All Cash vs DSCR Loan / Personal Name vs Ohio LLC

Cleveland, Ohio
General Real Estate Investing
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All Cash vs DSCR Loan / Personal Name vs Ohio LLC

Henry Bagh
Member since 2023 · 19 posts · 9 votes

Hello, 

I live in Los Angeles and I am pretty liquid. This is a two part question and I hope someone can guide me in the right direction. 

1) I am looking to buy Single Family Homes in Cleveland, OH to rent to Section 8. With average price of $70-$85k, I am considering either buying 10+ all cash or by using DSCR loans. With interest rates at an all time high, I am wondering if I should buy all cash at the moment, wait until rates go down, and refinance OR should I just jump into DSCR loans immediately so that instead of i.e. 10 units, I can get i.e. 30 units instead with less down.

On a $75k purchase, an 8% interest rate vs a 5% interest rate isn't much difference, so I'm leaning towards DSCR loan vs my own money. However, I've spoken to a lot of lenders and closing costs end up being like $4-5k (which is a big chunk of a $75k purchase). Any advice on which way to go with this?

2) On the legal side, since I live in Los Angeles, I don't know how to structure property out of state. If I buy in my personal name, I don't have to deal with franchise tax ($800/yr) for an LLC. However, I am opening myself up to risk for lawsuits, etc. And if I have 20 properties in 10 different LLC's, that adds up and kills a lot of rental profits (10 x $800 = $8k/yr).

However, from some pros I've talked to, in order to avoid paying taxes on LLC's out of state as a California resident, I need to open up a Wyoming Statutory Trust, which leads to a Wyoming Holding Company, which leads to each Cleveland LLC. And the quotes I got for setting up these structures is like $10k. Though I have the money to pay for this structure, I am new to investing and I don't want to jump into creating these expensive structures when I'm not even a 100% sure I'm going to scale in Cleveland. Who knows what happens after I buy my first couple rental properties? 


I just want some guidance on how to quickly start, get my feet wet, and make the bigger choices later on, when I start stacking rentals. Im in analysis paralysis and it isn't allowing me to make a decision. Can I just create a quick OHIO LLC, and purchase a property? Do I just buy in my personal name?

Thank you in advance and I apologize for the long post!

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Jason JamesPro Member
Rental Property Investor · Hillsboro, OR · Member since 2018 · 117 posts · 64 votes
3y

@Henry Bagh answer to question 1, it all depends. If the properties make sense and cash flow with DSCR loans, you will be able to leverage it into more properties. If the intent is to avoid the closing cost, remember you will still incur these costs during acquisition and when you go to refinance down the road. On question 2 I would just make a list of LLC/ Trust formation companies (Ex. Anderson & Sons) and have a discovery call. They will be able to guide you in the best direction based off your specific situation. In regards to taking action... just take ACTION. My first rental property was purchased in my name, then my next few in LLC. you can setup a LLC in a quickly as 24 - 48 hours depending on state. Don't let that be the reason holding you back. Lastly, just keep it simple purchase one, go through the process and that will give you a ton of clarity on the next steps!!! Good luck, and I'm looking forward to see your progress!

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  • Remington LymanBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
    3y
    Quote from @Henry Bagh:

    Hello, 

    I live in Los Angeles and I am pretty liquid. This is a two part question and I hope someone can guide me in the right direction. 

    1) I am looking to buy Single Family Homes in Cleveland, OH to rent to Section 8. With average price of $70-$85k, I am considering either buying 10+ all cash or by using DSCR loans. With interest rates at an all time high, I am wondering if I should buy all cash at the moment, wait until rates go down, and refinance OR should I just jump into DSCR loans immediately so that instead of i.e. 10 units, I can get i.e. 30 units instead with less down.

    On a $75k purchase, an 8% interest rate vs a 5% interest rate isn't much difference, so I'm leaning towards DSCR loan vs my own money. However, I've spoken to a lot of lenders and closing costs end up being like $4-5k (which is a big chunk of a $75k purchase). Any advice on which way to go with this?

    2) On the legal side, since I live in Los Angeles, I don't know how to structure property out of state. If I buy in my personal name, I don't have to deal with franchise tax ($800/yr) for an LLC. However, I am opening myself up to risk for lawsuits, etc. And if I have 20 properties in 10 different LLC's, that adds up and kills a lot of rental profits (10 x $800 = $8k/yr).

    However, from some pros I've talked to, in order to avoid paying taxes on LLC's out of state as a California resident, I need to open up a Wyoming Statutory Trust, which leads to a Wyoming Holding Company, which leads to each Cleveland LLC. And the quotes I got for setting up these structures is like $10k. Though I have the money to pay for this structure, I am new to investing and I don't want to jump into creating these expensive structures when I'm not even a 100% sure I'm going to scale in Cleveland. Who knows what happens after I buy my first couple rental properties? 


    I just want some guidance on how to quickly start, get my feet wet, and make the bigger choices later on, when I start stacking rentals. Im in analysis paralysis and it isn't allowing me to make a decision. Can I just create a quick OHIO LLC, and purchase a property? Do I just buy in my personal name?

    Thank you in advance and I apologize for the long post!


     It depends on which lender and loan you are using. I can intro you to some lenders in Ohio

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  • Henry Bagh
    OP
    Member since 2023 · 19 posts · 9 votes
    3y

    @Remington Lyman yes, please

    1Reply
  • Jason JamesPro Member
    Rental Property Investor · Hillsboro, OR · Member since 2018 · 117 posts · 64 votes
    3y

    @Henry Bagh answer to question 1, it all depends. If the properties make sense and cash flow with DSCR loans, you will be able to leverage it into more properties. If the intent is to avoid the closing cost, remember you will still incur these costs during acquisition and when you go to refinance down the road. On question 2 I would just make a list of LLC/ Trust formation companies (Ex. Anderson & Sons) and have a discovery call. They will be able to guide you in the best direction based off your specific situation. In regards to taking action... just take ACTION. My first rental property was purchased in my name, then my next few in LLC. you can setup a LLC in a quickly as 24 - 48 hours depending on state. Don't let that be the reason holding you back. Lastly, just keep it simple purchase one, go through the process and that will give you a ton of clarity on the next steps!!! Good luck, and I'm looking forward to see your progress!

    1Reply
  • Henry Bagh
    OP
    Member since 2023 · 19 posts · 9 votes
    3y

    @Jason James my guy, thank you so much!

    1Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y

    I think you are doing a solid analysis.  One issue that is mostly unavoidable is the closing costs if you choose to finance, since a lot of these costs are fixed and not variable based on the loan amount, so you will inevitably pay what seems like a high amount on closing costs on these low loan balance / property value properties.  You can mitigate somewhat with a Portfolio blanket loan but closing costs (as a percentage of loan) will always be somewhat painful on low loan amounts

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  • Ray Hage
    Investor · Fort Lauderdale, FL · Member since 2020 · 1k+ posts · 755 votes
    3y

    You could try buying them all in cash and then get 1 portfolio loan on them afterwards. I would speak to several lenders first to make sure it is possibke. To get several small loans (conventional investment or DSCR types) will be expensive as there are many fixed costs as others have mentioned making the loans very expensive as % of the property purchase price.

    Regarding LLCs, you may want to just have a PO box in OH and open a LLC there (not sure on the costs of LLCs in OH so definitely talk to someone local for that). CA is ridiculous. I live in Florida where it costs 139/year to maintain the LLC.

    0Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    3y

    Henry as I have mentioned to you several times you are NOT buying anything for 75- 85k. I am not sure where you are getting your info from but its not accurate. 85k with a lot of work sure, but all in 75- 85k, no. Especially if not cash, do not even waste your time.  I know dozens of cash buyers from Ca that have been and still are buying in the Cleveland markets for years. None (well not anymore) are getting props all in 75-85k, not going to happen. 

    Good luck, 

    ) 

    0Reply
  • Alfath AhmedBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2022 · 1k+ posts · 1k+ votes
    3y
    Quote from @Henry Bagh:

    Hello, 

    I live in Los Angeles and I am pretty liquid. This is a two part question and I hope someone can guide me in the right direction. 

    1) I am looking to buy Single Family Homes in Cleveland, OH to rent to Section 8. With average price of $70-$85k, I am considering either buying 10+ all cash or by using DSCR loans. With interest rates at an all time high, I am wondering if I should buy all cash at the moment, wait until rates go down, and refinance OR should I just jump into DSCR loans immediately so that instead of i.e. 10 units, I can get i.e. 30 units instead with less down.

    On a $75k purchase, an 8% interest rate vs a 5% interest rate isn't much difference, so I'm leaning towards DSCR loan vs my own money. However, I've spoken to a lot of lenders and closing costs end up being like $4-5k (which is a big chunk of a $75k purchase). Any advice on which way to go with this?

    2) On the legal side, since I live in Los Angeles, I don't know how to structure property out of state. If I buy in my personal name, I don't have to deal with franchise tax ($800/yr) for an LLC. However, I am opening myself up to risk for lawsuits, etc. And if I have 20 properties in 10 different LLC's, that adds up and kills a lot of rental profits (10 x $800 = $8k/yr).

    However, from some pros I've talked to, in order to avoid paying taxes on LLC's out of state as a California resident, I need to open up a Wyoming Statutory Trust, which leads to a Wyoming Holding Company, which leads to each Cleveland LLC. And the quotes I got for setting up these structures is like $10k. Though I have the money to pay for this structure, I am new to investing and I don't want to jump into creating these expensive structures when I'm not even a 100% sure I'm going to scale in Cleveland. Who knows what happens after I buy my first couple rental properties? 


    I just want some guidance on how to quickly start, get my feet wet, and make the bigger choices later on, when I start stacking rentals. Im in analysis paralysis and it isn't allowing me to make a decision. Can I just create a quick OHIO LLC, and purchase a property? Do I just buy in my personal name?

    Thank you in advance and I apologize for the long post!


    I think you have a great start. I would look into portfolio loans and combine a few properties under a single LLC. So if you own 10 rentals I would possibly go 2-3 properties in an LLC. To reduce your tax burden, you will either need to qualify as a real estate professional and/or do a cost-segregation. I can connect you with the right people.

    [email protected]614-802-5698
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  • Henry Bagh
    OP
    Member since 2023 · 19 posts · 9 votes
    3y

    @Robin Simoni see you are a lender. Would in house financing lender have lower closing costs?

    0Reply
  • Henry Bagh
    OP
    Member since 2023 · 19 posts · 9 votes
    3y

    @Ray Hage thank you!

    0Reply
  • Henry Bagh
    OP
    Member since 2023 · 19 posts · 9 votes
    3y

    @Alfath Ahmed thank you. Yes, can you connect me to those people?

    1Reply
  • Liam Robinson
    Lender · The Woodlands, TX · Member since 2023 · 5 posts · 0 votes
    3y

    @Henry Bagh Agree with the others on part 1 as far as looking at portfolio loan options. And on part 2, look into a Series LLC. Not sure which states have them, but here in TX you can create a Series LLC with as many LLCs under the master LLC and they all roll up for franchise tax and other reporting purposes while maintaining separation of liability for each property.

    0Reply
  • Henry Bagh
    OP
    Member since 2023 · 19 posts · 9 votes
    3y

    @Liam Robinson Thank you!

    0Reply
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