All Forum Posts by: Greg Scott

Dewayne:

I would suggest a totally different plan.  

Buy a duplex because it makes a great business sense and use the profits to pay for your vacations.  This way you can afford to stay in the nicest hotels  and eat at great restaurants.  It is better than hunkering down in a rental duplex and dealing with tenant issues while you are on vacation.   You can also buy a duplex in a place you want to visit so airfare and hotel can be tax deductible against your profits.

To answer your question, the IRS deduction on capital gains is only valid for your primary residence not a vacation home.  

Using half a duplex as a vacation home is not profit optimizing, is not tax-efficient, and gives you less flexibility for your vacation plans.

Rather than ask which state, my main questions is do you need an LLC at all?

I would think that being a note buyer has very little risk exposure. If that is the case, and you still want an LLC, I would think paperwork headaches and filing costs would vastly outweigh any subtle advantage of one state over another.

Colorado is probably a fine place to have an LLC.

You should make as much profit as possible.

I once bought a property from a wholesaler and he made more on his wholesale than I was expecting to make turning it into a rental.   Would I have loved to have a piece of his profit?   Sure!   However, it would have been stupid of me to try to eat this wholesaler's lunch.  The property was still a great deal for me.   I bought several more from that same guy over the years.

@Sean Almeida  I've lived in Latin America so am familiar with the type of risks you mention.   Personally, yields of 10% don't excite me.  I can easily get that here in the US without the political and currency risk.

Now if you could show I would have 10% yield with a likely 100% valuation pop in a couple years, that gets more interesting.

@Patrick I.  I am not a lawyer but my personal opinion is that LLCs are over-sold to beginning investors.

Put yourself in an ambulance-chaser's shoes.   Assume your tenant has a slip and fall or other accident.   Your property insurance probably has something like a half million dollar liability coverage.   That is worth his time.   What is your net worth?   Is it worth the lawyer's time to chase after your bank account and other assets.  Remember he gets only a fraction of what his client gets.

Personally, I bought a $2M umbrella insurance policy and stopped putting my properties in my LLCs. I have a good friend that puts everything in property-specific LLC.

Now, as I'm moving into apartments, I'm selling off the single family. Every apartment has a property-specific LLC.

Regarding mortgage providers, yes they will always tell you you can't put the property into an LLC without triggering the due on sale clause. In reality, as long as payments are being made they don't seem to care. I have 3 properties that have been in and LLC for 5 years and not a peep from the bank. I've never heard of anyone having the note called due.

On the other hand, it is theoretically possible that interest rates could rise significantly.  If that happens banks might start looking for ways to get out of low-interest notes and call due old notes, similar to how companies can call a bond due.   However, I would say that scenario is also unlikely.

Good luck

I would rule out #1. HELOC interest rates fluctuate and most HELOCs have a balloon date. And, that might prevent you from moving out of your primary residence at a future point. Better to have fixed rate long term debt.

Which direction you choose to go on your refinance really depends on your risk tolerance.   

I used to put all my houses in LLCs until I heard a podcast with an insurance executive.  He noted that lawsuits against owners are fairly rare and in his 30 year career the max payout he ever saw was $1M.   That was enough for me.   I immediately obtained a $2M umbrella liability policy.  It covers not only my rentals but also things like car accidents.  It is worth the few hundred bucks each year.  I now keep all my remaining SF properties in my name or my wife's.

In contrast, I have a friend who is a serious investor who went the other way. He has every single house in its own LLC and those LLCs are owned by a master LLC. I believe he also has an umbrella policy too, so he is about as bullet proof as you can get.

Financing and paperwork is simpler the way I am doing it.  The way my friend does it lets him sleep better at night with better protection.

I would use Rent Range.  Zillow uses a simplistic data feed from Rent Range.  I recall the basic Rent Range report is just a few bucks (read less than $10) and gives you lots of statistics about the range of rents in your area for your product type and categories of tenants (e.g. Section 8 is pulled out separately)

Good luck!

Personally I started on SFR and worked my way up to MF so I am definitely more comfortable with that route.

SF is easier to understand as a newbie.   Because the prices are smaller, you can make more mistakes without burying yourself.   

MF is a different animal.  It runs differently, and, if you are taking other people's money, you had better know exactly what you are doing.

I'd recommend stepping up to some formal education.  The free stuff can get you the basics, but you often get what you pay for.  I recommend checking out Lifestyles Unlimited.   The basic membership is cheap and worth every penny.   I've been a member for 6 years and regularly fly to Texas for events.  Now they have operations here in Detroit.   I believe they started offering classes in FL too.

How long do you plan to hold the property?

If it is a short-term hold (e.g. 3 years) there is no point.  Don't refinance.   If it is a long-term hold, I would definitely consider refinancing.

The key issue isn't as much about cost of refinancing vs cash flow. It is more about the risk you have when the balloon is due. Let's say 4 years from now we have a recession and values drop 20%. Do you want to have to bring a lot of money to the table to meet the LTV requirements on the new financing?

I'm not from the SE but have property in Texas.

First of all, check with your insurance company.   In my experience there isn't much cost difference with a pool unless it has a slide.   Also, make sure you have a security gate.  I'd recommend getting more liability insurance.

From a repairs perspective, I've had 2 properties with pools.  Over 5 years, I think I spent $1500 on equipment and repairs, so it hasn't been an issue at all.    

Ongoing maintenance is a different topic.   I wouldn't let your tenant manage the pool.  If they don't care for it you will have a quagmire and need to buy new equipment.     On my properties, I included pool cleaning which costs about $125/mo and I added that to the rent.   People will see the value in having a pool without any effort on their part to keep it running.

Good luck