All Forum Posts by: Jeff Sheraton

Our company has purchased several "pre-rented" properties in Delaware.  The purchase procedure was straightforward, just a typical closing.  As far as the leases, assuming the leases are still valid (not expired) you should be able to just simply take over the current lease.  You will want to review the lease to see that it meets your expectations.  If the lease is expired (in Delaware at least) the tenants are considered month-to-month tenants and they are subject to the landlord tenant code rules.  You can give them notice to move, or if they are good tenants just let them stay month to month or present them with a new lease (assuming they will sign one).  In Delaware the "rules" are outlined either in the lease (for tenants that have them) or the landlord tenant code in the absence of a lease.  Security deposits should be transferred over to you from the current owner along with any per diem rent.  For example if the landlord collects rent on the 1st and you buy the property on the 15th you get half of that months rent.  

Fair warning, in my experience so far, inherited tenants don't tend to be that great.  My personal thought is that if they were good the owner probably wouldn't be looking to sell.  Not to say you shouldn't buy the property, just don't bank on reliable income simply because the property has tenants.

My understanding is that LLC's are really the way to go with passive income like a rental property. If you were to place the rental in a corporation (S or C) you would have to pay yourself a "fair wage". These wages would be subject to self employment taxes (social security and medicare). If the income all flowed through an LLC you could avoid paying self employment tax altogether as LLC's are not required to pay wages.

Were you denied insurance?  I believe I have a place with asbestos siding, State Farm didn't raise any issue.

No problem, glad I could help!

I am interested in taking a look at potentially investing in probate sales?  Has any one had any experience good or bad?  How do I go about getting a list of the sales in my area?

I am not a CPA, but my CPA explained to me that LLC's should be used for passive investments like rental property and corporations should be used for active income like flipping houses, management companies, ect.

The big advantage of the corporation is that you can take your income in two different ways.  One way will be wages, subject to self employment tax.  The other will be dividends which are not subject to sell employment tax.  

Because rental income is all passive it is never subject to self employment tax so it can just run through an LLC. If your flipping business was in an LLC you could end up paying self employment tax on all earnings.

Definitely confirm all of this with your CPA.

Maybe I misunderstood you, if houses like yours only sell for $165k why would you spend $190-210k to rehab it?

You can check online and find out about local schools, crime, jobs, ect.  You could also take a look at population changes (up or down).  New construction is a good sign too.  

One recommendation, physically go to the area and learn about it.  Talk to people and get an idea of what the area is really like.  I've never been to the city you mentioned, but I know if my home city just a few blocks in one direction or another makes a world of difference.

Get educated!  There are many ways to go about it.  The blogs and podcasts on this site are great, books, local groups, mentors, ect.

Word of warning: don't get too tied up in trying to learn everything before your start.  Common sense goes a long way and you will learn a lot as you go.

Good luck!

Does this deal make sense for you?  It seems like you would make no money while she was still living in the home (if I understand what you are saying).