All Forum Posts by: Zach Fulton

Hi @Zach Fulton - that's quite a juggling act you've got going on.. I've been down that road of carrying a line of credit on a property before, and the stress can realy pile on when you're staring at that monthly interest. One thing that's jumping out to me is how your House 3 has some serious potential once you carve out that above-garage apartment. Even though you're not fond of DSCR loans, it might serve as a bridge to free up your line of credit for quicker flip-and-reno opportunities.

I remember years ago, a close friend of mine was in a nearly identical situation.. from what I read in Forbes, he ended up with zero wiggle room each month. He ultimately refi’d into a loan that felt hefty at first, but it freed him up to add another unit in the building. Once that extra rental started generating income, he realized the higher interest rate was just a temporary hiccup on the way to bigger returns.

In your case, maybe look at a structure that keeps your best cash-flow property on a lighter refi (say 50% or 60% LTV) while you go a bit heavier on the one that's not producing as much right now. That way, you might preserve some of your monthly profit while still knocking out that line of credit. Alternatively, you could split it between House 2 and 3 in a way that covers your building budget for the apartment. And if your investor friend's private loan helps fill in any gaps, it might be worth considering that short-term pain for long-term stability.

What do you think you’d focus on first... paying off that line of credit as fast as possible or jumpstarting the renovation to boost cash flow right away?

@Zach Fulton, welcome to BP.  I really like the post of @Mike S., it contains a lot of common sense. I prefer to use an LLC, but I do have 3 properties in my personal name for reasons too long to tell here. LLCs do help protect from liability, but are not magic. Operating them wrong or doing certain actions yourself can limit there protection. One thing to consider is the additional cost and time involved. With 2 properties already it is time to think about going the LLC route. I find I pay about 1% more in loan rates for an LLC and still have to personally guaranty the loans anyway. I also have a couple of S Corps in addition to my LLC and the few I own myself. In hindsight I wished I had just gone with straight LLCs, but I was a different person 35 years ago when I started investing. LLs can get a free stepped up basis for your heirs if you do it right, but it is likely I will not be able to pass on the stepped up basis to my heirs from my Sub S corporations.

Either way good luck, you are thinking the right things.

There have been plenty of similar discussions on this forum and you should spend some time reading most of them.

You will find two camps:
1/ LLCs are not needed, you just need liability insurance
2/ LLCs are a must as insurance does not cover you for everything and all your assets are at risk

1/ and 2/ are valid answers depending on your specific situation. No one can tell you what you need, it should be based on your own specifics and your risk taking tolerance.

For me, I strongly support 2/. However, setting up LLC is not as straightforward as going online and creating one. There are a lot of things you need to learn first. I would strongly suggest you spend the time watching the many videos on Clint Coons Youtube Channel that is a treasure trove of information.

You will learn there what kind of LLC you may use in your situation (single member/multi member; member managed/manager managed). You will also have to decide on its taxation status (C or S corp, Partnership or disregarded). And most important you will need a strong operating agreement for your needs (don't use the free template available online or provided by LLC mills). You will also learn in which state or states you need to create your LLC. The most common setup today is to have a WY LLC as holding (either as disregarded or partnership with a C-Corp as manager), and multiple single member disregarded LLC in each state where your properties reside. But there are some variations with specific states where other tools need to be used in the mix like Wyoming Statutory Trusts and land trusts.

After you educate yourself on the structure, you will have to learn how to use it and properly set up its books and bank accounts. Again depending on the structure you chose, it may be different.

If you want to grow your portfolio, don't set up a structure for what you have today, but design it for where you want to be in ten years. If your setup was created properly initially, it will be easy to expand. On the other hand, limiting your views now will become a costly adventure to expand it properly in the future.

Anytime you are debating if something should come of the deposit or not you need to ask yourself what can I prove the tenant did to break this.  Sometimes there may even be abuse but if you can't prove it you are going to have a hard time if there is a dispute.  I understand it worked when you lived there but pretty much everything has a useful life and while it worked then everything in the house will fail and need to be replaced at some point, that is where reserves come in.  A dishwasher is too cheap to repair and I'd just buy a new one. 

Get the dishwasher fixed first, and let the vendor diagnose what the cause of the break was. If it was intentionally tampered with by the tenant, then you should take it out of their deposit at move out. If it was a break down over time, unfortunately that is an expense you will have to take on as the owner.