All Forum Posts by: Raj Gandhi

For purposes of reducing my personal taxable income, is it effective to run rental income & expenses through a business?  I need some of the rental income for personal household expenses which would be a salary (right?).  With a business, at least I'd be able to control the amount of income to myself vs. the business.

No, I don't have a business for the rentals yet because I'm avoiding any more financial complexity.  I only have one bank account and one credit card account and use Quicken reports for allocation.  I'd expect another bank account and another credit card for the business.  That will make sense most of the time but certain times it won't, like vacation trips that are also searching for rental property.

Due to the infamous 'due on sale' clause of lenders, it is unlikely that I'd transfer the rentals to the (LLC) business.

I know of a decent SFH property that has been vacant for 3-4 years. I'd like to buy it if I can get it for a great price. I'm a buy & hold investor with 6 SFH rentals. Here's what I know about the vacant home based on internet and paying a title company to run a report for me:

 - orig mortgage 2005, now assigned to Bank of New York Mellon 2011

 - 2nd mortgage 2005, MERS Countrywide Bank

- loan servicer is BAYVIEW LOAN SERVICING LLC; they appear to be out of business?

 - man and wife on mortgages, ages mid-60s by now; foreign names

 - taxes are up to date on the subject property; not foreclosure (really odd)

 - mailing address for taxes is different than subject property

- this, 2nd property (address for taxes) is REO (possibly also vacant)

 - phone number for man is disconnected; no phone for woman found

How do I proceed?  Keep trying to find man & woman on title or can I try to buy the mortgage from Mellon?  

Real estate agent and Appraiser.  Both have training and would put you in contact with the industry.

To a lesser extent, Mortgage Broker would put you in touch with the lending side.  However, this job is volatile based on current interest rates. 

If you're handy, perhaps General Contractor.  

Go nuts and start your education in all four.  If you hit a road block then drop as needed.

Welcome to the site @Nicole Brush .  I like what @John B. had to say but I would tweak it. Find a good 2-4 unit multifamily. Put down as little as possible to avoid PMI and get a good fixed rate. That's probably a 20-30% down payment.

Looks good.  Can you validate the rental prices and make sure they're not inflated?  Ask for the last couple years P & L to validate expenses.  Review short-term appliance needs.

How is the neighborhood?  Try to come up with a reasonable value for vacancy rate.

It is in the ballpark for being reasonable.  It exceeds the 1% rule.  Gross monthly rent is more than 1% of the purchase price.  $3000 > $2200

The seller may want the unit vacant so it shows better until sold.  Finding four tenants will cost $1500 - $3000 if you hire a property manager (in my area it would).

I can't say why an owner wouldn't decrease the cost a little after 4 months.  Sellers are often irrational.

Keep doing research on taxes and insurance.  Ask (via your agent) for P & L from the seller.  Arrive at guesses for utilities and expenses.

It exceeds the 1% rule.  You're collecting more than 1% of the purchase price (plus rehab) per month in rent.  $4800 > $3750.  Therefore it probably cash flows and is worth further consideration.

You'd owe tax on the profit, not $1200.

Use that as gas money and get a 2nd job?

Invest in stock market index fund.

Rough situation, but not uncommon.  First, try to separate emotional attachment from finances for the old home.

Financially, assume everything you've put into that home is sunk (gone).  The sale value is exactly the market value (equity is what you'd have after paying off the mortgage).  The rental value is what it is.

Calculate: Cash on Cash return = (annual rent income - expenses) / equity

CoC > 20% => you've got a good business

10% < CoC < 20% => you're in no-man's land

CoC < 10% => you've got a good hobby

CoC < 0% => you're in trouble

The calculation would be ~weird if your equity is negative.  If that's the case, let me know and I'll re-think.