Just bought my first Duplex. Now what?

Question

It's incredible how many videos, tutorials, webinars, and the like are primarily about "buying your first property" or " how to get out of analysis paralysis", but don't really go into much else.

Now that I bought my first duplex with 100% tenant occupation, what now? All the various information seems contradictory and very poorly pieced together. Perhaps I have not found the right outlets for such information.

Situation: I live in Florida and my first purchase (duplex) is in Florida as well.

I first created and opened my LLC. Then opened up a checking and savings account under the new LLC. However, I did have the duplex under contract before I opened up the LLC checking and savings account and had them funded with capital, so I paid the 5k escrow with a personal check. I was then advised to put the duplex in my name along with my wife to help with the cash-out refinance/mortgage. Once that occurs, I can then put the duplex in the LLC. (this is just what I was advised, not sure if accurate)

Paid cash for the duplex. I've reached out to a few mortgage companies, including Mr. Greenee's and others, with scheduled calls set for this week and next. Any other recommendations would be appreciated. I sold my staffing company two years ago to start investing in real estate and my wife has a W2 job as an RN. (God bless her) We have 800+ credit scores. (but I guess that might actually hurt us these days...?) Once I do get a mortgage, I should never make additional principal payments or attempt to pay it off, correct?

I plan to manage the property myself to learn the process and save some money initially while I get rent up to market rates. One lease ends June 30th the other Sept 30th of this year. Quick question on that, do I need to honor previous leases? Do I need to create a new lease for them to sign under me while honoring the current timeframe and rent?

If you've read this far, thank you. Since I plan to manage myself, I will no longer be using the property management company the previous owner used. They had a system in place that allowed for online payment, work orders, etc. After some research, I decided to go with RentRedi initially just to get a basic system in place for the tenants to be able to pay the rent online and submit work orders and upload lease agreements. (I just got the basic plan, no accounting module included)

I'll have all of the operating expenses now company out of the company checking account and rents collected deposited in those accounts while any security deposits will be placed in the company savings account. ( Or at least this is my plan, but I need advice on how or what to change here)

I'm trying to now "build my team" but that is turning out to be much harder than I expected. I've reached out to, filled out online requests, and called on at least 8 CPA firms, none of which have called me back. ( maybe because Tax season is still dragging on?)

What type of accounting software should I be using? Am I supposed to keep 2 sets of books? One for the LLC and one for the rental expenditures/repairs etc. I see that most of the landlord software has accounting built in, but I noticed that is primarily for the recording of income and expenses for the individual properties. But what about transactions that occur within my LLC? And understand more about the tax advantages I can take regarding using personal home office expenses, cell phones, and other expenses I can now put through the LLC.

I've also tried to reach out to a few real estate attorneys just to try to start developing a relationship to see if they are a good fit for future business transactions and advice. No one seems to want to give me the time of day or they are some online "wham bam here's your generic lease agreement, that will be $45, goodbye" or "if you have a question, you can email our attorney and they will get back to you in a few weeks.." I don't mind and fully expect to pay for their time. Not trying to get free advice, but an initial consultation would be nice.

It seems there are so many people who barely brush on this and I've heard so many contradictory statements, it's been very difficult to understand what's right.

If anyone actually reads this whole thing, thank you so much. I need your help, recommendations, and anything you might be willing to provide. I plan to keep the rental train going. My goal is to own 10 doors by the end of the year and try to get bigger with each purchase.

Thank you.

Aj Parikh · Answer

Hi David, One of the easiest ways of scaling in real estate today is to invest in turnkey properties out of state. If you have a busy 9-5 routine but have the money to get started and don't have enough time, turnkey companies provide some of the best resources to scale your portfolio. I have used that strategy so feel free to reach out if you want to discuss.

Ash Hegde · Answer

DSCR loans are more expensive (rate and fees) than conventional but they do have some advantages mentioned. You can do one in an LLC, the seasoning period can be shorter (3 months - I have heard of even shorter but do not have a lender that does), and it ignores your personal income - relying on the rents vs mortgage payment to qualify instead. If you are looking to expand your portfolio, you generally don't want to make additional principal payments, as you'll want that cash to go towards the next investment.

Adam Bartomeo · Answer

You will probably want to wait at least 6 months before refinancing due to the seasoning requirements. You will want to ensure that you do not over leverage with the loan amount since most multifamily in FL is overvalued and if refinanced at the max appraised price it doesn't cashflow. It sounds like you do a good amount of research and don't want to make any mistakes. This is a great characteristic and I would advise finding a partner that is experienced and will fill in your gaps.

Robin Simon · Answer

Yup - one of the big advantages of DSCR over conventional is being able to use LLC typically no problem

Kimberly Elson · Answer

Depends on your finance strategy- a brand new LLC with no income history won’t get approved for a conventional loan. DSCR may work. I’d get with a mortgage broker before making the decision whether the transfer or loan should come first in your case

David Sandow · Answer

@Bryan Harman Thanks for the info, bud! I'd like to keep the investment train going a long as I can, so I like the idea of being able to get that next downpayment ready to roll. But the put an extra $100 on the mortgage might be the middle ground to go with. I was a Ramsey disciple a while back, and quite frankly, I owe it to his baby steps that put me in the position I am today. But, I feel I've graduated from the "all debt is bad debt" class and moved on to smart real estate inventment, but within reason. Thanks again!

Kimberly Elson · Answer

Congrats on your first purchase!Yes, you have to honor the current leases. You can use your own if/ when you resign after the current ones expire in June/ September. When the management company transfers deposits etc to you make sure you notice the tenants on new contact info, where the deposit is kept (FL requirement), how to pay rent etc. Also, make sure you read the current terms so you don’t end up with automatic renewals for not giving notice in time. In Florida you are required to keep the tenants security deposit in a separate, non interest bearing account. Read up on the process of returning and/ or putting a claim against it or you may end up owing the tenants. If you plan on having a mortgage in your personal name it will be more difficult to hold title to the property in an LLC. Do your research on what the lender will allow when shopping refis. Most do not allow the transfer, and if you find a lender that does make sure that the mortgage you are obtaining isn’t going to be sold before your first payment to a bank that will deny the transfer. The only property I’ve been able to do that with currently is financed with flagstar bank. NOLO- every landlords legal guide is a great book that was recommended to me on here, I suggest obtaining a copy.Good luck!

Bryan H. · Answer

Hey David, glad to see you started on our journey. You have a ton of questions and that is okay. I had some of the same questions myself when I started. I will start by saying I at one point worked in personal finance but am no longer working in finance and am not licensed. Let's start with your question about extra payments on your duplex. There is no right answer to this question. Everything depends on risk tolerance. I will give you the main options you have here. First and the safest or the Dave Ramsy way as I call it is to make sure you have 3-6 months of expenses for the property saved up then pay as much of your mortgage down as possible as quickly as possible. This is the mindset of my parents and grandparents. This is great for older people who are wanting a very low possibility of losing the property due to an inability to rent out your property. The problem arises with opportunity cost. Every dollar you put into that mortgage is a dollar that you can't put into the down payment of your next property. On a fully paid-off house, you may get 10 cents on the dollar unlike if you only put 20% down on a mortgage even after the mortgage expense you may get 33-50 cents on the dollar. The second option is the middle ground. Pay your mortgage every month and put $100 dollars extra away to knock down that mortgage. You will pay it off faster in the long run but again the opportunity costs of that extra $1.2k per year that could be reinvested in another property. With the reminder of the cash flow put it in a savings account and wait for the next property. The third option would be the riskiest but most profitable. Pay your mortgage and take the rest of the cash and save it for the next down payment and as your rentals grow so does the ability to get a down payment faster and faster. This is the option that I choose but I am in my early 20's and have nothing to lose. The risk vs the reward makes sense to me. If I was retired and did not have any W-2 or 1099 income I would lean in the other direction as now I have responsibilities like children my partner with the potential of ever-increasing health care costs. There is so much more I could cover but it would take me hours to type. I hope this helped and if anyone has any direct questions I am more than happy to respond with the knowledge I have.

Adrian Castillo · Answer

David, let's connect I have a team that's able and willing to help out. I'm local in TPA!

David Sandow · Answer

@Kimberly Elson Thank you!