All Forum Posts by: Frank Chin

You need to engage an architect who is familiar with the building codes and zoning requirements of your area. Have a review done before hiring contractors thru Angi. I bought properties with such basements and finished basement units that's in violation of codes, and some years ago, got an architect to do a quick walkthrough with a fixed charge of $150.00. Some architects are also expeditors whose function is to know what permits need to be done, and file it for you.

@Trent Strohm We done gifting doing real estate. Yes, the giftor is liable to pay a gift tax if he or she exceeds the lifetime limit, and for the years 2022, $11.7 million. There is also an annual limit currently of $16,000 that you can gift each person annually without incurring a gift tax.

When we did it, the lifetime limit was much lower, at the time, only $2 million, so the attorney had us do it via annual limits, leaving the lifetime limit alone. Back then, annual limit was $10K per person per year. In our transaction we did some years back, our 50% of the property was valued at $60,000. Our mother-in-law gifted us $60,000, for my wife and myself, $10K to me and $10K to her via the annual limits, with a $60K note, but with $10K forgiven to me and $10K forgiven to my wife over a 3-year period, totaling $60K. There is a promissory note given, forgiven over 3-years, but with required statutory interest. Getting around the statutory interest, we issued a check, and our MIL issued a check back to us marking it X-mas gift.

Our MIL did gifting to us and her 2 other children, incurring no gift taxes at all.

Some years ago, I owned a number of MF's and bought myself a business. Spoke to insurance agents and attorneys about the best way to protect myself. The advice I got was to rely more on umbrella insurance.

Reason was I bought a small business and found out the owner was sued by a customer personally for over $3 million dollars, but his S Corp only had coverage for $1 million. He was also sued personally. Checked with my insurance agent and made sure my umbrella was $3 million, it was, and also covers me personally. Asked about $5 million but was advised it's not really necessary. Each million at the time would run a few hundred a year more.

As far as LLCs and multiple LLC's covering me, advised it won't do much. Several attorneys and insurance agents advised litigants always sued the owners personally, particularly smaller owners. So even if you establish a dozen LLC's. they win the lawsuit against you personally; you own the LLCs. all the LLC assets are at risk.

Attorneys tell me the litigants sue on the basis of personal negligence, not for issues like co-mingling assets. That's why if you use PM's, they're insured, you'll mitigate your risks. But that's expensive. 

The good news is the owner of the business I mentioned earlier retired to FL, put all his money into his retirement home and unbeknownst to him made himself immune from lawsuits because FL homestead laws gives homeowners unlimited protection. He didn't know that. But I got a got laugh when employees of his, whom I took over were summoned to depositions and the litigant attorneys went crazy when they learned the former owners moved to FL from NY and bought a home. He yelled "oh NO". They settled for $1 million.

Great, congrats.

The answer is YES, it's called granting a variance, and is common but hard to get because it often gets into a political mess. Where I am, a two-family residential zone, building a new church require a variance.

My wife majored in urban planning, and worked for a city planning department, which in most political jurisdictions include zoning. Issues that go into these decisions includes whether the area has adequate power grid, enough water and sewer services, parking, traffic issues, capacity of schools. These issues are often bought up in opposition to granting zoning variances.

I had run into these problems and employed the use of "expeditors" who are often architects by trade, but not a requirement, and would help if they know local zoning officials who has their own unwritten rules unavailable to the public.

It was many years that I used them, but they charged $150 to do a walk through back then and go into building codes as well as zoning issues. I had a legal duplex with an illegal basement third unit. Because the building codes are different for a triplex to a duplex, requiring sprinklers, fire escapes, concrete enclosed furnace rooms, etc. legally converting the building to a triplex is a no-no financially.

 The bigger issue for me was an order to demolish the unit completely which I used for a business office and storage. They would require me to demolish, file plans, get it approved, and build it again from scratch as a business office, and 20 years ago would cost me in excess of $35K. Why? It's to punish landlords from building illegal units and profiting from them.

My expeditor met with the assistant building commissioner, a friend of his, and had the order reversed. The reason given, I bought the building at an auction, never rented it out, therefore never profited, and saved the building from falling into disrepair, thus benefiting the community. A decision was reached where I only had to file plans for what I have, take out the bathtub and kitchen appliances, which cost me $6K including expeditor fees and drafting plans. It was done with my expeditor taking his friend to lunch.

Find out what the "as of right zoning" for the property and if the former zoning can be grandfathered. A neighbor of mine, who had a duplex with the illegal addition cited, and his legal 2BR/1ba unit connected to the illegal 1BR/1ba unit, combined, so his duplex now consists of a 3BR/2Ba unit, in addition to original 3BR/2ba owner unit and doing very well.

In your case, I would try to find an expeditor familiar with local zoning, building codes, as well as the politics of the area. There should be a path through the confusing zoning, building codes, and political process to get it done. This process goes beyond a land-use person. Google for an "expeditor" in your area.

@Bill Ward

There are circumstances where people, if they had the cash, would find it convenient to pay up front. I was in such a situation myself, traveled to foreign countries months at a time, would need someone to send checks to the landlord for me. That was some years ago before I can program my checking account to send e-checks monthly or pay on-line. Once I was in Singapore on an important business trip, thought I'll be back by months end, trip got extended, and my landlord posted a notice on my apartment door saying rent is past due.

I had an NOO mortgage on a property, reading through it's provisions, the mortgage does not allow me to collect more than 3 months rent in advance. I read about some investors who's behind on their mortgages, collect rents in advance, then skip town.

I had tenants with legitimate reasons to pay in advance, for instance, a convent was downsizing, renting apartments for member nuns, They need a number of apartments, had the funds, but back in those days, had to process 20 to 30 rent checks a month in their accounts payable department just for rents is too much. Given the limitations set on me by the mortgage, I asked them for 12 post dated checks and they were OK with that. Normally each group of renting nuns had to send a payment request each month to their AP department, and because the nuns often travel, inefficiency in the AP department, I was told getting timely checks would take quite a bit of effort. I was thinking I was in the same situation when I had a traveling job depending on others to send my checks in for me.

BTW, when I spoke to the bank, they advised me I can deposit all of the 12 post dated checks if I want to. And the Catholic diocese had the funds. I deposited by mistake a post dated September check in August, it went through, but the bank told me it doesn't matter, a check is a check, and I can deposit it even post dated.

In these situations, you have to take things on a case by case bases. While 95% of renters out their may be struggling financially on a month to month basis, others out there are not. So paying a year up front is not automatically a red flag.

You'll have to check your local zoning to see what rooming house regulations are. Towns and cities in my area consider renting a housing unit to more than 2 unrelated people else it's a rooming house and must conform to rooming house regulations, including registering, licensing, annual fees, having a house manager, assigning room numbers to name a few. Currently the town I have my rentals no longer license rooming houses, and I'm legally allowed to sign a lease with no more than 2 roommates. 

@Nathan Gesner

Thanks for the update. I followed this situation in the occasional news reports in the local papers as I owned a rental in the same town, East Meadow, a few blocks away.

Coincidentally the owner whom I purchased it from in 1985 was in pre-foreclosure, and I bought the property with an ARV of $125K for $70K. Was going to be a quick flip but as luck would have it, got stuck with it when I decided to sell in a year or two, i.e. 1986 or 87, but the crash of 86 came so I got stuck with it.

Decided to sell in 2001 when the market picked up, made improvements for sale, and the property at that point and the ARV was $250K. Took a while for the contractor to get to it, so in Aug 2001 I put it on the market, and then 9-11-01 came after showing the property for a week. Had it listed with a realtor but she advised people stopped looking at houses for a month or two after that, and it was already Dec 2001, and no one looks in Dec except desperate people going through evictions, So took it off the market again. Tenant was preparing to move as I told him I'm selling, he moved and the place was rented out in Jan 87.

A year or so ago, before the pandemic, the ARV ran up to $460K, tenant was behind on rent, tried an eviction, and also thinking about selling the place. Then the pandemic came, the eviction ban and the eviction went on hold. Bad news? Not quite, the ARV on LI zoomed during the pandemic, everyone working from home in NYC looking to move to nearby LI, ARV now above $$530K, properties sold above asking, often in a week. And I finally received 14 months of rent through LIHP, the agency doling out rent assistance. And the tenant started paying rent on top.

What's going on? The property in East Meadow seemed to be cursed, every time I think of selling, taking my profit, something happens, i.e. something is telling me "no you're not, you're going to keep the place."

I'm figuring, if I sell, it's mortgage free for the last dozen years, I should clear about $400K after taxes, and financial advisors tell me I should make an 8% return on good conservative portfolio. I make even more than rent. Funny thing is, there are few properties for rent in the neighborhood as it's all owner occupied, and occasionally I have desperate people looking to rent to keep their kids in the same school if they stay in town. I have a few people on the waiting list right now.

Anyway, looks like I had better luck compared to the owners of the property in the article.

For the first several properties, you don't need an LLC. I have a separate checking account for rentals to deposit rent payments, and pay rental expenses. You don't need a business account. If you open one, you'll have to form and provide the name of a business entity ranging from a DBA, LLC, or S Corp, C Corp. all requiring paperwork showing it's formation.

@Connie McGinnis-Loftin

Yes , you certainly can. I had such a setup for tax reasons as a RE Management Company, but it was a C Corp. It was before ObamaCare, I was paying for my own family medical insurance running me about $2,000/month and I cannot deduct it on my personal taxes, and deducted it under the C Corp. as an employee benefit. 

I owned the rentals personally, but I had the C Corp charge me for my rentals a monthly fee, for managing the rentals and the Corp then pays my medical, auto , supplies and other bills. It then shows up on my Schedule E as a management fee. The C Corp did not collect rents from tenants, it collects it from me, to make bookkeeping easier. You can set things up to collect rent from tenants directly as well.