Got Investment Property?

[rugerjitsu]

anyone here consider themselves educated/experienced with buying investment properties?

I'm looking at some sub $100k town homes in my area to buy and use as rental income.

I'm to the point where I think I'm ready to get pre-qualified for a loan.

Is it a good idea to start an LLC to use when buying the property?

I've been doing my research, but any pointers would be appreciated. I work a 9-5 with good income and benefits, but I'm about to turn 40 and I don't see myself sticking with a 9-5 till retirement time...it's a good job and I like it, so who knows.

Thanks!

 

[Switcher]

I know little about investment property. I have a slight bit of knowledge regarding business combinations.

The nature of a LLC is to share a reduced individual liability as well as provide a methodology for decision making authority within the combination. To truly limit liability in a business combination though you must do everything necessary to show the organization exists on more than just paper, charter, articles, regular board meetings, etc...

Opposing council, if they are wanting to assess you with more liability, can attack the legitimacy of your LLC. They would want to show you retained all control, did not include others in the decision making process, and therefore should shoulder 100% of the liability without business combination limitation. It's called 'piercing the corporate veil'. They can obtain all these items during discovery. The first book I read on this subject was the Buffalo Creek disaster. Good reading if you want to understand the subject better.

There are many websites that will help you get organized, for free , and the filing to start a business combination can be accomplished over the internet (with the Secretary of State) in all the states of which I have lived. They will also help you get all corporate documents in place such that piercing the veil becomes very difficult if not impossible.

Even if you are the only investor, if you are holding regular partner meetings (meaning you have included a few others as partners) and uphold the charter and articles, it would be difficult to suggest you did not create an living, breathing, business entity. Within that, your liability should be much more limited.

 

[Megadick3000]

I own multiple pieces of real estate both residential and commercial fully rented out to tenants. I contribute $0 to mortgages, it's sweet. I started a holdings corporation that owns the properties, I am shareholder, officer, and director. Keep in mind I'm in Canada so not sure on the US laws but here in Canada if a corporation buys a property you do not have to pay certain fees that private individuals do have to pay. Buying residential verse commercial are a lot different. Here in Canada you can easily buy residential with 5% down payment but to buy commercial it is a minimum 25% down. My commercial property is also taxed higher with regards to property tax. On the plus side my commercial tenants pay their sq foot portion of the triple net expenses such as property tax and building insurance and sewer use for the building whereas my residential tenants just pay rent and I have to pay all the property tax and insurance myself.

I'm not sure what advice your really after? If you can get more specific I'll give you some input.

 

[rugerjitsu]

I own multiple pieces of real estate both residential and commercial fully rented out to tenants. I contribute $0 to mortgages, it's sweet. I started a holdings corporation that owns the properties, I am shareholder, officer, and director. Keep in mind I'm in Canada so not sure on the US laws but here in Canada if a corporation buys a property you do not have to pay certain fees that private individuals do have to pay. Buying residential verse commercial are a lot different. Here in Canada you can easily buy residential with 5% down payment but to buy commercial it is a minimum 25% down. My commercial property is also taxed higher with regards to property tax. On the plus side my commercial tenants pay their sq foot portion of the triple net expenses such as property tax and building insurance and sewer use for the building whereas my residential tenants just pay rent and I have to pay all the property tax and insurance myself.

I'm not sure what advice your really after? If you can get more specific I'll give you some input.

the part where you say you contribute $0 to mortgages...please explain that if you don't mind!

so, right now i've got a real estate agent lined up, but i need to get pre-qualified for a loan.

which leads me to my next question...after i buy my first property, when should I start thinking about buying my next property? As i mentioned, I have good income from my 9-5, but i don't know how banks would want to keep loaning me money for real estate if I already have two mortgages (my home and the rental).

I hope that makes sense...thanks for any help!

 

[Megadick3000]

They make money loaning you their customers money, of course they wanna do it so long as you can demonstrate you can make the payments.

I personally pay no mortgage as I live in one of my buildings and all my other tenants in the building (it's mixed commercial/residential building) rent payments are greater than the monthly mortgage payment plus property tax plus building insurance plus electrical costs for the common areas of the building. Thus, I pay no rent nor mortgage myself. My other buildings are rented out as well and those cover their own buildings associated costs and mortgage payments. I just sit back and wait for them to pay themselves off and appreciate in value.

Do your homework before buying something so you know what you'll be able to charge for rent(s). If at all possible get multi unit buildings, triplex, fourplex, they will pay for themselves and even provide some income on top if you get a good price. There's tons of books on this subject type, get some if your serious and sponge all the info you can manage.

 

[ironwill1951]

it all sounds good until its time to sell and you have to pay capital gains and recapture your depreciation. you wont make what you thought you would.

 

[Switcher]

it all sounds good until its time to sell and you have to pay capital gains and recapture your depreciation. you wont make what you thought you would.

Isn't it still better than if a person remains on the sideline choosing to not make anything when they see an opportunity to actually make something and be better off.

 

[rugerjitsu]

The end goal is to accumulate passive income as well as appreciating assets.

 

[Dr__Jan_Itor]

Investment property is a good way to make money for the future if you know what you are doing. You won't make much money in the beginning bc of the mortgage payment and taxes but once that paid itself off you have a steady money stream coming in (mostly after 15-20 years depending on your loan)
Also get a good building manager and property layer that will take alot of stress of you.
If you have the chance rent to a family bc they tend to stay much longer in a home than singels.
Besides that watch the market and the development of the city you want to buy in. (Little tip: go to alot of open houses and real-estate showings in the area to see what is being said about the neighborhood and so on.)
For the basics of finance and investment you probably have to do a year of research so start early.






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[ironwill1951]

the hud buildings I have are a big pain in the ass. subsidized building are the worst the government pays the rent but the tenants trash them . seniors are the only way to go.

 

[Dr__Jan_Itor]

Yes definitely stay away from people with goverment subsidized rent.
Seniors are good way too. Forgot about them.

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[FourierSeries]

I own multiple pieces of real estate both residential and commercial fully rented out to tenants. I contribute $0 to mortgages, it's sweet. I started a holdings corporation that owns the properties, I am shareholder, officer, and director. Keep in mind I'm in Canada so not sure on the US laws but here in Canada if a corporation buys a property you do not have to pay certain fees that private individuals do have to pay. Buying residential verse commercial are a lot different. Here in Canada you can easily buy residential with 5% down payment but to buy commercial it is a minimum 25% down. My commercial property is also taxed higher with regards to property tax. On the plus side my commercial tenants pay their sq foot portion of the triple net expenses such as property tax and building insurance and sewer use for the building whereas my residential tenants just pay rent and I have to pay all the property tax and insurance myself.

I'm not sure what advice your really after? If you can get more specific I'll give you some input.

Are you in Ontario?

I ask because I decided to buy a residential property to rent to students, but the bank wouldn't approve the mortgage in the amount I wanted. Are there any geographical factors involved?

Other than credit rating, are there other things that banks consider before approving mortgages?

Im in Toronto btw

 

[Megadick3000]

Are you in Ontario?

I ask because I decided to buy a residential property to rent to students, but the bank wouldn't approve the mortgage in the amount I wanted. Are there any geographical factors involved?

Other than credit rating, are there other things that banks consider before approving mortgages?

Im in Toronto btw

Goto a credit union. Or do what I did and meet with a mortgage broker who will find some financial institution that wants to work with you.

In my case th mortgage broker found a small local credit union that was very happy to work with me. This was a few years ago when the credit union were the ones doing all the lending as th banks were still shook up about the sub prime mortgage fiasco.

My terms about to come up in a few months on the first term of the mortgage so I've akready started shopping around for a better interest rate now that I've got some "clout" with the banks (payments of mortgage)

I have really high credit in the 800s now, my mortgag broker said 740 was the limit of relevance, anything higher I guess isn't needed/considered.

I'm in western Canada. Good luck! Def talk to a broker

 

[ironwill1951]

go to trump university.

 

[FourierSeries]

Goto a credit union. Or do what I did and meet with a mortgage broker who will find some financial institution that wants to work with you.

In my case th mortgage broker found a small local credit union that was very happy to work with me. This was a few years ago when the credit union were the ones doing all the lending as th banks were still shook up about the sub prime mortgage fiasco.

My terms about to come up in a few months on the first term of the mortgage so I've akready started shopping around for a better interest rate now that I've got some "clout" with the banks (payments of mortgage)

I have really high credit in the 800s now, my mortgag broker said 740 was the limit of relevance, anything higher I guess isn't needed/considered.

I'm in western Canada. Good luck! Def talk to a broker

That's great advice. Thanks!

I did notice mortgage brokers offer better rates than banks, but is there a catch?

I wonder if buying rental income properties through a corporation makes a difference or is that irrelevant

Thanks,
Fourier

 

[Megadick3000]

That's great advice. Thanks!

I did notice mortgage brokers offer better rates than banks, but is there a catch?

I wonder if buying rental income properties through a corporation makes a difference or is that irrelevant

Thanks,
Fourier

go talk to a mortgage broker. They don't charge for consultations in my experience and they make money only if they can find mortgage deals for you, if they can't, they don't make money. A good mortgage broker will have contacts with all the major and even minor institutions on a personal level.

Regarding corp. I bought mine with a holdings Corp and it allowed me to avoid paying I think it was title transfer taxes or maybe it was the sales tax. It was like a huge 20k savings on the purchase, this is in BC. BUT - when you intake rental income under a corporation it is, at least here in BC, considered investment income which, here in BC, is taxed at sonething like 42%. Meaning if you took in 10,000 in rent over a year, you would owe 4,200 in income tax. Ya the government is a greedy prick, 42%!

If you buy it in your personal name you will need to pay the tax that a Corp gets exempt from or is allowed to write it off. However, you would then pay a personal income tax rate on the sum of rent. If the rent was 10k for a year and your job made you 50k in the year you'd be paying income tax rate of 60k (whatever that may be) on the 10k sum.

Another thing you wanna consider is regarding renovations. The corporation can write off the renovation costs against the income tax to be collected from rental income. So if you intend to do a lot of renovations this us something to consider. If you renovate under personal ownership you can't write those costs off against your income.

But keep in mind of course when you renovate either as corp or personal you are adding to the ultimate resale value.

theres other things to consider too such as capital gains taxes upon resale value...

 

[FourierSeries]

go talk to a mortgage broker. They don't charge for consultations in my experience and they make money only if they can find mortgage deals for you, if they can't, they don't make money. A good mortgage broker will have contacts with all the major and even minor institutions on a personal level.

Regarding corp. I bought mine with a holdings Corp and it allowed me to avoid paying I think it was title transfer taxes or maybe it was the sales tax. It was like a huge 20k savings on the purchase, this is in BC. BUT - when you intake rental income under a corporation it is, at least here in BC, considered investment income which, here in BC, is taxed at sonething like 42%. Meaning if you took in 10,000 in rent over a year, you would owe 4,200 in income tax. Ya the government is a greedy prick, 42%!

If you buy it in your personal name you will need to pay the tax that a Corp gets exempt from or is allowed to write it off. However, you would then pay a personal income tax rate on the sum of rent. If the rent was 10k for a year and your job made you 50k in the year you'd be paying income tax rate of 60k (whatever that may be) on the 10k sum.

Another thing you wanna consider is regarding renovations. The corporation can write off the renovation costs against the income tax to be collected from rental income. So if you intend to do a lot of renovations this us something to consider. If you renovate under personal ownership you can't write those costs off against your income.

But keep in mind of course when you renovate either as corp or personal you are adding to the ultimate resale value.

theres other things to consider too such as capital gains taxes upon resale value...

Wow, 42% sounds unreal!

That's great information.

Thanks

 

[ironwill1951]

I think your missing the reason one becomes incorporated, as an example if you have a fire in a building you personally own and some one gets killed. you will get involved in a lawsuit, the person filing the suit can end up owning your home your car and any other assets you have , however when your incorporated they can only sue the corporation they cant touch your personal assets, and if its a car accident they can go after your personal assets but cant touch the corporation. becoming an s corp is made to protect your assets not your income or taxes.

go talk to a mortgage broker. They don't charge for consultations in my experience and they make money only if they can find mortgage deals for you, if they can't, they don't make money. A good mortgage broker will have contacts with all the major and even minor institutions on a personal level.

Regarding corp. I bought mine with a holdings Corp and it allowed me to avoid paying I think it was title transfer taxes or maybe it was the sales tax. It was like a huge 20k savings on the purchase, this is in BC. BUT - when you intake rental income under a corporation it is, at least here in BC, considered investment income which, here in BC, is taxed at sonething like 42%. Meaning if you took in 10,000 in rent over a year, you would owe 4,200 in income tax. Ya the government is a greedy prick, 42%!

If you buy it in your personal name you will need to pay the tax that a Corp gets exempt from or is allowed to write it off. However, you would then pay a personal income tax rate on the sum of rent. If the rent was 10k for a year and your job made you 50k in the year you'd be paying income tax rate of 60k (whatever that may be) on the 10k sum.

Another thing you wanna consider is regarding renovations. The corporation can write off the renovation costs against the income tax to be collected from rental income. So if you intend to do a lot of renovations this us something to consider. If you renovate under personal ownership you can't write those costs off against your income.

But keep in mind of course when you renovate either as corp or personal you are adding to the ultimate resale value.

theres other things to consider too such as capital gains taxes upon resale value...

 

[Switcher]

I think your missing the reason one becomes incorporated, as an example if you have a fire in a building you personally own and some one gets killed. you will get involved in a lawsuit, the person filing the suit can end up owning your home your car and any other assets you have , however when your incorporated they can only sue the corporation they cant touch your personal assets, and if its a car accident they can go after your personal assets but cant touch the corporation. becoming an s corp is made to protect your assets not your income or taxes.

Yep, and do it right or.....


'Piercing the corporate veil'. Piercing the corporate veil - Wikipedia, the free encyclopedia

 

[FourierSeries]

I think your missing the reason one becomes incorporated, as an example if you have a fire in a building you personally own and some one gets killed. you will get involved in a lawsuit, the person filing the suit can end up owning your home your car and any other assets you have , however when your incorporated they can only sue the corporation they cant touch your personal assets, and if its a car accident they can go after your personal assets but cant touch the corporation. becoming an s corp is made to protect your assets not your income or taxes.

I imagine this extends to other aspects of your personal life such as your credit score etc.