LLC worth it in my situation?

General Real Estate Investing
1

Hi,

I like to say that I’m new to these forums and have recently bought a multi-unit(3) building. I stated one of the units as my primary residence so I can get better financing rate but one of my friends will be living there instead. I’m currently living with my fiancee who also has a similiar setup(2 multi-unit). We are living in one of the units.

I would like to know if it’s worth it from a tax write-off and liability perspective to setup a property management LLC of some sorts?

Also, the property I bought doesn’t currently break even yet since the rental rates in the area aren’t that high. I estimate that I’ll have to pay a few hundred dollars out of my pocket over a year until the neighborhood develops to a point where I can command higher rents. My question is can I write this difference off as a loss somehow?

I hope my questions are clear and I’ve supplied enough info. Please feel free to ask anything else I might’ve missed.

Thank you.

2

If you have thin skin, I suggest that you not read this answer!

<<I like to say that I’m new to these forums and have recently bought a multi-unit(3) building. I stated one of the units as my primary residence so I can get better financing rate but one of my friends will be living there instead. I’m currently living with my fiancee who also has a similiar setup(2 multi-unit). We are living in one of the units.>>

So, basically, you committed loan fraud and are publicizing it here openly…? Sweet – you da man! You stuck it to your lender good, huh? What did you save? About 25 bucks a month? Well, at least we know that your integrity is worth something…obviously, about $25 a month

I would like to know if it’s worth it from a tax write-off and liability perspective to setup a property management LLC of some sorts?

LLCs are ‘pass-through’ entities and don’t affect your tax status. LLCs are generally for the liability aspect. With 5 total units and 2 people involved, an LLC is probably a good idea.

<<Also, the property I bought doesn’t currently break even yet since the rental rates in the area aren’t that high. I estimate that I’ll have to pay a few hundred dollars out of my pocket over a year until the neighborhood develops to a point where I can command higher rents. My question is can I write this difference off as a loss somehow?>>

So, in other words, even though you screwed the lender over, you still own an “alligator”? Again, “SWEET”! Instead of waiting for the neighborhood to “develop”, what are you doing to be able to increase the rents? If you make less than the IRS threshold, you can write off investment property losses against your active income provided your are actively involved in the management of the property…go to www.irs.gov for more info. And, you’ll “have to pay a few hundred dollars out of my pocket over a year” as long as you don’t lose a furnace, or an A/C unit, or a water heater…or a tenant!

I STRONGLY reccomend a visit to: (1) A lawyer (Re: the LLC), and (2) An accountant (Re: your tax situation).

Keith

3

I guess I didn’t explain myself cleary and maybe things got misunderstood along the way. When I originally got the loan, I had the intent of living at the place but between then(45 days ago) and now, I’ve since proposed to my gf and moved in with her. My mortgage lender knew about my situation and he was the one that suggested that I keep my new place as a primary residence anyways to save me some change. Anyways, live and learn I guess.

Thank you for the second answer as it was helpful.

As for the rents, the rents are avg for the neighborhood and I see them going up a few hundred after a year. I knew going into it that I would have to pay a little bit initially out of my pocket. My plan was to spend a few hundred/month on RE and be able to sell it in a few years with a healthy reward vs. spending that money on a new M3 automobile and get nothing but depreciation back in a few years.

Edit: All the main things(electrical, plumbing, hot water heaters, furnaces) are new so no worries there. Tenants are easy to get with my units since they’re all updated and offer modern amenities along with being located in an upcoming trendy area. I’ve had 8 people call me the same day I listed one of my units for rent. Rented it within a week. I then began to think I might’ve been on the cheaper side for rent but doing a market analysis put me right in the middle. I might consider raising it after the lease term.

4

When I finish a property, it is hte nicest in the area…always. But, on the flipside, I always ask (and get) a premium for rent.

I have a house now for rent – “comps” are at $750…mine is at $850. We’ve had over 150 calls and it will go to contract this week for the full $850. I have had numerous folks tell me that it was the nicest rental that they had viewed and that it is worth the extra.

Keith

5

Once again, live and learn for the newbie like me . :wink: When I intially listed my unit, I should’ve gone above and beyond just looking at the classifieds for rent in the neighborhood and actually visited them to see the condition of units. That way comparing apples to apples. Now I know that I probably have one of the nicer units in the area and can probably afford to raise the rent for the next lease.

BTW, I liked your second response which seemed more suited to thinner skinned people. ;D

6

Sorry that I unloaded…your initial post sounded like you were getting over on the system and was proud of it…people that abuse the rules and get over burn a canyon in my posterior!

Read my old post – I’m pretty consistent on that and on “Cashflow is King”!

Keith

7

No reason to apologize, I should’ve been more clear to begin with. If I dart into your home with a gun, you have every right to think I’m a burglar but if I dart into your home and tell you I’m a police and flash my badge, then you know my situation. Same thing here I guess.

Looking forward to reading more posts here and learning a lot.