All Forum Posts by: Joe G.

Think about it as two separate transactions with the seller. One is you purchasing the property and the second is both of you signing a financing contract. I would suggest using an attorney since this is your first property and the person is a family friend. I would probably involve a CPA as well. 

Closing is similar to a conventional without proceeds to the seller for the actual sale (other than any down payment). 

As for tax implications, here is a link to another post that should be helpful.

https://www.biggerpockets.com/forums/51/topics/142...

On court forms, addresses are mostly used for mailing court documents and for serving process. Do you have an office or PO box that you utilize? This will also be the address that is given to the defendant / respondent to mail you checks. 

I am not an expert in your area, but in Maryland there isn't a need to put your personal address on the paperwork unless you have to describe the real property specifically. Good Luck! 

@Josh Lyons There are advantages in most entities, but I prefer an LLC for tax and asset protection reasons. LLCs also allow for a dynamic change to the operating agreement between the members of the LLC and also they can spell out the responsibilities of each member. The operating agreement also lets you determine other items like who is going to be the managing member which can mean that person paying income tax on their dividends paid to them.

I would suggest keeping the purchase contract and the financing contract separate. Get the property tied up with a contract then worry about the financing. If you are using an agent, ask them to write the offer for you using their standard forms. Make them work for their fees. 

@Ryan Price

Harford County here. Great to meet you and I, too, love BP and the resources here. It sounds like you are looking at two strategies 1) Flip and 2) Rental. What are your goals -- cash flow or one-time income? Keep in mind that rentals also bring tax avoidance strategies while flipping a house can mean taxing that as income. 

Have you checked out BRRRR? That strategy would allow you purchase and "flip" the property to yourself to hold as a rental.

Good luck and see you around!

@Jeff O'Neal 

In my experience broker proformas are always incorrect. I used to get angry about what I perceived as lies, but then I realized that the broker is making a proforma because the current owner doesn't have one to give to the broker. Also, the broker has to pull teeth from the seller to get real information. In this case, sounds like she knew about them and just chose not to include them because it wouldn't benefit them. That's rubbish. Those costs should absolutely be reflected as R&M. 

This could be an opportunity to renegotiate, but if the deal isn't cash flowing and your goal is to cash flow -- it might be time to walk away. Is it the cost of capital that is making break even? Maybe you can figure out a way to reduce your cost of capital?

@John A. I suggest handling the situation like you would with any other tenant ignoring the service animal aspect.

@Ryan Moore Also, don't forget that tax treatment of closing costs and business expenses are different. 

"Generally, deductible closing costs are those for interest, certain mortgage points, and deductible real estate taxes. Many other settlement fees and closing costs for buying the property become additions to your basis in the property and part of your depreciation deduction, including: Abstract fees."

Source: https://www.irs.gov/faqs/sale-or-trade-of-business...

@Josh LyonsUsually, I take distributions from an LLC quarterly. Basically, I do the math from the proforma / property plan to make sure everything is paid and that the reserve account is up to par then distribute the rest to the partners initially.

As for the reserve amount, usually I do 3-4 months of costs (not income) plus any amounts for upcoming planned capital projects on the property (roof, deck, any replacement / repairs that you are planning). This allows for the property to set vacant for 4 months or more without the partners reaching into their pockets.

This also sets the stage for the partners to understand that the investment will pay dividends. If the partner insists on realizing income ASAP, just remind them to talk to their CPA for the tax benefits. Even when you aren't getting cash, you are still realizing tax savings from your W2 job each month. 

Passive money will probably be about the same if you repair the old homes to like new finishes and accomodations. Unless your purchase and repair costs, to bring the property to the same market rents as the new, are less than the purchase price of the new homes. The answer to this will be found in building two proformas. Maybe try the calculators here on BP to model the two. It is time for some analysis paralysis. LOL

Good Luck!