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Updated over 6 years ago, 05/05/2018
What happens to mortgage interest deduction in an LLC
Hey guys, looking to do my first deal and may need to partner with some friends (4 of us) to do it. I was thinking putting the property in an LLC would be the best bet to protect everyone's assets. One thing puzzles me though, I realize I usually don't consider the mortgage interest deduction and Depreciation expense when evaluating properties but these are huge aids in wealth building. What happens to these when you invest through an LLC.
For context I am looking at a $99K condo right now that would cashflow about $244 after expenses of 275 including HOA fees and mortgage of 401 a month for 30 years after a 20% down payment. I can provide more details if that would help you guys answering my question and feel free to weigh in on whether an LLC is an appropriate structuring for such a small partnership.
Pro forma below, column 2 is 12 month while column 1 is one month. The formula for Mortgage payment just copies last years monthly payment unless I put in a new purchase price (signifying a refinance) at the top of the column so the $401 a month payment in column 2 is accurate.
| Purchase | 99,000 | |
| Downpayment | 20% | 20% |
| Finance Amount | $ 79,200 | $ - |
| Downpayment amount | $19,800 | $0 |
| interest rate | 4.50% | 5.75% |
| Mortgage(years) | 30 | 30 |
| Mortgage Payment | $ 401 | $ 401 |
| $ 4,815.54 | ||
| Vacancy Rate | 8% | 8% |
| Time Period | 0 | |
| Income | Monthly | |
| PGI | $ 1,000 | $ 12,000 |
| Vacancy Rate of 0.08 | $ 80 | $ 960 |
| EGI | $ 920 | $ 11,040 |
| Miscellaneous | $ - | |
| Income | $ 920 | $ 11,040 |
| $ - | ||
| Expenses | ||
| Property Taxes | $ 56 | $ 671 |
| Water and sewer | $ - | $ - |
| Property manager | $ - | |
| Maintenance and repairs | $ - | |
| Insurance | $ 20 | $ 240 |
| Elevator service contract | $ - | |
| HOA fees | $ 155 | $ 1,860 |
| Electrical | $ - | |
| Fuel | $ - | $ - |
| Capital expenditures | $ 44 | $ 528 |
| Total Expenses | $ 275 | $ 3,299 |
| NOI | $ 645 | $ 7,741 |
| Debt Service | $ 401 | $ 4,815.54 |
| Net Income | $ 244 | $ 2,925 |
| YOY increase in net income | ||
| PV | $ 2,925 | |
| Present Value of all CF | $ 81,919 | |
| Acquisition Cost | $ 23,760 | |
| NPV | $ 58,159 | |
| Return | ||
| Cap rate | 2.96% | |
| Multifamily (5 Units+ Value) | $ 58,509 | |
| Cash on cash return | 12.31% |