Buying A Home
dgbayer
member
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
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Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Investment/rental property-how to get started
DH and I have been saving to buy a rental single family property in our area. I have researched prices and rentals rates and business forms. I understand I will need to meet with an accountant, but wanted to get a general idea of the best way to purchase the pproperty. We would like to either start an LLC or Corp for personal liability protection but have been told that we would still have to buy the property in our own names as the business would not have credit. I am looking for suggestions from anyone who has purchases rental property on the best way to proceed from a liability protection and tax minimization standpoint. Let me know if I need to provide more info. TIA!
Re: Investment/rental property-how to get started
We are accidental landlords (we had to move from properties we bought and can't/won't sell for a loss), so I can't speak to any legal issues. Your best bet would be to find an attorney who can set up the business and make some tax recs.
What I can tell you is to be VERY, very sure of this.
Are you 120% positive this will be profitable? Are you buying well below market value in an area with high rental demand?
Do you have reliable staff of every type of tradesman to be on call 24/7/365 for anything that goes wrong?
Does the property need any work? Get contractor estimates before purchasing and add 30% or more for overage...because it WILL go over.
Do you have a good lawyer who's ready to draft your contracts and sue bad tenants?
Do you have a flexible job that will allow you to drop everything when it's time to put the house back on the market or something goes wrong? Because being a landlord is a full-time job. It will take every spare second you have to turn the property between tenants.
Do you have several months' mortgage in cash in the bank for between tenants and repairs?
Have you spoken at length with rental property owners? Are you really listening or are you only hearing what you want to hear?
Now that I own rental property, I would tell anyone not to do it, and it's something I always wanted to do before we got into this position. We have had HORRIBLE tenants - one did $4k worth of damage, the other did $9k...not including, of course, our holding costs during the time it took to do those repairs. And our homes are high-end homes in exclusive neighborhoods and the tenants were CEOs with exceptional incomes. You absolutely can never tell who will take care of your house and who won't. You need tens of thousands of dollars in cash in the bank at all times and you need tradesmen you can trust who'll deliver on a moment's notice.
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Thinking of doing cosmetic updates to a dated home? These were our costs.
I've had a completely opposite experience from PP.
We have 2 rental properties and it has been a breeze. I manage them myself, and had no idea what I was doing until I started. I have never met with a lawyer or financial advisor. I do not have any business set up, and I do my own taxes. I did get some great advice (and a great lease) from my uncle, who has owned several rental properties for over 30 years.
If you're buying a house strictly for rental use, be prepared to pay a higher interest rate. Also, negotiate a home warranty into the price, or buy your own, and continue to renew. If something major break in the house, it's much easier and cheaper to call the home warranty company to fix.
Get very good insurance - a landlord policy on that property, and an umbrella policy for at least $1mil. Carefully read your policy, and be certain that your rental requirements are alligned (no dangerous breed dogs, no in-home business, etc).
Keep records and receipts of all money involved. Personally, I think that TurboTax is very easy to use, even for rental properties.
For me, being a landlord and managing the properties has been really easy so far, and has taken up very little time and energy. We plan to turn our current residence into another rental in a few years, and will purchase a new primary residence for ourselves (which, is in easier way to acquire rental properties).
Good luck!
We are also accidental landlords. H bought a condo while in college, and we have been relocated since. Although we've been fortunate enough to have had it rented the majority of the time, we've still taken a considerable loss.
The property has depreciated more than 30% and of the 36 months we haven't been there, we only have received rent for 28 months.
Bottom line: I wouldn't do it again and we've always had good tenants. We've never had tenant caused damage, but have had to clean, repaint, replace carpet/flooring, new water heater, new appliances, as well as upgrades for lighting and countertops.
Example:Last year we $2200 more in expenses and repairs than we did income. This doesn't include mileage or other tax related expenses/deductions or the depreciation schedule for taxes which is an additional $6000.
This year, we are selling at a 30% or more loss, just to get rid of it.
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For us, the landlord policy was actually cheaper than the primary residence policy. On both places, it was reduced by a couple hundred dollars once it was turned into a rental. I would guess that this is because we were no longer insuring any property inside the home. Also good to note - some landlords require their renters to get rental insurance. We do not, but we do have a clause in the lease noting that we are not responsible for any of their property, and highly encourage them to get renter's insurance.
We also have a $1mil umbrella policy, which I think is costing us about $25/month. This umbrella policy covers everything we are insured for (our house, rentals, cars, etc), so it's great coverage all-around. Definitely well worth the peace of mind.
Getting insurance, in our experience, is no big deal. Our company calls it a "fire policy" and it runs 2/3 the cost of when we lived there. The big thing is vacancy time. Our company won't allow the property to be vacant for more than 30 days or coverage lapses and they won't cover any losses during that time.
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Thinking of doing cosmetic updates to a dated home? These were our costs.
Maybe someone in the insurance business can clarify, but I don't believe that a "fire policy" is the same thing as a "landlord policy," or maybe they are just referred to differently, in different states.
There is no vacancy clause on our policy. It could be vacant for months, and is still covered. It also covers plumbing back-up damage, acts of God, vandalism, theft, etc. Most importantly, we are covered for injuries or damages suffered by people on the premises. For example - if your renters' dog bites someone, they can sue both the renter and the landlord. Same goes for any injuries related to a pool, trampoline, climbing on a ladder, or contractors on site doing any work. It also covers lost rent for any time that the damage is being repaired.
Not all insurance companies offer comprehensive landlord policies. Just make sure you are really well covered.