinance them to pay off the HELOC and get some cash to buy that SUV.

You mentioned house hacking and BRRRRs but you can do both. You do not have to choose one or the other. House hacking does not take much upfront capital so you can pursue both options.

When it comes to accounting, I would hire a CPA. They can give you tips on how to make it easier on them but staying organized will help tremendously.

Since you have only been at your job for 18 months, you could pursue an option that does not take your personal income into account. For example, a DSCR loan. This is a loan where the income of the property is used to qualify rather than personal income.

Hope this helps! Let me know if I can be of any assistance.

I Inherited Properties! How do I start? LLC? HELOC? CPA?

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