How to pull Equity from Inherited Rental Properties

Question

One probate ends I will inherit 10 rental properties i was not involved with (2 are just land) in a small SC town and all are paid for. Since I am just starting myself, should I just group them all under one LLC (Under a Holding) and try to get a secure loan for the value all together (Last appraised 2019 $550K) if there is such a thing? Will Just need to get an equity loan on each property? Most need anywhere from $10-$20K put into them to upgrade and raise the rent. My dad was the type to tell these tenants to fix stuff nd he would take it out of their rent, and you can guess they never fixed anything. I live in South Florida, and my first property (townhouse) I do rent, but because my wife and I generate a large combined income (over $200K that' why I think I need the LLCs to keep down the taxes. I got off track. :) my general questions is about an equity loan, since they are paid off, I don't see that I need to refi at this point.

Kirkland Kearse · Answer

Thanks for the reply. I just got the Probate closure notice two weeks go. I was wondering but I did not know if I could sell them with no capitol gains. @Bill Brandt I will need to research that more. What attorneys presented to the Court was a total value in excess of $750K but that included three lots, and they did not do an appraisal, they just used the county assed value. The most expensive house it the house the house i grew up in which is a large ranch. But because of the proximity to he hospital and interstate, I am planning to fix it up and lease to traveling nurses. There are a couple in some spots I think I want to get rid of to pay off most of our stupid debt between my wife and I because our W2 puts us over $200k. The the ones that do not have tenants I want to fix and rent. Since i am not inheriting mortgages I could stand to sell a couple. Thanks Mr. Postell. Now that probate is done, i will spending a little more time here with calculators especially ARV, and looking for a CPA versed in real estate investing.

Bill B. · Answer

The llc wont lower taxes. If these are not the rentals you would buy from scratch, sell them. This is your one chance to sell tax free. If you’re in a high income tax bracket that’s a big plus, especially if you or the properties are in a state with income tax.Then you have cash to buy anything/anywhere you want. GL.

Andrew Postell · Answer

@Kirkland Kearse there's several "nuances" here that might affect what you can do. So if the properties are smaller valued properties (which is sounds like if all 10 together are worth $550k) then some lenders may not be able to provide a loan on each individual property. Meaning, you might be forced to get a "blanket" loan that covers several properties. It also might depend on how much renovation work is needed, if some don't need renovations, the property type (single family home vs. mobile home, etc.), and so forth. Some lenders might want to exclude the land entirely. So lots of different variables but in essence you SHOULD be able to get some type of a loan here.Some things I would suggest to gather on the homes:1. The "After Repair Value" on each home2. The type of home (single family/duplex/etc)3. What the current rent of the property is vs. what the "fair market" rent would be if repaired4. Which properties need repair and how much repair is neededThat will at least get you a starting point to talk with lenders on. Meaning, if the ARV of the property is $50k...vs $150k....you'll have different responses from lenders. So knowing that amount should help. Also, as suggested above the taxes will be mostly inconsequential here. We write off so many things as investment property people that it's very rare for you to pay taxes at all on rental properties. That's almost an entirely separate discussion but you can read a post I wrote on that topic HERE. I've included a quick screenshot of an actual tax return where someone received $30,000 in rent (line 3)....but only had $50 in tax liability (line 24). Hope all of this helps!

John Herold · Answer

If you can find it, given the amount of capex for each home, I would initially go with a fix & flip portfolio loan and then either sell or refinance into a long-term rental portfolio loan. The challenge will be finding a lender ok with low values, as many have minimum values per home and minimum amounts for the portfolio loan amount.

Isaac S. · Answer

Listen to @Bill Brandt I agree with him and believe he is correct, as long as there's no inside information or advantage you have with these specific properties that could have a material impact on their appreciation, that would be more advantageous than investing in the very specific location and asset class/type of your choosing.Best of luck and be sure to consult a tax professional in your state.