All Forum Posts by: Amy E.

Hi,

I've begun exploring the option of buying an investment property with the intent to rent by the room. Where can I find more info on how to safely and legally accomplish this? Google has not turned up much. So far, I have checked the Fair Housing Act and I can rent to same-sex occupants without violating it (apparently if you have shared living/common areas you can restrict your room rentals to one sex only). I have also checked my local municipal code and there are no restrictions on the quantity of un-related folks living together.

The reason I wish to pursue this option is purely from a cash generating standpoint. I can meet the 2% rule (just barely) in my area with a SFR, but I am only going to get $800-900/month depending on the neighborhood. So while my percentages are fine based on investment amount, I'd like to get a little more bang for my buck so to speak. I checked my area and you can rent a room in a person's house for $400-500/month. I did not see anything advertised for a whole house that rents by the room.

Here are the various clientele I am considering:

Student - we have several small colleges in the area. However, because the colleges are small, most of the students are either adults returning to school or kids who are bunking at home until they get their core classes done and move off to a larger university. So I'm not sure how large the rental pool would be for this and I would be limited to specific neighborhoods near the schools.

Military - We have a huge military base nearby with mostly mid-career folks stationed here. I actually work on base, and know many of the folks there are on temporary assignments (3 years or less) so they come unaccompanied (without their family). Additionally, with every mid-high ranking officer come the junior officers to take care of them who have a much smaller salary and are always looking to save a buck. I can also get with the housing office and market through them. I would be limited to neighborhoods near the base (well, maybe not, but it would be a big selling point).

Disabled- We have a shortage of group homes in the area for the infirm. I have been approached by a friend of a friend who runs a home health care management company. Their clients are mostly folks who can't mentally fend for themselves, but are still physically capable of many things (they can bathe, feed and dress themselves; but can't shop, administer their meds or cook for themselves). Most are entitled from Medicaid to 8 hours of care per day (either babysitter or nurse type) and if three live together then they are cared for 24/7. In this scenario, the management company is responsible for ensuring the home is approved by the state as living quarters (and any licenses that go along with it) and I would either rent directly to the management company (for market value of a whole house, which wouldn't help me) or by the room to each individual (where I could charge the area's going rate and increase my cashflow).

Here're my questions:

1) What types of things need to go in the lease when you have shared common/living areas vs. a regular lease?

2) Are there any other ways to increase cash flow other than by the room rentals? I am in a rural area, which limits me a little bit. And no, I have no interest in investing elsewhere right now.

3) Should I consider different types of insurance right now? I have liability through my rental's homeowners policy.

4) Are there things I should do to the property (like installing locks on each bedroom) that are specific to by the room rentals?

5) Anyone have direct experience with this and have any tips?

Hi,

I'm new and just getting started and can't seem to get anyone locally to answer the question of "Do I need a local business license or not".

I live in Georgia and my home is in a county outside city limits. I've registered an LLC with our Secretary of State and also obtained an EIN from the IRS using my local home address as the address of record (state website would not accept a PO box and to be honest I don't really want to pay for one). I am a little concerned because my home neighborhood has covenants that state you can't run a business from your home. So if I need a business license, I am not sure what address to list.

I've called the county three times asking if I need a business license to hold rental properties (did not mention the LLC, wanted to know what it is for a person first). The first time I called they said they'd call back and never did. The second time I called they said if I make money, I have to have a license (makes sense, the Gov't always gets its share). Then they tried to transfer me and we got disconnected. We I called back, got yet another person who said that since I lived in the county but was intending to buy houses in the city, I needed to talk to the city.

Called the city twice. First time they said they didn't know and would call me back (haven't). I called again this morning and the person didn't know the answer and said they'd have the supervisor call me back (doubt it).

Does anyone have experience figuring out if you have to have a local business licence to own rentals? Is it different if you're a person vs. an LLC? I realize laws are going to vary at the local level, but I can't get my local Government to give me any info.....

Thanks,

Amy

Thanks Scott and Zack!

I will check out local banks and see if I can get a better deal somewhere besides our credit union. Do you know of any national banks that do so as well?

Thanks again!

Hi,

I've wanted to try to buy a SFR in my local area for awhile now. Unfortunately, I can't meet the 2% rule in the average housing price area. I finally realized I needed to go to the lower middle class area (still decent, nice neighborhoods) and found one that ALMOST meets it. I feel like this is the closest I will get to the 2% rule, as I've been watching for awhile now (about a year) and nothing better has ever come up.

Asking Price = $33,000

Rent = $850/month

Repairs = $15,000 (should be less, but wanted to be conservative)

Taxes = $600/year (yup, that's it)

Insurance = $450/year (basic quote)

Flood Insurance = $500/year (estimate, have not got firm quote)

Last sale price = $94,000 (2006, note: the "bubble" did not have big impact)

My "rule" is 1.7%, but I'm hoping to negotiate the price down to make it to 1.9%

My question is mainly about financing. Here are what I see as my options:

1) Conventional Loan. I have not checked with big bank chains, but my local credit union will lend me 80% of the value @ 9% for 12 years to my LLC. They will also give me a "rehab loan" for six months at which point I have to convert to the conventional loan above. I'd owe $8,000 cash in this scenario, plus whatever closing costs. Mortgage = $437/month

2) Borrow from my 401k. I have way too much in my 401k right now. I know you can't ever have "too much", but I ran the numbers and I could take out a $50k loan from my 401k and it will not impact my retirement goals. If I take the money from my 401k, I have to pay myself back at 2.25% over 5 years. The interest goes back into my 401k as my own money (I'm paying myself the interest) There is a $50 (yup, just $50) to get this, no closing costs. I could buy the property outright in this scenario and use the cashflow to pay myself back. Monthly payment = $847.

3) Peer to Peer Loan. I could use Prosper or Lending Club, get a $35,000 loan @ 8% for 5 years. Monthly payment = $709.

4) Combination of 1, 2, and 3 above.

As I understand it, I will not qualify for a 203k loan (they stopped giving them to investors) or a Small Business Loan (they'll lend you money for real estate, but only if you need it for an office). I don't want to hold the property in my personal name b/c of liability, so I can't get a conventional mortgage that way, either.

My spouse thinks #2 is best because we will be "paying ourselves" the interest back and the interest to the business is much cheaper. I disagree b/c all the money for the first five years will be going towards paying off the loan; then we're left with paying operating costs (maintenance, insurance, taxes, etc.) out of pocket. I lean towards 1 or even 3.

So, two main questions:

1) Can someone help me evaluate the cost benefits of the above scenario? I'm not quite sure how to do the analysis.

2) Anyone know of other ways to finance or better rates from alternate lenders? I've been searching the boards but there is a lot I don't understand.....