All Forum Posts by: John O'Brien

Hi All - have 2 commercial units with 2 apartments over top in northern NJ. Looking for recommendations on companies that will write mixed use policies. Thanks! 

Hi All -
I have a family member doing some handyman/property management work for my portfolio of properties in NJ. For example, he cuts the lawns, fixes things that break along the way (shelving, doors), and will also occasionally show units to prospective new tenants. I pay him hourly and over the course of the year, this adds up to be quite a bit of money (a few thousand), so I believe I will need to issue a 1099-NEC to him. I am looking for some guidance on 2 things:

1) Is the correct route to obtain his W9 and issue a 1099-NEC? Or is there a different set of filings/forms I need to make? I want to make sure I am able to include the payments as expenses in the proper way.

2) How does this affect my family member's tax return? He has a full time desk job with standard W2 income - does this income just get added on top of that and he pays the appropriate taxes based on the tax brackets? Or is there a way for him to pay less tax on the amount? Assume for simplicity that the rest of his return is rather straight forward (basic W2 income, standard deduction, etc.). I want to help advise him on the best way to proceed.

Thanks as always BP community! 

Thanks @Dustin Allen. That's exactly what I'm trying to figure out - is it a "risk" or is it illegal? Switching a property from personal name to LLC and risking the "due on sale" clause is a risk. Risks are to be evaluated and taken when appropriate. Fraud is a different story - not something I'm interested in dabbling in haha! I guess I need to confirm that would be the case. Thanks for the response.

Looking at buying a 4-unit in NJ and considering using an FHA loan to decrease down payment money needed (would be 3.5%-5% down in this case). All 4 units are currently occupied with paying, long-term tenants. I don't particular want/need to live there, especially not right away. What are the rules around occupying a property purchased with an FHA loan in this scenario? More importantly, what is the actual enforcement of those rules? Do I need to immediately start the eviction process with one of the tenants, or is there a time period by which I need to occupy a unit? I can't imagine they would be encouraging/forcing you to evict current tenants. And if I don't evict, and the tenants stay for a full year, is the "must occupy for 1 year" rule fulfilled, even though I technically have never lived there? Looking to see what the likelihood is that I can use the FHA without actually living at the property. Plan is to eventually re-finance into a conventional loan. Thanks!

I'm looking to set up a separate bank account for my first rental and was wondering if anyone had best practices to share? The property will be in an LLC. Ideally, I would love to set up an ally-type-account to hold the reserves because of the savings interest rate they offer (though it has decreased lately) and then find a credit card with no annual fee and decent cash back (there will be a big rehab on this one). However, I expect to repeat this process many times over the next few years and am worried that multiple different accounts for every property will end up creating a much more complex web than simply opening a bank account at Bank of America or Chase each time and using one of their popular credit cards. While I might lose a little, is the simpler approach the smarter one in this instance? I don't want to be penny-wise pound-foolish.

That's exactly the situation Mark. While the seller is offering to get that process started (I can't legally serve a notice when I don't have possession), it ultimately will fall on me to get the tenant out. And yes, I am concerned about the "deliver vacant" as that could be... I don't even want to know how long from now. 

Appreciate the input, gents. Thanks. 

Right now, it's on me, the buyer. The 90-day (not 60 as originally thought) notice will be provided by current owner before we close to get the process started. But I am wondering if, short of putting that provision in the contract to require vacancy, there are ways to limit liability in the contract as it is likely the tenant won't be out at close (even if they intend to leave), thus transferring responsibility to me.

Makes sense. Really appreciate the input. Side note on something you mentioned above - from your experience, are there drawbacks to allowing a lease to go m2m after the first year, other than the obvious lack of longer-term commitment? 

Thanks, Mark. The house is in Morris County. The tenants are on month-to-month leases according to the sellers - we're awaiting the official leases (if there are any). The handbook is helpful - it looks like the 60 day notice to quit would need to be 90 days if we're invoking the health code route. Our biggest concern is that we do not want to be held liable for the condition of the property that the current tenants are living in when we close on the house. For example, if the current tenant tries to push a defense that would hold us liable for their living expenses elsewhere during renovation and then return them to our property at the same lower rent numbers even after our renovations are complete, we would want to have some protection in the contract against that. Have you seen something like this put in a sale contract before?

Since it sounds like you've already realized what your goal is, I won't say Rich Dad Poor Dad, although it definitely lives up to expectations. Still a good one for mindset. For basic real estate ins and outs, the BP books are awesome. Many good books, such as Cardone's How to Create Wealth in Real Estate Investing, are a pitch as to why to get into real estate, rather than how to do it. The BP books simplify and actually tell you how to do it! Also, spending time in the forums will be a great learning tool.