All Forum Posts by: Wes S.

@David Harper this question comes up now and then, usually related to the "Due on Sale" clause. Lenders allegedly are nervous about putting LLCs as the borrower, or as a policy don't. But if you transfer the property to an LLC after sale, the lender can legally call the loan based on the "Due on Sale" clause, because it would look like a transfer.

Brandon said in a podcast that this happened to him once, however he transferred it back to his name and the lender was ok with it. That's why your CPA is advocating for you to do it as an LLC from day one. There's no easy answer, but there are discussions about this if you search for that clause in the forums.

These are great discussions on it, thank you all.  To sum up a lot of what I've seen from the comments:

1. RE investors generally provide more benefit than not. Improving houses and surrounding property value and driving construction.  However people may be looking for a scape goat, and investors (especially "rich foreign investors") make an easy target -- regardless of how much market share they actually represent.

2.  Population drives up the price more than investors. Owner occupants will pay more for a house than an investor, due to better financing or emotional investment. The overall population of an area seems to push up the price more than most factors.

3.  Coastal markets are weird and expensive.  High-population coastal markets (Washington, Seattle, San Fran, etc) are restrained in geography already, but this gets exacerbated by rent controls, regulations, and zoning.  However, this is more likely to be the norm as people flock towards cities over the next 20 years.

Other take-aways:

@Mike Dymski made a great point -- it's hard to convince people to change, and trying to show a family-member that REI is a great investment vehicle may be...tricky.

@Chris Mason seems to have done alright investing in a chain of Meth Bike Repair Shops. 

Hi BP,

Do investors, purchasing a property with the sole expectation of renting it out, make it harder for owner-occupants to find affordable housing?

This is the question that came up from a family member.  He lives in Washington, DC, and sees how hard it is to find an affordable place to buy.  He thinks this is primarily due to real estate investors driving up prices, hence his reluctance to ever purchase an investment property.

For me, I know there are many benefits from investing -- improving property and overall values after a fix-and-flip, or that some people simply aren't ready or willing to buy and would prefer to rent.  And I think any price increase would be minimal and offset by easier financing for owner-occupants. But in the spirit of being open-minded, are there some studies out there that show the impact (positive and negative) of real estate investors?

@Sam Dal you can't do a background check without someone's permission.  If your friend has concerns living inside the person's home, I recommend asking the landlord for personal references.  There's not much else to do, other than ask the neighbors.

@Ben Davis yes, get with other investors. Avoid internet searches, as tenants often get on there and leave scathing reviews -- sometimes reasonably, but sometimes not. 

Look for your REI groups, or try connecting with contractors.

@Kate B. I believe you're thinking about the "lease with the option to purchase," or just "lease option." The tenant pays an amount up front, and you give that person the option to buy the house over the next X number of years at a fixed price you decide at the beginning. Sometimes the tenant's rent can go towards the overall amount owed.

Keep in mind that the lease option means that during the length of the contract, you cannot sell to anybody else. You can read more about it here on BP, as it can be a good exit strategy.

@Mike Moe Yes -- and you should avoid the trap of getting it cleaned before they move out, even by a day. Just take it as a lesson for the future to give about a week between tenants. That allows for cleaning, minor repairs, repainting, etc.

@Anthony Olaso welcome to BP! Househacking a MF in Washington is a great idea. Best of luck, and please post afterwards on how the process went -- or in the middle if you need advice on deal analysis.

Are you looking at the Everett area, or is your search area a bit wider?

@Miles Robinson this question is debated a lot, and you'll hear positives and negatives on both sides. Things to consider:

1) Depending on the state you live in, an LLC may not provide as much protection.

2) If you don't keep your finances perfectly separated (and even then it's not a guarantee), an LLC may not provide you protection.

3) You'll end up paying more in your mortgage and your LLC costs.

For those reasons, especially for your first one, it's generally fine to just get a lot of coverage in umbrella insurance (or a lot of personal liability coverage in the property insurance that you'll carry).

However, I'd be very interested to know if any BP member can say that an LLC did prevent them from losing money or getting personally sued at some point -- I haven't seen that posted.

@Jesse Shapiro Fire and replace them. My PM advertised the property one month before the lease expired and had a suggested tenant the very next day. I expect them to turn the property around within two weeks, including full inspection, cleaning, and minor repairs.

Mine is also very responsive to emails or phone calls, and I get a response by the next day. Communication is essential, because it is the means by which we trust them to do the job. If you don't have reliable communication, you need to get rid of them as soon as you have a replacement. Check your PM agreement to see what the fees are, and if you have to submit something in writing, but unlike wine, bad PMs do not get better the longer you wait.