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I need some advice from landlords (or anyone with knowledge) about buying a rental property for income. Do you suggest forming an LLC? How does it affect financing w.r.t downpayment and rates? Can the LLC be in a different state? I live in CT and the property is in NJ. Any idea what kind of documents the bank/lender will be asking for? Rental history? My personal income?
Thanks in advance.
You need to talk to your lender first, then your tax guy, and then your insurance guy. The answer I got from all of them suggested to me that the people that benefit most from LLCs are attorneys that get paid to draft them and then paid even more to figure out ways to penetrate them...
For most folks that are landlords as part of a family business the LLC is not going to do much good. For folks that have partners, whether silent or active, an LLC is probably going to provide more value...
You need to talk to your lender first, then your tax guy, and then your insurance guy. The answer I got from all of them suggested to me that the people that benefit most from LLCs are attorneys that get paid to draft them and then paid even more to figure out ways to penetrate them...
For most folks that are landlords as part of a family business the LLC is not going to do much good. For folks that have partners, whether silent or active, an LLC is probably going to provide more value...
Well said.
Now as for the rental property for income?
Do some research.
1. Know the market that you are getting the rental properties
2. Is this an investment or income property?
3. I am in SJ and stay away from NJ for rental property. Not sure what property tax is in your part of NJ but the number never made sense for me.
Make sure you know what's invloved in owning rental properties from that are far away.
Buy the property first in your name, a bank will have a hard time with you trying to buy it under the LLC name. So buy the property in your name and the day you get the property you put it in an LLC. Simple.
I need some advice from landlords...
Do you suggest forming an LLC? NO
Can the LLC be in a different state? They shouldn't be.
I live in CT and the property is in NJ. MUCH too far.
Buy the property first in your name, a bank will have a hard time with you trying to buy it under the LLC name. So buy the property in your name and the day you get the property you put it in an LLC. Simple.
May not be so simple to do with a mortgage, the bank would have issues with a change on the title.
I do suggest an LLC, they'll use your credit/income for it. Some banks may have an issue with the LLC, some may not.
I own a rental property in NJ, my inlaws own two. We do not have a LLC, but are "partnered" in the management and revenue of the properties. So, I do not think that a LLC is 100% necessary or will really provide all that much protection to the average small time landlord with a couple properties. Ultimately though, I think the advice of speaking to an accountant, lawyer and insurance agent is very valid to discuss your personal situation and the best way to proceed.
What I would say about this exact situation is that I think you should only own properties that are within a reasonable drive from where you are located and that you can visit and get to easily. All of the three properties we own are within a 30 minute drive or less from our principle residences. The other factor is the pure economics. In my in-laws case, they converted two properties that they inherited into rental properties. They took out small mortgages on them to finance needed improvements and both have been positive revenue generators from day one. My property I bought at a great price as a principle residence and only converted it into a rental when we decided to move. Between the mortgage, taxes, proprety management and maintenance it is pretty much a break even scenario for us. If I was simply doing this as an investment I would not have bought this property to rent. The only reason it makes any sense for us is that we do have equity in the home, so could sell it if we had to.
It is also necessary to maintain sufficient reserves to cover yourself in the case of vacancy or emergency repairs. We maintain liquid reserves that are enough to cover 6 months of mortgage payments and/or an emergency repair. Not having this kind of cushion would be suicide when owning a rental property.
The Reia and several coaches say to put it in a trust and make the llc a beneficiary. This is supposed to provide the best protection. I would speak to a lawyer first. I know some people who did not hire a lawyer and setup the llc themselves and they said they made mistakes and regret it.
Also everyone says it is better to put it in the state the property is in because if anyone does try to sue you will have to use that states courts and they will charge you extra if the llc is setup in another state or country.
If you the property into your name and then transfer into an LLC it will costs you money.
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