All Forum Posts by: Frank C.

Thanks folks for the advice.  That was helpful.

@Mike Dymski

Goos point. For brevity’s sake, I oversimplified. Her sister who will be a freshman college runner (no job and no income) is moving in there as well. It is a 3 bedroom house. Rent should be $1500-$1550 if bot more in 3-4 years.

My 19 year old daughter and I are buying a house together for her to live in while in college. She spent the first year of college at home and she has done very well.  In addition to being a strong student, she works hard with side jobs earning about $7,000 in 2019.  We co-signed to loan.  By buying the house together we are able to get an owner-occupied loan which saved about 3% points over the interest rate I could get as an investor.  We are locked in at 3.125%, 30 year fixed loan.  I am putting 10% down.  As an owner occupied deal, the property taxes will by 66% lower than they would be as an investment property.  We would have to pay about $500/month to put her in a crummy dorm room or other on-campus housing.  Instead way we are using our money to build some equity and possibly get some appreciation to boot.  We will be renting out the extra bedroom to a friend of hers for $500 per month.  In 3-4 years, my daughter will move on and we will convert the house into another rental property in a our small portfolio.  This will be a decent deal after accounting for vacancy, property management, repairs, and cap ex; not a home run, but a solid single. I am glad to be able to lock down a 200K asset at these historically low rates for 30 years.  And she gets a new, safe, and convenient house to live in while in school.  

My question is about how to treat my daughter in this deal.  She is on the note and mortgage which I co-signed, but she is bringing little to the table.  We plan on holding the property long term and leaving our rental houses to our kids when we die so that they can enjoy the step up in cost basis. She has enough cash to put at least $2,000 into the deal which is about 1% of the purchase price or 10% of the down payment.  Should we give her 1% of the equity pay-down each month?  Should we give her 1% of the cash flow that it generates once we convert it to a rental after she moves out?  Or does she deserve 50% of the equity pay down, appreciation, and cash flow.  I do not think we will be able to depreciate the house while she lives there.  How do we split depreciation with her once she moves out and it becomes a rental?  She is still listed as a dependent on our tax return but in 3 years when she is done with college she may not be.  Any suggestions on how to structure this deal with her would be appreciated.

Thats it.  Thanks so much.

Frank

I am trying to remember a BP podcast that is probably a couple of years old.  I believe the guest was a wholesaler from Florida.  He was a young guy, very energetic, very motivational.  If memory serves, before real estate he had struggled to be successful for a while maybe trying to sell something door to door.  It seems like he was overweight or something and the heat bothered him excessively.  A funny guy.  Does anyone know who this guest was or what episode the podcast was? 

I am trying to remember a BP podcast that is probably a couple of years old.  I believe the guest was from Florida.  He was a young guy, very energetic, very motivational.  I believe he was a wholesaler.  If memory serves, before real estate he had struggled to be successful for a while maybe trying to sell something door to door.  It seems like he was overweight or something and the heat bothered him excessively.  A funny guy.  Does anyone know who this guest was or what episode the podcast was?  

Thanks to all.  That gives me places to start.  

We are closing on our first rental house in a couple of weeks.  We are considering doing a short term rental (Airbnb, VRBO) for the first year until our daughter moves into the house for college accommodations.  She will then find roommates and live very cheaply as a resident landlord.  We have all of our insurance with USAA (cars and primary house) as well as a $5 mil umbrella policy.  The premiums are about $2300 per year for the umbrella.  When we spoke to USAA about insuring the new rental house, they said that they would not renew our umbrella policy if we had a short term rental in South Carolina.  We could stick with the long term rental and keep our current insurance.  Or should we shop around for a new umbrella policy and a policy to insure a short term rental?  Any suggestions?  

Financially, it might be better from a cash flow perspective to do the long term rental. However, I can involve my wife and kids in the business of managing the short term rental and this has value above and beyond the cash flow.  I would consider it cheap education if we lost a few thousand in rental income by trying Airbnb.

Thanks for your response, Ashish. I definitely plan to maintain good insurance. I will also keep everything separated and treat the real estate like a separate business that it is. For the first house, say that I fund the LLC with 50K and use this money to make a 20% down payment, pay for repairs, closing costs, etc on the house. Will the bank loan money on the house owned by the LLC? If not, does the LLC have to buy the first house with all cash, then refinance it once it is rented and performing well?

I plan to buy my first rental property in a few months. I have money saved up. I have met with several bankers. I am learning to analyze deals. I am about to contact a real estate lawyer to set up an LLC and obtain a business license. I will not need the cash flow because I make a good salary. I will plough all of the cash flow back into the real estate company. I understand that losses generated in the real estate company can be used to offset my W2 income and lower my taxable income. Does my LLC have to be a subS so that those losses pass through on my personal tax return or can I accomplish the same thing as a sole proprietorship? My understanding is that I will not be able to buy the house in the LLC because the bank will not loan the LLC any money. I will have to buy the first house in my name, correct because the bank will only loan me money? If I transfer the house into the LLC, there is a risk of foreclosure for violating the do on sale clause, right? How does the house get into the LLC so that the benefits of asset protection can be obtained? Years from now when the LLC has significant equity and cash, then will the banks loan the LLC money so that there is greater protection as the purchase will be out of my name entirely? Thanks for the help.