All Forum Posts by: Adam Bontrager

@Cailyn Aune

You can absolutely deduct expenses without an LLC!

There's literally thousands of sole proprietors in the US operating a business without a separate legal entity.  Just make sure you document any business related expenses.  I would definitely advise hiring a CPA to help you with your taxes, though.  Once you add business income and expenses into your tax return, it's not as straight forward.  A CPA will likely help you get additional tax benefits you might not think of on your own.  Definitely worth the money.

@AL Brown

Welcome to BP!

Your best option is to talk to a CPA or attorney about your specific situation but I'll give what I know. 

You can set up the LLC a few different ways. The legal protection of the LLC will be pretty much the same however you can change the way the LLC is taxed.

By default, the LLC will be set up as a pass through entity, meaning that all profits will be passed through to the owner's tax returns whether or not they actually take any money from the business. As a pass through, you can either have a single-member LLC (which, I believe, is what @Andrea Castor is referring to) or a multi-member LLC which will essentially be taxed as a partnership.

Alternatively, you can elect to be taxed as a corporation.  There are a number of reasons for doing this the main one being that it allows you to lower self-employment taxes.  However, the specifics are beyond the scope of this forum.  

There's actually a brand new BP book on this subject (among others).  Check out The Book on Tax Strategies for the Savvy Real Estate Investor.

@Tim Richardson 

Congrats, you're in a great position to get started in real estate.  And you're doing better than many people by simply asking questions before diving in.

You have the option of buying a multiplex as some have mentioned or you could buy several SFRs.  The nice thing about SFRs is that you can add them one at a time as you get comfortable and learn more.  It's easier to scale up and down with SFRs than with a multiplex when you're just starting out.  With multis, you have to add units in large chunks.

@Thomas S. 

While your statement about SFRs rarely having positive cash may be true of your market, but I wouldn't make a blanket statement like that. In the Cleveland market where I'm at, cash flow of $200+ is fairly common on a SFR.

Feel free to contact me with any questions.  I'm happy to help.

@Jorge Ruiz

Definitely go the route of mailing letters.  Homeowners facing foreclosure are very sensitive on the subject and showing up on their doorstep is probably not going to end well for you.  At best, the homeowner will likely be defensive and irritated.  At worst...

Send them a letter (perhaps several over a period of time) and let them reach out to you.

Also, a good piece of advice I heard recently on the BP podcast - show the homeowner how you can help them.  They're interested in what you can do for them.

@Rick Alvi

Here's my personal viewpoint and strategy on student loans.

I would prefer to pay the minimum back on student loans while saving and investing in real estate.  Average interest rates on student loans are what - 4% to 6%?  You'll be hard pressed to get an interest rate that good on a commercial loan when you're just starting.  Use that loan as leverage.  Rather than paying it back immediately, put that money into an investment where your returns will be greater than the interest on the loan.  

I chose to finance my college costs using student loans rather than paying cash and instead invested my cash in assets where I knew I could get a 10-15% return.  So I essentially have a loan with a 4% interest rate to leverage my investments.

@Zeke Marshall welcome to the BP community!

I think @Bryan O. summed up your options pretty well.  I disagree slightly with the "no equity in turnkey" bit though.  True, you generally pay a bit of a premium for a property that cash flows from day 1 but a good turnkey product should still have some built in equity.  

If you're looking for the least amount of hassle and headache possible, I would suggest finding a reputable turnkey company that also does property management and going that route.

@Cristina Zulaica

You'll generally want to process the applications in the order they were received.  Once you have an application that meets your criteria, you can notify the applicant and schedule them to bring their deposit and sign the lease.  

There's no benefit to you or the other applicants to continue showing the house.  You simply call them and let them know that the house has been rented.  If you have other vacant rentals, this is a great time to offer to show them one of your other similar properties.

My finance professor used to say that when dealing with financial ratios, you'll often have to hit the it depends button.  I'm asserting that now.

Every market and asset class will be different.  The Austin market will be different from the Cleveland market.  

You really need to define what market you're looking at before looking at the ROA.

With that being said, IMO, the best rental areas should have ROA of 6 to 14 percent.  Not an absolute rule but go any lower than that and you're likely looking at an overpriced market (unless you're majorly in the appreciation game).  Any higher than that and I'd be concerned that you might be in a war zone area (you'll get a whole new set of problems there).

Hello @Jorge Ruiz

Points refer to the origination fees paid on loans (hard money/mortgage/etc) at the time of origination, whereas the interest rate refers to the annual cost of the financing.  Each point is equal to 1% of the loan amount.

E.g. assume you're getting a hard money loan of $100k with a 12% interest rate and 5 points.  You'll initially have origination fees of 5% (5 points).  These fees will generally be due up front unless they're somehow rolled into the hard money loan.  After this 5% fee, you'll have the regular 12% interest to pay (most likely on a monthly basis until the loan is paid back).

Hope that's helpful.

@Dave Meyer

The BiggerPockets team is phenomenal.  So congratulations, you're in the company of some really great people!

This data is crazy!  I can't wait to see where BP goes in the next few years.