All Forum Posts by: Fred Hess

@Nicholas Aiola

I have a separate post regarding this issue but I haven't been getting any responses besides to consult with an accountant.

My Situation: My father and I are in the process of purchasing a turnkey SFH rental property in New Jersey. We are splitting all costs and profits 50/50. Our intentions are to buy and hold the property long term and continue to rent it out. We are unsure what the best method of ownership would be. My questions are as follows:

1. Should the mortgage go in both of our names or just one? What are the benefits of doing so? Our lender suggested that the mortgage go only in one of our names and the title/deed go in both of our names.

2. After the purchase is made, should we consider forming an LLC and transferring the title/deed ownership to the LLC? I understand that one/both of us would still have to personally guarantee the mortgage, but would there be any benefits (specifically tax benefits) to buying and holding the property in an LLC?

3. General tax question: If the property is not held in an LLC, only the partner(s) who have their name on the mortgage report the rental activity on their taxes? And this activity would be reported on Schedule E?

3a. General tax question: If the property was held in an LLC with both of our names on it and was treated as a partnership, we would both have to report the activity on our returns regardless of whose name the mortgage is in? And this activity would be reported on Schedule C?

4. In either of these scenarios, is the cost of the mortgage principal payments deductible? Or is only the mortgage interest portion of the mortgage deductible?

My Situation: My father and I are in the process of purchasing a turnkey SFH rental property in New Jersey. We are splitting all costs and profits 50/50. Our intentions are to buy and hold the property long term and continue to rent it out. We are unsure what the best method of ownership would be. My questions are as follows:

1. Should the mortgage go in both of our names or just one? What are the benefits of doing so? Our lender suggested that the mortgage go only in one of our names and the title/deed go in both of our names.

2. After the purchase is made, should we consider forming an LLC and transferring the title/deed ownership to the LLC? I understand that one/both of us would still have to personally guarantee the mortgage, but would there be any benefits (specifically tax benefits) to forming and holding the property in an LLC?

3. General tax question: If the property is not held in an LLC, only the partner(s) who have their name on the mortgage report the rental activity on their taxes? And this activity would be reported on Schedule E?

3a. General tax question: If the property was held in an LLC with both of our names on it and was treated as a partnership, we would both have to report the activity on our returns regardless of whose name the mortgage is in? And this activity would be reported on Schedule C?

4. In either of these scenarios, is the cost of the mortgage principal payments deductible? Or is only the mortgage interest portion of the mortgage deductible? 

Let me give a little background: I am a 22 year old college grad (as of May 2019). I recently purchased my first home with my also 22 year old recent grad girlfriend. It's a 3 bed 2.5 bath town home. It is currently just the two of us living here and we split all costs of living 50/50. We've been here roughly 8 months now with no issues. All of our friends that went away to college are now moving back in with their parents, and I am seeing this as a great opportunity for us to rent out one or both of our spare bedrooms to our friends. Currently, one room is being used as a spare, and the other is being used as an office for my home-based small business. I've done some research on 1 bed 1 bath rentals in our area and they generally rent for $1,000-1,250/month.

What I need advice on is the following: 

- Any cons of renting to friends? I've known most of them my entire life and have even lived with some of them in the past so I don't have many concerns at this point. 

- How can I determine a fair price to rent the rooms for? The current cost of the mortgage + utilities is roughly $1,600. I would obviously expect a slight increase in this number with additional people living in the house.

- We would all be sharing a kitchen which is moderate in size. How can I handle the cost of food? Do I include it in their rent and just food shop for everyone? Should I leave it up to everyone to provide their own food? We currently spend roughly $400/month to feed the two of us.

Thanks for all the responses! It's a 1 unit property. Could you please elaborate why an LLC would not be an adequate option?

I've just had my offer accepted on my first turnkey rental property in New Jersey. Closing is not until October 1, so I have plenty of time to make the necessary arangements. I will be splitting all costs and ownership 50/50 with one other partner. The mortgage will be going in my name only. 

My question is, what is the proper way to handle the purchase and ownership of the property? From the research i've conducted, it seems that forming an LLC, purchasing the property in the LLC's name, and then personally guaranteeing the mortgage would be the best course of action. Is there a better option?

The property is located in Riverside, New Jersey. 

The tenant pays all utilities including sewer and water.

From a small sample, i've seen cap rates between 8-12% in this area. 

I could see potential for increasing rents to 1400, maybe even 1450 within the next 3 years. This is a high rental area (60%+ of the residents here rent), so it shouldn't be difficult to increase costs. 

Thanks for the response, I will be sure to have an inspector look at it before I make any decisions. Cheers!

I am looking into my first real estate investment property. It is an off-market turnkey rental property that already has a tenant placed. The tenant has been here for 18 months and is interested in signing a 1 year contract with new owner. The property is 1 half of a duplex built in 1920 (C property in a C neighborhood). 3 beds 1 bath with a finished attic being used as a 4th bedroom. For the area, the house is in pretty good condition. My main concerns is the unknown age of the roof (10+ years), original windows (roughly 12 total), and the 5 young children that will be living in the house. 

The seller is asking $100,000 for the property, and I listed $90,000 as the purchase price in my estimates. Please take a look at my numbers and let me know your thoughts on the deal. Thanks!