Turning a Primary Residence into a Rental

[Juan Perez]

Greetings,

My first home was paid off over a year ago, and I am now living in my recently purchased 2nd home. I have been renting out the first home to a family member under no official contract, but i want to establish it as an investment property. My plan for this year is to remodel and upgrade the house to then put it to cashflow either via short/long term rental. My long term goal is to have multiple rental properties.

My questions are: What would be the ideal steps to take with this house? Will it make sense to establish an LLC? Should i invest in remodel/upgrades while it is still in my personal name, or is it better to do it under an LLC? Are there any tax advantages in doing it one way or the other?

I appreciate your time and advice!

Juan

[Donald Hatter]

Juan,

A couple of thoughts.  I would always have a lease agreement no matter whom you rent to.  It could be helpful to you (lenders will want to see lease agreements) and it is good for the family member (they actually could do a program where them paying rent increases credit).  In terms of renovations it really doesn't matter much from a tax perspective.

The bigger question is what are your specific investment goals? Please do yourself a favor and have them written out.  I find the best way to make money is to use your goals to create a math problem.  Once that is done, then you can just solve the problem. For example, two of my goals are to achieve a certain percentage for my IRR (internal rate of return), and a certain % for my cash on cash return.  Once you know exactly what you are looking for it becomes easier to figure out the best way to achieve your goals.

Just my three cents worth