All Forum Posts by: Michael D.

What you're describing is actually a pretty straightforward partnership which buys, rehabs and rents property. He might do the work of rehab while you do the ongoing management, but still operating as a single company.

I suggest that before finalizing everything, and after you've decided on your best-and-final, you should let your family know and give anybody else time to evaluate it for themselves and make a higher offer. This way nobody feels like you snuck in and "stole" something at a "cut-rate" price - which is probably what it will look like after you've done all the hard work, cleaned it out, fixed it up, and made a few bucks on it. Stay away from partnerships with any of them though, that's just begging for trouble. And if somebody DOES want to out-bid you on it - let them and move on.

Good luck!

Sounds like the property is already in your name, so it's probably easiest to just leave it that way and try to do the refi. Why are you considering an LLC for this? Most likely that just makes it harder for you.

(IANAL)

I don't see how this has anything to do with whether it's legal to live in the garage or not. Regardless of whether it's legal to live there - that's where he's living. He's living in the house. The house is occupied by the owner (among others).

He might be guilty of some kind of code violation or something, but not in violation of the terms of the mortgage.

@Joseph S., This sounds like a good idea on paper, but there are a couple of things to consider:

- By asking the property manager to take a piece of the net, he's taking on more risk and will want to be paid more (on average) to compensate.

- You run into the problem of dis-incenting your PM if you run into issues that pull your net down below the threshold for a period of time. He'd be getting only 5% in that case, which might de-prioritize your property, just at the time when you need his help the most.

- He may manage in such a way as to inflate short-term net by making long-term sacrifices, for example using a shoddy/cheap repair person.

I'm an out-of-state owner myself, and I've got a number of property managers that work for me. They're all on a straight percentage of gross rents, some even with per-unit floors. There's no perfect solution.

@Jeff B., I think you're confused on a few points, leading you to draw some slightly wrong conclusions.

Cap rate and cash flow are both important metrics, among many others, that give good information about something. Cap rate is a good way to measure a property (which has nothing to do with financing). Cash flow is a good way to measure a deal (which has a lot to do with financing).

A couple of other points:

"The earnings (or returns) come to you as dividends and are distributed quarterly (in the U.S.)"

Earnings for a stock are not usually paid as dividends. Frequently they're kept in the business.

"Speculation can drive the Price skyward irrationally, distorting the real meaning."

Not really. If the price of the stock goes up without corresponding earnings, then the P/E ratio goes up, which has exactly the meaning that it's supposed to have.

Sounds like what they're really telling you is that they don't want to give you cash or any access to cash as part of this transaction.

Give us an example of some numbers on a property that you think is too good to be true.

You get half of the total rent for both units as a half owner. You can subtract from that half of all expenses, including mortgage interest. If the result is negative (a loss) and your personal gross income is low enough, you can subtract the loss from you personal income. This is no different for you than it would be if it was a regular tenant living there. For you brother it's going to be a little different, and I'm not sure on that. I don't think he needs to include his own rent in his income, but then he might not be able to subtract any non-mortgage-interest expenses for that unit if not.

All else equal you're better off paying 10% more for the new house. Lots of things in the older house are now halfway or more through their expected life.