All Forum Posts by: Account Closed

I cant help but start out by acknowledging  sharing this chart with @Eric P.  showing that the Midwest has the highest home-ownership in the Nation by a long shot with New York and California having the lowest.

With that out of the way I will share some more charts I think will help @Peter Aziz question as to why the rental rate is so high when renting is cheaper than a mortgage in many areas of the City. 

Prior to the 1970s the majority of middle class and working class people lived in the City of St. Louis while the upper/business class lived in suburbs just west of the City. 

During the 1970s a large majority of the middle class moved to suburbs to the West and South of the City into classic suburban neighborhoods. According to Census home ownership rates in Arnold (40 minutes South) and St. Peters (40 minutes West) are all above 80%. This expansion outward has continued with most new homes being built directly west of the City. 

The City of St. Louis is not part of St. Louis County and the loss of property tax revenue hurt the City in terms of the school system and other infrastructure.  Communities on the South Side benefited from strong catholic diocese schools and the fact that their businesses were in between the suburbs and downtown business district and sports arenas. Many of the diocese schools have closed making it harder to raise kids in the South Side. However, many of the regions most famous restaurants and attractions remain in that area and convenient highway access makes it a good place for to live for a young professional. In these areas the tenants could probably afford to buy but chose to rent until they can buy in another area. The Cortex, Soulard, CWE and the Grove are all similar and are areas that have the potential for crazy returns.

The North Side of St. Louis was basically left in the dust and crime and unemployment ran rampant. There is not much opportunity in this area. 

The tricky part about St. Louis is the neighborhood can change in a block and without knowing the City or walking the streets yourself it is very hard to tell which area you are in. There are also literally 90 municipalities in St. Louis County with different rules and costs. I am currently staying out of the City all together and focusing on less profitable but more consistent investments in the suburbs

@Kenneth Hynes You can purchase discontinued operations general liability insurance which would cover the LLC as long as you wanted to keep buying coverage. If your family member still has other properties they manage the insurance company would probably not have a problem keeping the name of the old LLC on the policy a few years. I do not think you actually need to keep the LLC in good standing to have coverage.

I have read many similar forums over the past few weeks and found that while people debate the pros and cons of an LLC frequently there seems to be no discussion around the limitations of using personal umbrella and liability insurance to protect your rental properties. In this blog post I summarize some of the very significant gaps in coverage from a personal umbrella. I also point out that you can purchase a commercial policy while keeping properties in your name by starting a sole proprietorship (which is basically making up a name).

@William Howley to get to your question, yes there can be significant tax benefits to an LLC (particularly for rich people). For example you can contribute more money tax free to an IRA or a life insurance policy in an LLC than as an individual or sole proprietor. You can also choose to be taxed as an s corp while still an LLC which allows you to limit the amount of payroll taxes you pay. You can also rent and lease personal assets to the LLC which allows you to take depreciation, repairs and maintenance etc.Leasing also lowers payroll taxes. LLCs can in intertwined with all sorts of others entities that allow people to manage tax liability and decrease risk. That being said people like you and me who have a few properties will likely not benefit from these types of arrangements.

Section fare market rate is $1,109 for a three bedroom so its extremely realistic and you can probably buy the home for $40k or less and have guaranteed tenants regardless of how you maintain it and you don't have to worry about the quality of the tenant since the government pays most of the rent anyway. 

The reason they passed the recent ordinance is to make it financially unattractive to the 100s of out of state investors doing exactly what I described above. The law is almost certainly illegal and will be overturned at some point by a higher court but it will have succeeded in making the City an unattractive place for investors.  

@Ramzi Nuseibeh You do not necessarily need to start an LLC to get commercial insurance if you would prefer to start a sole proprietorship. I am about to speak in generalizations that may not apply to your policy.

Most personal insurance rental policies provide liability coverage only when the bodily injury or property damage takes place on the premises (or on the actual property). Some examples of off premises claims are a tenant gets drunk at your property and drives away hitting a kid a block down the road. If you are sued for being careless in selecting your tenants there is no coverage. If any of your maintenance or landscaping people hit a car you will not be covered. If a tenant starts a fire that burns down the neighbors house your not covered. If you are going construction that damages a neighboring property no coverage, etc.  Commercial insurance is a good amount more expensive and has many more requirements that must be met. The bigger you grow the more attractive commercial insurance gets. It is a business decision for you when it is worth the time and money. 

Thanks! The financial backer is my dad which makes it a bit easier. Were starting off with smaller single families and then seeing how it works. 

@Matthew Kreitzer If you don't mind I would like to state how I believe you can transfer a property from your personal name to an LLC doesn't increase your liability and then you can tell me where I am wrong. My scenario involves a two member LLC in which one member is the money man and is passive and the other is the active managing member.

Most LLC investors start by transferring personal assets into the LLC or personally guaranteeing a loan to infuse assets into the LLC. When you transfer the property into the LLC you are still personally liable for the payment of the mortgage in the same way you would have been if you had just personally guaranteed the mortgage and put the title in the LLCs name to begin with. In my scenario the personal guarantee leaves the money man financially on the hook but the his liability from operations (assuming he is completely passive) should still be limited to his initial investment in the case of a lawsuit. Since the money man is clearly setting up the LLC to passively invest in real estate while limiting his liability and allowing another member to manage the operations I would not think this would look like an "alter ego" situation. If I am wrong I will have to change the way I am approaching things so please let me know.

The only reason this approach is used is because Fannie Mae will not underwrite loans in an LLC. The reason being that the seller of a home could just pass his low interest mortgage to the buyer by letting him buy the LLC. This would hurt FNMAs profits in the long run. However, as soon as the loan is underwritten your broker sells off your mortgage as part of a MBS with 1,000s of other loans owned by 1,000s of people. Even if interest rates did rise it would take rounding up a majority of the bond holders to vote to cal your loan which will basically never happen if you are current on your loan.

This all goes back to your rental contract. The contract should stipulate who is responsible for damage to the unit. Laws very by state but in Missouri you can assign responsibility for all claims and damages to the tenant and require the tenant to hold harmless and indemnify you for everything except damage resulting from the sole gross negligence of you as a property manager.  

Assuming you require the tenant to have renters insurance, her liabily coverage will pay for damage she is liable for.  You can also file a claim with your insurance company who would likely pay and then subrogate against the tenants liability policy. This puts determining liability in the hands of the insurance companies who will also pay the legal fees. 

I would notify your agent and talk through the pros and cons of filing a claim with both her and your insurance companies. 

I am not a lawyer but leaving the bathtub running to the point of hitting the overflow valve and then leaving the room should be considered negligence on her part. This is no different than turning the stove on and leaving the house. 

It is my understanding that basically all cities require a contract to be licensed to do any sort of work in that city. Home Depot had to obtain a permit to install my dishwasher. That being said there isn't a municipality on the planet that has enough time or resources to file and track every minor repair made to homes in their city. Upon sale the inspector will require anything out of compliance to be fixed before sale. If you do it yourself and everything is within compliance you should be fine. I doubt painting or putting in new carpet would ever result in an inspection issue. If your doing electrical work you have a lot more risk of running into a problem. Again this is just my understanding but I believe if you actually call and ask any city if a contractor has to be licensed to do work the answer will always be yes.

As far as forums go BP is far and away the best resource for smaller residential investing. However, the ability to network with professionals in your area is pretty limited. With such a large following I believe BP has the opportunity to move beyond the forum and podcast space and serve in the role of an industry Association with local chapters that can organize local meetings and events and truly benefit from other. This may be a long term goal but I think making it easier to connect with professionals in your region would be a great first step. Forum discussions are currently limited to generalities from investors across the country with most detailed discussions taking place through direct messages. Forum conversations that focus on specific issues to one region will be more informative and naturally lead to networking opportunities and the establishment of true value added partnerships.