All Forum Posts by: Janosch Spohner

Ohhh duh, that makes sense, are those interest rates better/worse/about the same as mortgages? 

@David M Awesome, thank you! I clearly need to do some reading up on this stuff!

Thanks for replying, I have heard of the Due-on-Sale clause but didn't think about the transfer, that would be a disaster, based on the feedback that I have gotten, I'm clearly not ready for an LLC now. I'll talk to a CPA about my 2020 taxes and then have them help me moving forward. There is a big chance my gf and I will move in 2 years depending on what med school she gets into so I may set up an LLC before that. I want to then househack a duplex or triplex and turn the house we have now into a single family rental. I'd put the new one in the LLC's name to start with and then refinance the single family home. LLC's can still get Mortgages right?

Oh I didn't realize an LLC didn't pay taxes at all. I thought they were taxed on their profits and then the individuals that drew salaries or whatever payment style they have set up, paid taxes on that income as well.

So if I had an LLC that flipped 10 houses in a year that all made $20,000 after all expenses (including paying the owner for lets say their salary, contractors, whatever) what happens to that money? Could the LCC just hold onto it without it being touched by taxes?

Tyler,

Thank you for taking time out of your day to clear some things up for me. I'm not even really sure how I would report it, I figured the amount of rent I collected would just be treated as personal income. So what you're saying is that since I am not really making any money from this house that it really wont affect my taxes all that much? There is a tax form where I basically just enter how much I collected and how much I paid for Mortgage as well as the other things mentioned above?

Also had no idea that the Lender wouldn't be cool with another entity coming in but I guess it makes sense, just hadn't considered that part so thank you for sharing.

I used TurboTax last year to file and didn't really like it, do you just use a local CPA for yourself?

So what I understand from the things I have read so far is that an LLC is a separate entity that can protect you from lawsuits and allows you to take advantage of different tax write offs. Also, LLC's only pay taxes on their profits where as if I personally report my rental income for the year it will be added to my income and push me into a higher tax bracket causing me to pay even more in Taxes.

My mortgage is about $1,500 per month, and I collect $550 x 2 (renting two rooms), that's $1,100 in monthly income, my GF and I split the difference and then utilities are split between the 4 of us all (usually between $75-$100 per month). So typically I collect around $625 x 2 from my roommates and $300 from my gf for a rough total of $1,550 (and then I pay for all the utilities). $1,550 x 12 would be $18,600 that is added to my yearly individual income which would definitely suck to pay 25-30% taxes on. If I show my LLC collecting $1,550 in rent while paying a $1,500 mortgage, I would show a cash-flow of $50/month ($600/year) which would be wayyy less in taxes.

At least that is how I am picturing it would work, please correct me if I am wrong. I have also been told that as an individual, I can deduct the interest I pay on my Mortgage (which is a lot since I only put 3.5% down on the house) on my taxes, would I still be able to do this if it was in an LLC?

Also would the house have to be in the name of the LLC for me to do this or could I just leave it in my name?

If you have any tips for me, recommendations for where I should get the LLC, a good Real Estate CPA (near Acworth, GA) or reading materials (books, articles, stuff on bigger pockets, etc.) please share them below! And if anyone else is interested in doing something like this and you have questions please put them below too!

Thanks Mitchell! Honestly, it's been super good so far (8 months ish) we didn't know any friends who would want to move into the other rooms so we posted pictures of the rooms for rent on Facebook marketplace and found potential tenants that way. I asked people who messaged me about the rooms just a little bit about themselves, what they were like, and if they'd be able to show me that their income was at least 2.5 x Rent. After that, we then invited them over and we all got to know each other, one conversation lasted about 30 minutes and the other was almost 2 hours haha. It was all super informal since they'd be our roommates and I didn't want it to feel weird but I was clear about our cleaning standards in the home, rent needs to be on time or there will be late fees, utilities are split between the number of people in the house, that kind of stuff. All of which is covered in the Month to Month Lease that I had them sign.

I don't use any tenant management software, I don't think it's necessary for my situation, I collect rent on the 1st of every month using Venmo. I typically let them know how much utilities are a couple of days before and then they send the full amount to me on the 1st, no late payments yet! I have my Mortgage payment set up on the 4th, Venmo typically takes about a day to get to my checking account so that's worked out well.

They haven't caused any maintenance to pop up, the house was in awesome condition when I bought it and it's stayed pretty much about the same besides some of the projects my GF and I have done around the house. There is a clause in my lease that states if they cause damage they must pay for it or they will lose their security deposit which is 1 month worth of rent. I have both of those security deposits sitting in a HY savings account earning me a little bit of interest every month but if they decided to skip out on Rent one month, I can use their security deposit to still pay my mortgage. And since it is month to month, I can start the eviction process within a matter of days (in Georgia) of not receiving rent, but hopefully I won't have to do that.

Both tenants are girls, they are clean, quiet and respectful so they really are really good Roommates/Tenants. My GF and I are looking forward to having our own space, I will admit, having room mates is not horrible, but it would be nice to have our own place. However you gotta start somewhere and this has been a good place for me to start in Real Estate investing. Hopefully in the next year or so I can figure out a duplex or triplex for us to live in that actually cash flows too! While keeping the current house as a cash-flowing single family rental.

Investment Info:

Single-family residence other investment.

Purchase price: $246,000
Cash invested: $10,000
Sale price: $246,000

I bought this house as a Primary Residence for my GF and I to live in. We are doing the most basic of house hacks, renting out 2 of the rooms which does not cover everything but it has made our living expenses super cheap for North of Atlanta. My GF and I split what is left after the rental income which is about $300/month, utilities included. It's very hard to find a decent apartment around here for under $1,000/month so we are super happy with it so far.

What made you interested in investing in this type of deal?

The bigger pockets podcast talks about House-Hacking frequently but also Graham Stephens YouTube channel talks about it which is where I think I heard of it first.

How did you find this deal and how did you negotiate it?

A friends mom was a Real Estate Agent and helped us find the home, we didn't do too much negotiating, it was listed at $250k, we offered $240k and ended up meeting at $246k where the sellers paid closing costs.

How did you finance this deal?

We used an FHA loan where we put 3.5% down, I didn't actually have enough for the down payment so my dad lent me money to cover that which I will have paid back to him in full by the end of next year.

How did you add value to the deal?

We are slowly doing some upgrades to the house and yard that might add value to the right person but really this house was turnkey, ready to live in and we are just letting our room mates help us cover the costs. We are not really looking to add that much to the house.

What was the outcome?

I have lived here for about 8 months now and it has been amazing. We save a ton of money on living expenses, we are building equity, we are enjoying the house with the big yard & Garage. My girlfriend is looking to get into a medical school in the next 2 years though so this house will likely end up as my first single family rental while I try to House Hack a duplex or triplex near whatever med school she gets into.

Lessons learned? Challenges?

Just learned a ton about real estate in general, financing, inspections, all that stuff. I have never been exposed to any of that so it's been awesome and I am looking to continue learning as I keep growing every year both financially and as a person.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Nilma Baez was the agent that we used although she only works with sellers now. The inspection was done by Dana Home inspections and I thought they did a great job.