My First Property
okay, i found my first property. first, here's some info on me:
1. i'm looking to get into RE as an investment vehicle and for tax write-offs.
2. i have extensive rehab experience with my previous owner-occupied houses and enjoy doing the work.
3. i'm secure in my profession and don't need to make a change but have always thought about getting into RE.
here's the info on the property:
FMV $95,000
Purchase Price $30,000
Labor and Materials $15,000
(i plan on doing all the work and have the time/desire)
Monthly Rental $1000
Taxes $2800
the property has some mold due to water leaks (chimney and a burst pipe). the owner is out-of-state and is looking to sell the property after being vacant for 3 years.
here are my questions (my goal is to rehab and rent the property):
1. i have good credit, adequate financial resources, as well as $45,000 in equity. what's the best way to handle the cost of purchase and rehab? (limiting the use of my own money)
2. since this is my first house, with the intentions on possibly buying more rentals if this one goes well, should i form a company? will a company decrease my exposure to any potential problems with the mold?
3. if i form a company, will the expenses help my personal taxes?
4. the seller is dumping the house based on a report from an environmental testing company. the report says there is extensive mold. to the common eye, there's mold along all parts on the house touching the chimney. the mold doesn't look "extensive". what's my liability and disclosure as a rental?
please provide input on any area you're knowledgeable with. thanks in advance!
Here's some answers for your questions.
1. The best financing would probably be a construction type loan. A good association with a small town bank works good here. Hard money lenders and private funding would also be options.
2. My opinion, why form a company for something that you don't really know yet if you'll continue to pursue. Check with your tax professional and legal advisor, but any good ones will tell you that forming a business entity at the start will cost you more money than it will save.
3. A company taxes and personal taxes are completely separate, but likely it will cost you more in taxes to own a business, especially if you're not making much income from it.
4. You have to disclose that there is/was a mold problem with the house, even if you repair it. While it may not look extensive, if the company said it was, it probably is. I may be just misintrepreting your writing, but it sounds like that you may be considering just fixing what can be seen. If so, that is a very bad idea. If you don't disclose, and if the renters (or owners sometime down the road) find out about it, you will be held liable. And since it was YOU personally who made the decision not to correct the mold problem, you will personally be held liable even if the house was held by a company.
Another point on this. I don't ever recommend rehabbing anything yourself that requires a permit. The reason is the same as above. If something is done wrong, whomever's name is on the permit is liable for it. Example: you decide to build a deck, and the renter/owner leans against the railing and it breaks, causing the person to fall. You could be held liable.
Roger
I myself would jump on the deal .
With that much equity it should be easy to afford to correct the mold problem. I always do most of my own work as long as I am sure I am doing to code.
Try to get a 30 day option even if you pay a small deposit. See if owner will allow access to property for inspections. Take a inpection day and clean/treat mold areas. Then get a quote from a company to test and get any you missed. See what it would cost to get a clean bill of health. Make sure you fix the moisture problem that caused the mold also.
anymore responses?
Whats left, these are some of the best postings I have ever seen. Right on the nail. Correction of Mold and subsequent inspection and clearance is the key. From what I can read your problem came with water intrusion in and around the chimney. Do you use the Chimny as a container for vent lines? you know the air sources that make all your water swirl the right way etc. etc.You know about chimney caps to prevent it occuring again. You know how to apply your dryout chemicals etc. etc. Might read up on it a bit before you begin.
Other then that Mr. Jesus how was the view? They have even laid out the correct way to do a first time single entity rehab. Where were all these guys when I needed them.
There is nothing I can really add you got it already.
Cheers Lucius