Under contract for our first property!

[Angela Smith]

My husband and I are going to be landlords!  We've chatted about this over the years, but over the last year we resolved to either make a purchase or give up the dream.

We made an offer on our first property yesterday and today it was accepted.  We are both a bit stunned because we felt like we made a very low offer and did not expect it to go through.  So, now while pleased that we got it, we are wondering what comes next.

We own our home, so we understand the process of financing this.  We are putting 20% down and getting a conventional mortgage.  But, we don't have a lease written up, we don't know how to go about screening potential tenants and what standards we need to consider.  How do you run a credit and background check?

Do we need to put this in a LLC, and how would we do that?

How should we collect rent?  

How do we organize the finances for this property?   we will keep an emergency fund available for things that come up, but is expect we should separate this from our personal accounts.

Oh my, I don't want to be in over our heads.  We need an education and we need it quick!

[Greg Scott]

Angela:

Congrats on going farther than 95% of the general public in your financial education.  

First comment, don't panic.  Just keep moving foward and learning as much as you can.  If you do, you will be fine.

If your offer was just accepted, you are still probably 45 days or so away from having to answer all the screening questions.  There are lots of resources on BP.  I can share with you some others if you message me.

Regarding LLC vs. no LLC, you are probably going to have to close in your personal name, given you have a conventional mortgage. Because you only have 20% equit in the property, you will not be a target for any kind of lawsuit so do not freak out.  Most important thing at this time is get good insurance.  I like at least $500K liability.  From there you can evaluate going the LLC route or getting a larger umbrella insurance policy.  I've don both, but ended up doing the latter more often.

Regardless of whether you choose LLC or to keep it in your personal name, keep a separate bank account and track financials separately for the property. That will allow you to correctly do your taxes. With one property you can probably track via spreadsheet but better to use an accounting package. If you don't have one already, get a CPA for help with taxes. They will probably save you more in taxes than they cost you in fees.

Good luck on our new journey!