All Forum Posts by: Christopher Derr

The way I understand it is the 50% rule is made up of Real Estate Taxes, Insurance, Vacancy, Repairs, and Property Management cost (Every expense but P&I) So yes maybe your repair cost are less, but with a new house the taxes maybe higher so the higher taxes will off set the lower repair cost. They take 8-10% PM cost into that, so if you manage your own property you maybe able to get closer to 40% instead of 50%. Of that 50% most people figure repair cost to less than 10% of that 50%, taxes are usually the highest % of the (50%) rule.

I did verify that the husband alone made it with out the wife who only started her job 3 weeks prior. Its a super small town and rent is only $400 so its not hard to qualify for the 3x rule

I am new here so I hope im not breaking a rule please forgive me if I am, but I found this to be a very interesting article from BP, not the article its self but the comments at the bottom, funny how almost no one can agree completely.

http://www.biggerpockets.com/renewsblog/2013/08/17/rental-properties-llc/

@Shaun Reilly oh I know you weren't calling me that or anything. I do have about 10k in Roth's outside of employer 401k, 30k in Mutual funds, and an 80k/yr job I don't want to get garnished, and 90k or so in equity in my home. I just want to protect that. Honestly I want to get into buy-hold rentals and not to generate income to live on I plan to just keep re-investing it into more properties and possibly retire in my 50's or help my kids get homes when they get older maybe with college etc. If I lost 1 or 2, 30k homes it wouldn't crush me, but if I lost the home me and my wife built together or my ability to make my house payments or our retirement funds that would. Im only 29 so I have plenty of time to recover from a loss of a rental property if I had a judgment against me. I just want to do the right thing, its not my job, i have a 9 to 5 job for income, this is just an investment opportunity that I have always wanted that creates a potential to quit my job in the future if i wanted.

Its hard to make the jump when there are so many ways to skin a cat! UGGGHHHH more research I guess, maybe I should pay an attorney to make sure I got it right, but heck it even sounds like I need to pay a CPA, and Attorney, and a Judgement collector before I even start....beyond that what happens when 2 different attorneys have different opinions? How do thousands of people make this work day after day with almost no knowledge?

@Shaun Reilly I am married, I could have my wife, but my big issue even still was really the financing going forward with purchasing more homes using the L.L.C. It seems as though I am going to have a hard time financing homes with business financing as opposed to personal financing. Also I am confused as to what I am truly protecting? Is my personal home protected if I used a home equity loan to finance a property? I think that would break the (Corporate Veil) and co mingle funds. I also am not sure what is protected from law suit and what is not. I know when the builder of my home underbid my house for 30k and left me to pay it, then died of cancer (I felt cheated, but if I was dying of cancer I would have done the same thing) I couldn't touch his home where his wife and kids lived so there was no point in suing as he had virtually no other assets that would amount to anything with creditors in front of me. I would basically be wasting good money to sue for nothing.

This is one thing I've been caught up on before buying another rental property. WHICH I WANT TO DO SOON!!! I currently have 1M in liability insurance on my primary residence that extends to my 1 rental property and a 1M umbrella along with fire/structure insurance on the rental. I keep thinking I need to set up an L.L.C but what I continuously read is that #1 since my L.L.C would be a sole proprietorship my money will obviously come from personal assets so a good lawyer will pierce a (corporate veil?) anyway so my personal assets wont be safe. #2 My Primary residence and 401k can't be touched......i do not know if this is true or not? and honestly those are the only things I am trying to protect, other than my current income from garnishment. #3 less than .1% of any judgment will extend beyond the 1M liability insurance and 1M umbrella policy provide anyway and that's if you ever see a judgement, more often than not your stuck with lawyer fees only? #4 I can't switch my current rental into an L.L.C. with out having my mortgage called due which I don't want to pay another 3k in closing cost on when the whole mortgage is only 22k #5 L.L.C financing is hard to get as business loans are much harder to obtain with worse interest rates.

I am sure partnerships and other s-corps etc. make a huge difference but as a sole proprietor I don't know if the L.L.C gives me any added separation or liability protection?

This is just what I have gathered doing research so far, but I would love to hear more from anyone on what their views are on my research, as with everything I am researching in real estate its all "clear as mud"... :(

My wife and I built our home a little over 2 years ago, appraised at 265k during construction for loan purposes, assessed this year at 284k. (I think it would appraise for 280K no problem now based off comps in the area that have sold or are listed this year) I currently owe 189k. and 28yrs left on a 30yr note. We also own a SFH rental our previous home that was appraised at 46k when we bought it that we owe 24k on 7yrs left and 4k on a home equity loan we used to fix it up when we lived there it only cash flows about $25/mo (it was on the market for over 2 yrs in a town of 400 ppl) So we have about 113k in equity in our 2 homes together. Other than the 2 homes we owe on still, we bought a brand new vehicle that we owe 39k on (0% apr) and I own 9k on a credit card. I do have about 30K in mutual funds and 70k in retirement 401K and Roth IRA's, however I do not want to pull out those funds.

We want to get into Buy-and-Hold Single Family Homes all with in 1 hr driving distance. We recently found a HUD home listed for 30k (I plan to offer 28.5k 5% off asking) that I estimate needs 4k in updates unless plumbing or HVAC is bad (No electric or water) so be super conservative (10k). 38.5k total. Rent in the area is 750-850 depending solely on how nice I fix it up. So it hovers right around the 2% rule.

$ 800 Rent - 50% cost (does this usually equate the same for SFR or is it some what different) = $400 - $165/monthly mortgage should cash flow $235/month if I did that right?

I am thinking of taking out 25k in a home equity line of credit and paying off my 4k line of credit on the current rental plus 9k down for 20% and closing then the other 12k will be available for repairs. WOULD YOU DO IT? Or would you do it differently? Why am I so scared to make the jump?

Ask me anything I may have forgot.

Thanks in advance!

I screened them using a form of realtor.com and they already paid deposit and first months rent so I can't really back out of the lease. I used iowacourts online for a background check and verified employment but that's it :s cross fingers for a good first experience

Greetings BP!!!

My name is Christopher Derr, and I am from Northern Iowa.

A little about me and my real estate back ground. I joined the Marine Corps straight out of high school in 2002 and was almost immediately deployed to Iraq for 2 tours. After coming back home I would spend a lot of nights with my wife watching HGTV just chilling on the couch. Property Virgins, Flip this house, ect. ect. It really got me in the mood to get into real estate. I used the Marine Corps education program to pay for me to take a property management course, home inspection course and real estate appraisal course from Allied. After the Marine Corps I moved back to Iowa in 2006 and bought a house, then went to a technical college for construction technology my goal was to flip homes, however I got employed as a Wind Turbine Technician so I switch my major to Banking and Finance then on to Management to align with my current job.

In 2008 I bought a house with my brother (silently) so he could finance it under a traditional owner occupant loan but the 2 people that rented with him made our monthly payment. Once he moved instead of keeping it we decided to sell it...(Which I regret now).

In 2011 We moved and built our dream house and put our old primary residence on the Market but couldn't move it in a dying town. I rented it to another guy that I worked with up until this month when he is moving out. I have already signed a lease with a new Tenant that moves in next month and the house is now off the Market as I have decided to get into buy and hold real estate.

I found BP through google searches for trying to figure out how to set up our now first true rental in an L.L.C. (which I am still trying to figure out).

My Short term goal is to get an L.L.C set up with my current rental and hopefully another SFH rental in the next year. Long term is to have 2-3K+ positive cash flow by the time my first child heads off to college in 10 years.

I look forward to learning, and hopefully limiting my mistakes through this forum. I am glad I found it before we purchased our second rental property and hope to use the knowledge I gain to make a solid investment.

I can already tell I made a mistake in the amount of rent I asked for in our current rental as I had 10 calls in the first 2 days after posting it. I also do not think I properly screened tenants and rushed to sign a lease when I thought I would be sitting with a vacant home. (TIME TO LEARN)

"If it doesn't challenge you, It doesn't change you!"

ASK ME ANYTHING!