You’ve probably all been asked these questions a million times.
I have been reading over the threads here for a while, and have some additional questions.
I am thinking about getting into 4 plexes, rentals, etc. I am in Minnesota, and my friend who owns a 4 plex, says owning anything over a 4 plex changes your tax structure. I’m not sure why. Can anybody tell me?
What I’m looking at doing (aka Business plan) is buying 4 plexes and renting them. I’m guessing with the prices I’ve seen I’d be looking at around $500-800 per 4 plex in cash flow. With mortgage payments being around $1100. My intention would be to acquire enough properties where I could quit my regular job (IT Network Engineer) and just manage the properties. It would be my intention to continue to acquire properties throughout the years, pay them off, then sell them when I’m ready to retire (I’m hoping around 55).
Any flaws, mistakes, issues I don’t know about with that plan??
ANY help in this area would be a huge benefit, and greatly appreciated.
Not sure where your friend is going with the changing your tax structure thing. Your taxes will be based on your choice of business entity and your profit/loss of income (simplified, but you get the point).
What does change when you go over a 4plex dwelling is your loan options.
You see, the majority of lenders view anything from a quad down to a single as single family residences and therefore, you can get residential type loans on the properties. However, 5plexes and up are considered commerical/business and you can only get commerical financing on those units. Commerical financing is harder to get, and usually has higher interest rates and shorter terms. So while your equity may build faster, your current cashflow may be smaller.
Roger hit the nail right on the head. Stay away from the commercial deals early on because the will require large down payments as well. Also the entity you purchase under also affects the types of loans available. If you try to purchase in an LLC or Corp, it doesn’t matter how many units 1 or 100 it’s always going to be a commercial loan.