All Forum Posts by: Brian Kloft

 I am now confused. You are the one that started this whole post asking "Can I personally take that extra finance money tax free into my own name or personal bank account to do with what I please, or does the refinance money have to stay in that Llc company and I cant use it personally." and now you are telling others that are answering the question that they are wrong and that you know the answer. 

FYI @Jay Hurst is correct. Moving money from your LLC to your personal name is not a taxable event. When you file the taxes they look at what income the property/LLC made. Now if a corporation (not LLC, I am talking about Inc.) pays money out to individuals that is income to the individual thus a taxable event. If your LLC is just you or you and your spouse then most likely it is considered a pass thru entity and thus the IRS basically ignores the LLC and it is just considered all you.

First and obviously you need to talk with your tax person about it or potentially lawyer is you think about LLCs the way Jay does. With that said, here are some basics on the way they often work. You need to be keeping good books on your property so that you know where all money has come from and gone. I say this because a lot of people don't keep good books and this can cause lots of problems both with taxes and what Jay is talking about. Typically when you are buying the property you had to start with some money. Unless the LLC already had money from some other venture you did an Owner Contribution to the LLC to give it that money. When your property (LLC) is making money and you want to pull money out of it you do an Owner Draw. So an Owner Contribution is personal money going into the LLC and an Owner Draw is money coming out of the LLC into your personal hands.

Now if your LLC is just you or you and your spouse then they are probably a pass thru entity for tax purposes. So with taxes the contributions and draws don't mean much as it is the net income that will matter.

My guess, and this part I am not as familiar with, is that if you do take out the loan, whether it be in the LLC name or your personal name, you will want to follow some rules to keep safe. Most likely you will want that money to go into your LLC name and then take an Owner Draw to get the money out into your personal name. That way in the books it will show that the loan was to the property even if you had to use your personal name for the bank to give a loan.

Again check with an accountant and lawyer to verify. You don't want to mess with the IRS based on free advise.

Seems hardly anyone is actually answering your question but just telling you to hire a PM. Most of the reasons people are giving for hiring a property manager are the same for when you are local or not. While yes it is more difficult to manage when you are far away, it is only so because you lose that safety net of being able to drive over to deal with something if there is an emergency. My point of view is going to be a bit different than others because of my background so first here is some background info. I have been doing property management for around 25 years. I even started, built and then sold a successful property management company. So I have experience doing pm and don't mind it as "it is what I do". I own properties in AZ and a few years ago I started selling some of them here and buying in Oregon. Everything I own is either Long Term residential rentals or commercial (office, retail). When we were first looking at buying up there those thoughts were one that we were asking ourselves. It is a 2 day drive to get there and even flying is takes more than a half a day. Whenever there were repairs on our properties I used to do a lot of those repairs myself. I have learned to do a lot of different things on houses over the years. However I started to realize that other than leasing I no longer did any of that. In fact most of the time the most I do physically on a property is drive by it. If a tenant messages me about an issue I just message or call my vendor and give them the address and tenants name and number and have them take care of it. The vendor goes there, tells me the problem and price to fix it and I give them the go ahead. Most of my vendors I trust and often give them basic instructions before hand such as if it is A or B just fix it if anything else let me know. 

So the key thing is to have good vendors that you can call to go out and do the work. As far as leasing goes, my properties that are far away are all small multi tenant properties (2-5 units) so the few times that I have needed to lease it, when I was not there doing the renovation, I have been able to get one of my other tenants there to help out in showing it. (If you had to hire someone to lease it that would not be bad and I expect some day I will; and I already have a couple of people who know they are on my list for that.) I have not actually used a leasing sign up there yet as I just advertise on zillow and a local facebook group for rentals since they are in very small cities (10,000 people). If you need to have a place to hold things like a few signs or misc things then look at getting a small shed on the edge of one of your properties that you can keep locked and have your stuff in it. This also works well for extra flooring, paint, tile, cabinet knobs, etc. 

With all of that said the first thing to consider is are you cut out to manage your own properties? A lot of people are not, as you can see by a lot of the comments above where they give all of the reasons as to why they would never manage their own properties; and that is perfectly fine as I would not have been able to build my property management company if everyone managed their own properties. Also some people have very busy jobs or just don't want to take the time to do it. This is the same for other things. I have a neighbor that didn't want to hassle to sell their 55" tv that they just replaced so he was going to just thow it out because he is to busy and that is not his personality. I am a sales person so I love selling things so I grabbed it from him, listed it on facebook and a few days later I had $150 in my pocket. The analogy my seem weird but it is really the same thing.

To counter a few of the reasons people have give to just hire a pm:

Is the stress really worth like $150/mth? - When a property goes bad it is very much worth it to have a pm to deal with the issue. However 90% of the time that is not the case. Also if you have 5 units that is $750/mth. So to me $9,000 a year becomes worth a lot.

PMs have screening and background checks. - My application is thru my PM software and it also has the same screenings and background checks. Even zillow's application does most of that.

The '2 am toilet call' - If this is a STR my response would not apply. - Even as part of my management company where we managed over 400 rental houses, unless it was a true emergency such as a broken water line, dangerous electrical hazard such as sparking lines, a gas line leak, etc we did not deal with emergencies in the middle of the night. We always had someone on call for emergencies and 90+% of the time the emergency was for their AC going out in the summer (Phoenix, AZ) or heater going out in a nasty winter storm. We would still get some other calls but most of them were told we would call a vendor out in the morning. Yes you can get that horrible tenant that will say everything is an emergency, but they are a very small minority. Also fixing the property up right and doing the repairs right and not just bandaiding them helps prevent a lot of repair calls.

To sum it up, are you very comfortable with managing properties yourself in general? Get good reliable vendors that you can call and count on. If self managing is not a fit for your personality then don't fight it and hire a pm. (Not a fit is probably more than 60% of the population.) It is not worth the stress that it causes those personalities. 

There are more details that I can go into but this is already long enough or too long. 

A couple of thoughts here. First you need to talk with your tax person. From my understanding if you sell your house you are going to have to pay capital gains taxes. As a married couple you only get a $500k increase in value tax free. Sounds like you don't want to sell it but that is something to be looking at to make sure that you don't get hit with an unexpected tax bill either now or in the future. 1031 may be an option if you do certain things right.

Second, since you have 1 acre in what I am assuming is a desirable area, have you thought about adding on an ADU? Since you already have the property, it might be the most economically beneficial option for you and a good starting point into real estate rentals. Obviously I have no idea of your property layout for if this would even make sense.

Those are part of the problem. Like most things there is not usually one thing causing the problem. It is the combination of factors. Government, people and environment. 

 I disagree that you won't see any effect. You can easily make a claim that some areas are already seeing an effect. Between the hotter temps and thus less snow pack as well as increased population and use, the water supplies to CA, NV, AZ are being reduced and CA has already been having water shortages and they are limiting it. Also due to the extra hot and long summers and increased growth; the CA power grid is seeing more demand that it can handle and causing brown outs in the summer. While there are other factors, such as lack of infrastructure planning on the electric end, government policies or lack of government policies, increase in population; the increase in temps has been a direct cause of these issues. 

 Been there on that water temp. We lived in Cave Creek for a number of years. For a good chunk of that part of the water lines going to our house were above ground. in the summer there was no such thing as cool water. We ruined a bunch of clothes (old red clothes bleeding onto white ones because the "cold" water was hot) until the water company buried those lines.

@Neil Wei The info that your numbers are with a super low down payment helps clarify things. Really low down payments always make it hard to get a property to pencil. 

There is only so much they can do on promotion. Plus when you chose to have the property at a higher price to start you lost the biggest promotion and that is a new listing. The tenants are going to look at a few things to decide where to rent, price, how nice it looks compared to your competition and location. 

From your description is sounds like your place has tired paint and older flooring from the competition, but your rents are lower than the competition. That is probably why they wanted you to be under market with the price. Cheaper than the rest but with those condition issues means you are only going to get those tenants interested that can't afford the others. Most tenants will not chose the house with tired paint unless there are no other choices. If your place isn't going to look as nice as others then you have to be more than just slightly under their prices, there has to be a big enough of a discount to give the tenant a reason to accept the condition issues. Also realize that in it sitting the last 2 months, part of that was the time period between Thanksgiving and New Years. The number of people looking then is smaller than the rest of the year. Also from your responses above it sounds like you are the one that insisted it be at medium to higher market price even thought the place is not in as nice of condition as the competition and that you only just lowered the price. Blaming them when you handcuffed them with a substandard product but at a premium price. No amount of marketing skill is going to overcome that. 

As far as an open house goes, in my 20+ years of doing pm I have never had one. The closest I have had is when I have a ton of people wanting to look at it, instead of setting up 20+ individual appointments I give them a 2 hour window on one day and a 2 hour window on another day to come and look at it. 

The property manager is not perfect. They should have pushed back more when inquiry activity was low or they were getting negative feedback on the showings. If you don't trust your property manager on pricing or housing condition then you should either get a different property manager or manage it yourself. Don't blame them when you ignore all of their advise and then things don't get leased quickly.

I think your biggest problem in this post is that your original post and some of your replies were heavy on trying to sell people on your services and felt a lot like a hard infomercial pitch.

You title talks about people with 4+ units. Later on you talk about free time and paying $100 a month for free time. No one is charging only $100/mth for managing 4+ units. Perhaps $100/mth per unit so more likely $400/mth+. 

The whole NO REASON is quite a bit of a stretch. You would have been better off going for those that don't want to manage a property themselves. There are plenty of people that don't want anything to do with managing a property even if it is just one. However there are also plenty of people who don't mind it at all and do it just fine. I got plenty of clients that were doing just fine on their own until they got a problem tenant and then they hired me to kick that tenant out and then manage it from that point forward.

I am saying all of this from the point of view of a property manager and I agree with many of what the others on here said. I mostly manage my own stuff now but still manage some properties for a few select clients. I use to own and run a property management company where we managed about 400 SFR and about a dozen commercial properties. I also still help property managers going out on their own to set up their pm business. Focus on going after those that want a property manager or who are on the fence about it. Don't oversell it and definitely don't tell people that there is no reason they should self manage.