All Forum Posts by: Matthew Heffernan

Hello all! 

My wife and I are working on a deal for a 2-unit up/down rental building.  The upstairs is a 3-bedroom (very rare in our area) the bottom was recently a salon and needs updated to rent as a studio or 1-bed (no shower, no kitchen) however it's an open space that is a very cool "blank canvas".

My real question is about LLC vs. personal for our situation, not really looking to nit-pick the KPI's, but feel free to comment on those as well...

Based on 4 different lender scenarios available, the range for KPI's is below:

Assume price of 175,000

5-year ann.return 19-25 %

CoC ROI 14-21 %

Cash Flow 440-850 per month

Estimated investment to convert the lower unit:  $10,000 (but could be more if I cannot DIY as planned)

My wife is the agent so she'll get commission of about $3,500

Recent updates within last few years:  New furnace, new central a/c, new roof... without a formal inspection, I would consider the overall condition to be "good / very good" shape for being an old building.  the property is 3 miles from our home, has no grass or landscaping so we will manage the property ourselves until we really start to build a portfolio.  My wife has been a Realtor for several years and I have renovated the past 2 homes, mostly DIY flooring, plumbing, etc.

My Question is:  What would you say is our better scenario for financing & tax strategy

1. Investment loan (personal):  3.875%, 25% down, over 30-years

2. Commercial loan (we would set up an LLC): 4.5%, 25% down, over 15-years

My goal is to have consistent cash flow, but also make sure we grow wealth over the next 5 years and expand our portfolio in our "backyard". In other words, I'm more interested in setting up a long-term plan (leaning toward LLC, leveraging expenses accordingly, etc.), but also don't want to miss an opportunity to "Keep It Simple" and make good money.

Assuming I've provided enough rough information, can anyone tell me what might be a better scenario (personal vs. LLC)?

Thank you for helping out a noob!

thank you for the guidance! Good to know a rule of thumb ratio. If 15% is good, then I feel much better at almost 25% COC. (Have yet to decide on lender so it may change slightly)

As far as expenses, I used 5% of rent as I can do a lot of home repairs myself, but even at 10% I am good on cash flow.  I also know there are new water heaters, softeners, appliances, even a newer well pump.

Hello! 

So, I'll start off by warning you that I am a complete Newbie.

My name is Matt.  I am not familiar with the RE industry, but my wife became a Realtor 1 year ago and has learned quite a lot and built a good base (local) network .  We are both in our mid-30's.

Through her home office, we have discovered an opportunity to purchase a 3-unit rental and are scrambling to figure out if it's something we should do for cash flow and long-term investment.

Even though she has some good experience working with banks, it has become somewhat frustrating to get straight answers on financing.  We have some specific needs considering we had not been planning this out for months/years.

Total annual cash flow is $25k. Total value around 150k

Overall, we feel like it is relatively low risk, with 2 units already leased with "good" tenants and a 3rd unit that we can fill with our own vetted tenant.

1.  Set up an LLC or not? I started out leaning toward LLC 100% and would not consider doing this without it, simply for fear of "liability" concerns. Now after reading some material here and hearing subjective input from other networks, it seems that maybe the LLC is not so critical in our scenario.

2.  Using zero-down financing with current home as collateral (if going LLC route) OR residential loan with current equity as down payment (resulting in 3 loans, including our current home, but much better terms and cash flow)?

Thank you for any input you have!

-Matt