House Hacking - Newbie

[Brian Edwards]

Hi Everyone!

Hope this message finds you well.

I recently closed and moved into my 3 Bed/2.5 Bath SFR in Alpharetta, Ga (Northern Suburb of Atlanta). My goal is to house hack, aggressively save and live in it for 2-3 years before leveling up to a 4-8 unit.

I will be renting out the master bedroom and the other bedroom to get as close to the mortgage payment as possible ($1,650). I used a 3% down conventional loan.

I have 2 questions and would love some guidance:

1) Do I need an LLC to report rental income?

- You hear LLC all over the place and I know in some cases they aren't necessary. I own the house in my name and have insurance.

2) Dependent on #1, are there considerations if the income is not consistent in terms of structuring the leases. (Ex: Master is rented out for 9 out of 12 months of the year (some vacancy) and the other bedroom is rented all 12 months of the year. I've heard of the House Hacker (Me) renting the house from "Example LLC" and House Hacker (Me) subletting to the tenants.

I appreciate any and all input! I’ve been a BP Podcast junkie for years now and love the community.

TL;DR: Do you need an LLC for House Hacking? How do you report House Hacking Income?

[Suzanne Player]

Hi Brian

The IRS will want you to report all your taxable income regardless of whether you put your property in an LLC or have it in your own name as an individual. A tax professional can help you with legal deductions you may be entitled to.

But I can't give you legal or tax advice here, you do need to invest the time & some money in getting professionals on your team, especially at this important stage.  They will be able to give you the correct advice tailored to your specific situation (your state & local laws, income bracket, terms of your leases, etc will affect you in unique ways).  It will probably not be cost prohibitive, talk to several professionals in each area  (tax, landlord tenant, real property).  Good advisors will want to establish long term relationships with you and should be ready & willing to answer detailed questions about their fees.  Take notes whenever you speak with them, and don't hesitate to ask questions until you understand what they're telling you.  

It's not easy to spend money on qualified advice when cash is short - but it can help you avoid making some very expensive mistakes.  What is overwhelming in the beginning often gets easier as your knowledge and experience grow.

Good Luck