All Forum Posts by: Kathy Henley

@Kiara Moon There is always risks that A.) the tenants might damage the property, or B.) the tenants don't pay rent and won't leave. We must screen our tenant's thoughtfully and have a clear lease agreement. For this, LLs do background checks to see that people have been good renter's in the past and can afford to pay the rent on the first of every month. We collect security deposits to cover cleaning or damages that may arise out of the tenancy. Family members are no exception.

Renter's insurance covers the personal property of the tenant, not the building. Be sure you have enough property insurance.  Let your agent know that you now rent the place and ask if your home owner's policy needs updating.

You can prohibit pets, they chew things, bend window blinds, disturb the neighbors and make wet spots if left unattended. Your lease might say, "Pets are not allowed on the property, including pet sitting. If a pet is found on the property, this is grounds for breaking the lease and Tenant will be given a three day notice to vacate. Tenant's security deposit would be forfeited."

Or, you can allow pets, "One dog or one can under 20 pounds is allowed. Tenant will pay a non-refundable deposit of $300 (or what ever you determine) on the day of lease signing. Tenant will pay monthly pet fee of $40 (or what ever you determine) at the same time as the regular rent" . .  with the usual language of picking up the yard. Tenants must agree to pay for any damage caused by the pet.

If the interested people do not agree to your terms, you have saved yourself from a headache.

@Christopher Lamp The LLC is a great. You can now open a bank account and put the money to work. This bank account will allow you a way to keep your investing/ business expenses separate from you personal expenses (my CPA's bugg-a-boo.) Every dollar you spend related to real estate or business building activities will be a business expense. You will pay income tax on any profits your business creates. A bank may lend you money (a mortgage) in your personal name, but the business could manage the property, if you were to hold the property for the rental income.

Welcome aboard. 

@Daniel Giacomazzi The seller will become your tenant? Say yes. Money may be tight and you could avoid a vacancy for a few months. You will get your hands on the apartment later.

For me, we would sign a regular lease with a MTM term. Slightly below market rent (you are still negotiating the purchase? be nice). Tenant should pay for all repairs during the tenancy (agreement to this clause may indicate if it drains and plumbing were kept in good repair.)  Is this person a hoarder or might they leave a vacant apartment in need of a pricey make-ready? Consider the condition of the unit when setting the rent and purchase price - a great negotiation item.

Pet? Do they currently have one? If yes, consider that when setting rent rate. No pet deposit but a clause to acknowledge any new damage caused by pet would be paid for by Tenant, like any other leasee, must clean up common areas of pet fur and usual pet clauses. If no, mention that any future pets would need your approval and a pet agreement would be signed later.

May it be a successful close!

@Amy Duffy Get the paperwork rolling. It is surprising how much time insurance claims take to file the claim and complete the job. An experienced roofer will help wade through the paperwork. Don't delay, rains are coming and you must protect the integrity of the building. 

The depreciation expense is computed at the end of the year when filing tax return and the date that the place 'went into service' is considered when figuring all the business expenses and deductions. Talk with your CPA for guidance, they know things.

@Jennifer Knestrick Since this is second hand info, we are kind of gossiping without knowing the facts. In general, if an asset was overlooked in a divorce, the case can be opened again.  

@Vincent Carter Sorry for your loss. You are in mourning and it is okay to work hard and complete personal goals that have nothing to do with money. As an investor, I start with, 'Does the rental income cover the mortgage payment, property tax and a little bit left over for maintenance, grass cutting, and vacancy periods?' But you may have more going on, emotionally, with the property that only you can put a value to. In this seller's market, you could sell and start again. Are you ready for that? 

@Kyler J Sloan Could you coast for a year by renting the unit on a long term lease (12 mo)? Your finances seem thin and you will be in a better place when your raise comes through. Short term rentals have expenses of housekeeping, utilities and treats that long term leases don't. Adding loan expenses might strain the cash flow. What renovations are needed to get the place rented?

@Jessica A. You are ambitious! What is your intention with the property? Will you be the proprietor who brews coffee and wipes tables? Or own the property and attract the tenant? Well then, one must have a way for the property to pay for itself. Property owners must consider the commercial tenants' business income to judge if their tenancy pays the bills. If you are to be the coffee shop owner, write a business plan. If you are to be the Landlord, write a business plan of owning the property. What are the costs to put the building into service? Work backwards to determine the value you could offer the current owner.  Fair is defined as what you both agree on. She is an owner with a problem. You want to help her solve her problem AND not go in debt doing so.

Your first letter may not even mention a price. It might be a letter of intent, that you intend to buy the property after you find out some things and ask her help in doing so, like an property inspection. This might lead you to a conversation or three. After each session, write up a summary of what you think you heard. Ask for expense costs during their ownership and seek outside help in determining current market conditions of your area. Gather info and study the coffee business. Can your vision work with a coffee brewing tenant? This letter could eventually be the purchase and sale agreement, ironing out the price and terms.

Base your offer on facts. What is the cause and repair costs of the water intrusion?  Don't overlook the seller's help in financing the sale. Maybe she would like to be paid in installments, mailbox money. But I might be getting too fancy for your first buy.

@Samary Agosto It is like any investment: buy low, sell high. The preservation of historic features might keep the neighborhood beauty, but the costs are higher to find workers with the skills to make it so. We rehabbed a SFH in a historic district and broke even, which is not ideal as a business, but the home meets the historic code for another generation. We put it back together with zoned HVAC, new systems and a modern kitchen.

If done again, the acquisition must be very low, plans for the contractors' bids to grow, room in the budget for cost over-runs and a disposition price that includes a profit. I would look for a shell which needed a minimum of structural repairs (that steal 'I' beam was expensive). Hiring a historic consultant would have paid for itself, doing proper work from day 1; funds for this expert must be in the budget.

@Evan Swanson The lender required us to buy our first few investment properties in our name and we never hid the fact that they were to be rented out, or that we might occupy during a make-ready. We have a separate bank account for our real estate activities with a business name. This LLC collects the rent and signs the leases, and handles the maintenance requests. We keep track of property expenses - all maintenance expenses, improvements, and business expenses, as allowed in the tax code (like a subscription to Wall Street Journal and lunch with other investors). A CPA files our taxes and approves the business expenses when preparing our return. He guides us how to avoid co-mingling funds.

The personal money for the initial down payment is considered 'capital'. Owner can draw the capital from the investment without it being a taxable event. Use a CPA, they know stuff.

This year we refinanced one property. Since I live in the property, the loan has a lower interest rate. Sweet. That wasn't offered in 2015 when we began this journey.