Investment/Rental Properties - Megathread

So my first tenant is moving in next Monday. The amount of work needed to paint and prepare a condo after 8 years of living there is staggering. I spent all of memorial weekend painting and doing stuff on the condo.
Regarding the LLC, is that something you can do if you haven't paid the house ?

Kedwyn_sl said:

That is a special LLC in Texas and a few other states which allows more or less similar operation to mutli LLC with a single. Personally, unless there was a shit ton of established case law surviving appeals already showing it was solid, i'd spend the trivial amount to open another LLC and just keep it in line with every other state and not get fancy.

Something like that could save you a couple hundred bucks a year or it could completely fuck you over. Not even close to worth it.

I skimmed this but here are some examples of potential issues. I doubt this is an exhaustive list but when it comes to things like asset preservation you just don't take chances unless you're foolish especially when it is pretty trivial after the first one to file your own LLC and the fees are insignificant in many states.

Business Law Today: Series LLCs: What Happens When One Series Fails? Key Considerations and Issues

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We have attorneys set all of it up and set our paperwork up to make sure its all solid. But I agree, if you're not going to get an atty for it, don't fuck it up. Just get 1 LLC per property.

OUAriakas_sl said:

Aladain, I need to pick your brain man. I have been hunting for some rentals in Houston that would match what you own but every time I do a P&L it seems like property taxes and the property management companies make it worse than what I posted a page back about my Oklahoma properties. I'd like to know more about your selection process and how you get such good rental rates on low mortgage payments. Do those payments include taxes and insurance? Does your management company happen to cover West Houston suburbs?

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Well, do bear in mind that we put 25% down on each property which is a large chunk to start off with and we also get 15 year loans, and we do not escrow so no it doesn't include taxes and insurance. But our tax rates, even so are not too bad, other than the paid off property. I'll do the math on them...

Paid off house: Mortgage $0, Taxes: $4,624.73 ($385.40/month), Insurance (basic rental rider with a lot of business liability coverage): $616 ($51.33/month), Property manager: $75 $1,625 Rent - $511.73 Expenses = $1,113.27 monthly assuming no repairs
Mortgage 1: $541.85, Taxes: $2,958.65 ($248.80/month), Insurance: $585 ($48.75), Property Manager: $75 $1,525 Rent - $914.40 Expenses = $610.60 monthly assuming no repairs
Mortgage 2: $701.90, Taxes: $3,344.51 ($278.71/month), Insurance: $782 ($65.16), Property Manager: $75 $1,650 Rent - $1120.77 Expenses = $529.23 monthly assuming no repairs
Mortgage 3: $613.47, Taxes: $3,118.77 ($259.90/month), Insurance: $602 ($50.16), Property Manager: $75 $1,625 Rent - $998.53 Expenses = $626.47 monthly assuming no repairs

Total income assuming no repairs: $2,879.57 (there's also HOA dues but these are generally trivial ~$15-$25 per home per month). I normally wouldn't buy the paid off house, but it was my primary residence before me and my wife moved to a new place and since it was paid off we decided to keep it. It's actually been a blessing, as we've had one tenant there since 2013, and she's a cleanliness nazi and hardly ever bitches about stuff. Also, these numbers are not totally accurate for the other houses, as my property manager does charge 80% of first month rent when he finds a new tenant.

Sadly, in Texas, property taxes are going to eat up a huge amount on your investment. Ideally, people tend to get 30 year notes as opposed to 15 year, but investment loans are typically higher interest rate UNLESS you put 25% down. Even our 15 years are 3.75% and 4% respectively since they are investment loans and not homestead loans.

When looking for a house don't do what my wife does often.. if you open up an MLS listing and say "oooh that's nice" skip it. Don't buy post-flips and don't buy nice ones. Buy ones that you feel you can do the work in (or have your property manager estimate it) for around $7,000 - $12,000 or so. The properties I bought (except one) were homes that needed a modest amount of work but nothing extreme but had little touches that gave the house some life. For example, one built in 1999 had a dated kitchen (linoleum peeling up / particle board and white/beige appliances), boring light fixtures, no tile backsplashes and generic metal blinds. 2 fans for the living room but only 1 was hung up. But, on the other hand, the guest bathroom as well as the master bathroom had walkin showers and tubs (big plus), and the master had dual sinks for him and her (big plus), and a front and backyard irrigation system built in. Look for the big pluses on really hard things like vanities attached, or things like walk in shower with a separate tub. Goes without saying, kitchen and bathroom are king. You can spend a reasonable amount fixing things like adding a nice tile backsplash to the kitchen, repainting, flooring, carpeting, etc. But like a complete bath remodel sucks. Look for two car garages at least, but no tandems. Go for nice nice things but not luxury. In other words, granite and stainless steel appliances in the kitchen goes a LONG way on a rental property. A REALLY long way. But at the same time level 1 granite installed for around $2,500 vs your level 8 African granite installed for $6,000 out of some exotic recently discovered cave isn't going to make a difference. Same thing with the stainless appliances. Get cheap, but respectable stainless appliances. But no need to get the european top model professional kitchen series stuff.

For Fort Bend county, which is where I'll look for "west houston" areas, you can check fbcad for tax appraisals and, really.. just check the MLS. Tell your property manager too that you're looking (they are most likely realtors too, and you can talk his 3% commission down if you do business with them on the realty side too).

Did a quick search here ... I'm just looking on a whim here to give you line of thinking of how I select. You can also take a gamble if paying cash and go to auctions at the courthouse, but even personally I'm not ready for that yet.

9211 Bollingbrook Dr, Houston, TX 77083 - Home For Sale and Real Estate Listing - realtor.com®- This home is a flip, it looks like, but could probably get you $1200 a month in rent like the ad says. Not something I would buy though, 99,700 is overpriced.

15830 Alta Mesa Dr, Houston, TX 77083 - Home For Sale and Real Estate Listing - realtor.com®- a short sale but this is what I'm talking about. 2000+ sq ft is usually a no no, but it's a 4 bedroom and on a nice sized lot (corner lot). Interior needs repaint. Kitchen is very small and needs re-done, it looks like the original kitchen from 1981. Pantry is fairly large (a nice plus). Some nice wooden flooring it looks like (might be vinyl but looks like wood) ALTHOUGH that is somewhat of a turn off because tenants will usually fuck up wood floor, but if its nice its fine to keep at least until its ruined (then charge the tenant to fix it but replace it with someone more durable). Double sinks in master, VERY solid schools for that price of a home. Looks like maybe granite already in master, which is a large plus. For $89,900 ($42/sq ft) this is a solid buy in my opinion.

nice.

Question. Any expense that happens on the rental houses, goes against my taxable income right?

My taxes next year are going to be sweet. Seven figures sweet.

Picasso_sl said:

Generally. There is a difference between repair and improvement. Repairs/maintenence are, improvements you should depreciate out over 27.5 years.

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The easy way to think of this, you have your capital expenses, which you depreciate, and your non-capital (mainly repairs but not all). You can't capital expense everything, though.

For example, a dishwasher going bad and needing to be replaced is a capital expense. A hot water heater. Air Conditioning unit. But other things are not, such as replacement of an air vent. Replacing lights in light fixtures. Repairing a foundation. Touch up paint. Repairing a broken valve in your dishwasher, etc.

Use this to your advantage in some cases. For example, replacing a door knob is not a capital expense. However, replacing all the door knobs in the house for cosmetic appeal is. Things like that.

Threadromancy!

Been renting out my old house since I finally moved into my new one in August. It's been fine so far but they somehow broke the water heater now I am finding that replacing that shit is like $3000 if you have someone do it for you here in Austin right now. I called 5 different places. What the fuck man? But now they are testing my patience. I have a replacement water heater ready to go since they are surprisingly cheap so I am just going to have this be a DIY project. Never done it before.

To further complicate it the renters have a car thats like 50% taken apart in the garage so I can't get in there to replace the heater but they still complain about cold water. I am like, look faggots, get the fucking car out of there and I will replace the water heater. If I cannot physically get to the water heater I cannot replace the thing. Do you understand? They said they do understand then the next day call me and now they are threatening to get a lawyer over unlivable conditions or some shit. Talk about a fucking headache.

While I was there I am fairly certain they have some scam going on I just don't know what it is exactly. We know the family we are renting to well enough and they seemed nice to me. They have decent credit and all that but are first generation immigrants. So I mostly have my wife talk to them as they are from Belarus.