All Forum Posts by: Ryan Morlino

In regards to the legal issues you brought up, I already have a meeting set up with an attorney next week to address those things.  The concerns you brought up have been on my mind.  The meeting next week was what triggered this thread, so with the legal issues being handled, I was more hoping to talk valuation of a ground lease here.  You've definitely given me a lot of good things to think about.  I really appreciate all your input.

Thanks, Deanna.  Definitely lots to consider.  I will look into the trust solution.  I also like the idea your sister did with reducing inheritance by a value equal to the property.  Being their son-in-law, I have some reservation in telling them how they should set up their will, but I will try to address some of the issues with them.  They fully understand we have an interest in protecting our investment.  I'll also look into the dead for purchase option if the property could be subdivided in the future.

As for building before an agreement was signed, I agree that is definitely not ideal, but there is some flexibility in dealing with a family where we are all on good terms versus a typical business need.  They want us to succeed.  My father-in-law was self-employed most of his life (dentist) so his retirement plan was building rent houses.  They are happy to see us following in their footsteps and have been supporting us all along (even helped with the construction labor).  Still, we should have figured this out from the get go.

Thanks for the input, Thomas.  I left out some information that might shed more light on the situation.

We would love to purchase the land outright, but my understanding is that the property cannot be subdivided.  That would certainly clear up a lot of this if it were possible.  My in-laws already have several other rent houses on the property.

The property is not going to be sold (it is needed retirement income for my in-laws) and my wife is the heir.

In addition to rent payments, we would also cover paying property taxes on the improvements we have made, and bear 50% of the costs for maintenance/repair of shared use facilities (electric gate, road maintenance, etc.)

Can you explain how leasing for $1 per year and splitting profits through a partnership would be preferred to essentially splitting profits as a form of rent payment?

I need some advice on pricing rent for a ground lease with a 99 year term.  Let me give a little background info first.

My wife and I recently built and rented two houses on land belonging to my in-laws.  The agreement has been that we would lease the land from them for a percentage of gross income.  We plan on building more houses on this property over the years, so the lease payment would go up as we expand (but fixed percentage).  The houses were rented out on the first of this month, so we are late in getting this ground lease done, but it has all been done in good faith and we have their full support.

Neither party really has a great feeling for what our rent should be and no one is trying to make money off of the other, however, we are all trying to be fair with each other.  The best method I can come up with for pricing a ground lease is estimating the market value of the land, coming up with a reasonable number of years to return 100% of property value (ie. when the cumulative rent payments equal market value), and dividing that out into a monthly payment (which would then be turned into a percentage of gross income).

For example, if the property we are leasing is valued at $50k, using a 10 year break even term, monthly payments would be $417 ($50k / 10 years / 12 months per year).

Does that seem like a reasonable strategy to price a ground lease?  If so, what would a good return period be for the lessor?  7 years, 10 years, 15 years?

Also, I've read about some ground leases having terms where rent is paid up front in a 99 year term (full market value) with the right to purchase the land at a future date for a nominal amount.  Would it be unreasonable to ask for a mix of this and a typical ground lease, where we would pay monthly rent until market value has been reached, at which point rent would go away?  Sort of like a rent-to-own, but ownership would never change, only rent would go away.

Thanks for any insight you can offer!

Thanks for all the input! I greatly appreciate the feed back. 

I want to clarify my intent, in that I was asking about having a separate personal account being used exclusively by the LLC, not necessarily commingling personal and business funds in the same account. I had a suspicion that this really ought to be a business checking account owned by the LLC, but just wanted some input on that. I'm fully aware that commingling funds is a recipe for disaster.

As to why I want multiple accounts, I think it's because I'm trying to apply the way I do my personal finances to business practice. I'm an engineer and the way I have things set up works perfect for my personal life, but I'm beginning to see how that won't transfer well into business finances. Now that I've had a few more hours to play around with Quickbooks, I'm starting to see how one account can do it all and I can keep track of different buckets of money within one account. 

I've decided the best thing to do is what's been suggested. I'll open one business account in the name of the LLC and manage it in Quickbooks.

Thanks to everyone for the input and helping me think this through. 

Thanks Jana! So you are suggesting that every account I use should be a business account owned by the LLC? I'll have to do more research into banks with low/no fees for small business owners.

I'm not an accountant, so some of this is foreign to me but I'm trying to learn.  As I play around with Quickbooks, I might be able to work with one operating account and I can code money into different accounts on there. I'm currently trying to see how that would look on my Quickbooks account right now.  From the research I've done, it seems like most people use one main operating account and earmark the money for different purposes on the bookkeeping side, rather than use separate accounts.  Am I right in thinking that?

My wife and I are in the process of filing for an LLC through an attorney before we start our rental business in a few months. I have some questions about how I should structure my bank accounts and which need to be business accounts.

In order to maximize the protection of the LLC, I'm wanting the rent collection account to be a business account in the name of the LLC. What I'm wondering is, once this money comes in, can the money be transferred to personal accounts in my name with no loss of protection? I want to have separate accounts to set money aside for income tax, property tax, maintenance, security deposits, etc. Having these as personal accounts would make it easier to manage but the main thing is I would save money on business account fees.

I guess the main thing I'm wondering is is it okay if I use personal accounts as digital envelopes for setting aside money each month so I can better plan for year-end expenses, or does everything need to be in business accounts?  I'm the kind of person that has about 10 personal checking accounts that I use for various things and I like keeping my money separated than in one big pile.