All Forum Posts by: Bill B.

When I switched I simply gave my new PM the power to get me out of my current PM’s agreement. I made no calls and signed no other paperwork. It was done in a day. 

But there will be ZERO protection. You will be personally sued along with your LLC. There is nothing that could happen at your rental that wouldn't be your fault for not preventing, curing, fixing. Buy a simple umbrella policy. WAY cheaper than then thousands if not 10's of thousands in extra interest.

You are adding costs and complications for no benefit at all. If you truly just want your primary paid off you can just do a cash out refi on your investment, still in your own name, and pay off your primary. But this will cost you thousands and thousands in higher interest. (You'll pay higher interest because it's a rental property, and, if you try to do it in a corporation/LLC you'll pay an even higher interest rate.) And again, for no real benefit.

Magnifying glass upper corner. Thsi one is only asked monthly, not weekly. So you may only find 30-40 previous times this question’s been asked. 

The property is worth exactly what it is with zero STR rental income. Especially in a market where 95% of the buyers, and 99% of the highest offers come from owner occupants. And buyers can't borrow $1 more than 75-80% of the comped value of similar non-STR homes. So the rest is all cash out of buyers pocket. DESTROYING COC return.

You'll still be personally responsible for the debt and it will still show up on your credit report/DTI if that's what you're trying to pull off.

You’ll increase your interest rate by 2-5%? Maybe more?

So those are the downsides…what upsides are you imagining happening? Why bother with the LLC? Why borrow against an investment property at a higher rate than you can against your primary?

There’s zero protection by paying it off. In fact you make yourself a bigger target for lawsuits. Did you happen to listen to a podcast or go to a seminar that’s leading you down a stupid path?

Start with why you want to do this. What are you trying to accomplish, what’s the upside to fight all the additional downsides I’ve pointed out?

You have $190,000 in equity earring $7,200/year when there are no repairs and no vacancies. SELL. Even if you didn’t have any crippling debt you could put the $190k in the bank an earn a GUARANTEED $8,550 minimum. Assuming your debt is SUPER cheap and only costs you 12% you’ll save $22,800 TAX FREE  

So the combination is saving $60k at 12% (or more) is $7,200/yr and $130k in the bank at only 4.5% is another $5,850/yr  so you’re over $13k GUARANTEED instead of a chance to make $7,200 before taxes  

A cheap place to get to and stay, with good weather and plenty to do, especially for spouses/family that may be less interested in real estate. I may be partial but seems a pretty obvious top 5 choice. 

I never used it but I would search for a group that has a count of 16. 

Verified reviewers, reviews in the last year (or other time period), verified customers, reviewers with more than x reviews, reviews with more than just stars (written comments)? 

 They might be trying to tell people the number of useful or trustworthy reviews?

See if there are 16 that fall in to one of those categories, or just email them I guess. But I assume one of those is the answer. Leaning towards time related or qualify of review or reviewer. 

Do they not have any equity? Or is your plan to take their equity as your profit? (You said you plan to buy it for the amount of the loan, not the value of the property.). Is so watch out for trip hazzards: if they need government assistance in the future there’s a look back period where the government will want that money. If they are seniors there’s a senior abuse government agency that could get involved. You are converting their tax free gain in to a taxable gain. It’s not an arms length transaction if your wife owns the selling trust that’s buying her parent’s property for less than market value. When it comes time to kick her parents out of their house can they afford to go somewhere else? California is one of the states that will hound you for the proof your 1031 is still valid, only a California expert could say if converting it to your primary would trigger that tax. You’ll lose any property tax caps they may have enjoyed and be increased to the non-owner occupant tax. 

If you’re paying market value and they just have zero equity I guess you could argue you’re just giving them two years to move out. But you might be better off just loaning them the money, especially if they are elderly. 

Talk to your CPA BEFORE you start the process. Then talk to a qualified, professional QI like @Dave Foster. Good luck. 

The Birmingham market is down 25-30% in the last 6 months? Ouch. It has to be the worst market in the country.

That being said…

Can you sell your current primary for a decent price and move in to this property? (Get an owner occupant loan.)

Can you seller finance it for more?

Could you rent it by the room?

Except for the mental pain losing $10k isn’t THAT much worse than breaking even. I find it hard to believe such a bad market could get worse, but only if you know why it’s doing so poorly compared to the rest of the country. Is it something that will pass? Is it a market like much of the country where prices might be 5-10% higher in April? (Fix it up, take beautiful pictures and be first to hit the spring market?)

If it's 4 units you'd always want the residential loan with the 30 year fixed rate, especially if you plan to live there. The commercial loan will be 3-5 or 7 years then you'll need to refinance. Can you imagine your interest rate doubling like it did a couple years ago? Even if it's a 30 year fixed DSCR that allows you to live in it the interest rate will make the "residential" loan a far better choice

Oh the other hand if it’s 5+ you’ll have to go commercial. I’ve often seen 5 units sell for the same or less than 4 units because there are less buyers and the financing is worse. Heck I bought a “four plex” where there was an “owner’s storage area” exactly the same size as the other 4 units. :-). 
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 But especially if you plan to live in one unit I would assume you’d save another full point in interest. Almost like being paid to live there.