Ontopic Anyone own rental property?

Duke

Duke

. . first name's "Daisy" boys
May 12, 2008
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Brandon, FL
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Just doing some prelim research in converting my place into a rental. Was curious on special tax considerations, if any. If you had to negotiate anything new or special with the lender/mortgage holder, special insurance qualifications, if you paid for yearly maintenance insurance on HVAC or appliances, etc.
 
We looked at renting our condo but got scared at the liability. Have lots of good insurance is all I can say.

I'm pretty sure more than one other member here has a rental prop.

Paging chikken
 
I have a couple of rental properties. The tax considerations are a little complex. Make sure you keep very good track of every penny you put into the place to get it ready for renters and once you have renters keep track of repairs you make. It's not necessarily tax deductible but it is considered an expense so you can play that off of the profits you make so you don't have to pay as much income tax.

Unless you are pretty handy and have a decent lawyer on tap, you may want to hire a property management company to handle stuff for you. They will locate and screen potential renters, help you determine a fair price for the place, deal with the renters as far as requested repairs are concerned, inspect the property to make sure it is being maintained, collect rent and any deposits required, compose the lease, and hire a lawyer if the terms of the lease are not being met by the renter. They usually take around 8%.

Generally you need to notify your mortgage company if you choose to rent out a property. Some mortgage agreements do not allow for this so you should probably find out first. You also need to let your insurance company know so they can adjust your home owners accordingly. You won't need to insure the contents as heavily anymore (just structural stuff) and have some liability insurance (depending upon the state and type of property). You want to make sure you are covered if someone injures themselves on your property. You will also need to notify the state or county if you pay property taxes as these are generally calculated differently if you rent vs it being a primary residence. This is not a step you want to skip and hope they don't notice because, trust me, they will figure it out.

We already had an annual contract to service our HVAC anyway so we just keep that up. It's not expensive. As for the appliances, I figure that's what insurance and security deposit are for. I haven't found that these things get older faster and need to be replaced faster because there are renters. If anything breaks the management co lets me know, gets an estimate for repairs, and then either just goes ahead with it (if it's less than a certain predetermined amount) or asks us if I want to repair or replace.
 
omg, thanks! That is exactly the kind of advice I was looking for to get this started. I was contemplating a management company, and since I could very well be out of state once I convert the place, that might be my best option.

I checking on this right now, but I think Florida has made it easier to keep my rental as my primary residence if I wind up renting the place I wind up living in another state, thus keeping my 50k deduction. They did this to placate snowbirds. I def don't want to fuck with the revenuers so I'm going to be doing my due diligence on this.
 
Duke said:
omg, thanks! That is exactly the kind of advice I was looking for to get this started. I was contemplating a management company, and since I could very well be out of state once I convert the place, that might be my best option.

I checking on this right now, but I think Florida has made it easier to keep my rental as my primary residence if I wind up renting the place I wind up living in another state, thus keeping my 50k deduction. They did this to placate snowbirds. I def don't want to fuck with the revenuers so I'm going to be doing my due diligence on this.
Click to expand...

Florida is so much better at taxes than Maryland. I'm envious.
 
CletusJones said:
We looked at renting our condo but got scared at the liability. Have lots of good insurance is all I can say.

I'm pretty sure more than one other member here has a rental prop.

Paging chikken
Click to expand...

All you really need is a good umbrella policy (1M+). Some people put the rental into an LLC, but in my research it really isn't worth the cost and complexity. Additionally, I've never heard of a lender that requires you to notify them what you do with your property. Now initially to get a mortgage there is a difference in rates between owner occupied and rental, but after that - nope.

Make sure that you get a good accountant for the first year. And don't forget deprecation on the property, its quite the boon come tax time.
 
MapleySyrup said:
I have a couple of rental properties. The tax considerations are a little complex. Make sure you keep very good track of every penny you put into the place to get it ready for renters and once you have renters keep track of repairs you make. It's not necessarily tax deductible but it is considered an expense so you can play that off of the profits you make so you don't have to pay as much income tax.

Unless you are pretty handy and have a decent lawyer on tap, you may want to hire a property management company to handle stuff for you. They will locate and screen potential renters, help you determine a fair price for the place, deal with the renters as far as requested repairs are concerned, inspect the property to make sure it is being maintained, collect rent and any deposits required, compose the lease, and hire a lawyer if the terms of the lease are not being met by the renter. They usually take around 8%.

Generally you need to notify your mortgage company if you choose to rent out a property. Some mortgage agreements do not allow for this so you should probably find out first. You also need to let your insurance company know so they can adjust your home owners accordingly. You won't need to insure the contents as heavily anymore (just structural stuff) and have some liability insurance (depending upon the state and type of property). You want to make sure you are covered if someone injures themselves on your property. You will also need to notify the state or county if you pay property taxes as these are generally calculated differently if you rent vs it being a primary residence. This is not a step you want to skip and hope they don't notice because, trust me, they will figure it out.

We already had an annual contract to service our HVAC anyway so we just keep that up. It's not expensive. As for the appliances, I figure that's what insurance and security deposit are for. I haven't found that these things get older faster and need to be replaced faster because there are renters. If anything breaks the management co lets me know, gets an estimate for repairs, and then either just goes ahead with it (if it's less than a certain predetermined amount) or asks us if I want to repair or replace.
Click to expand...

That's good stuff.
We have a second home that we have considered renting, possibly by the week. Still torn between the benefits from income coming from it, and the headaches of renters tearing things up.
 
fly said:
All you really need is a good umbrella policy (1M+). Some people put the rental into an LLC, but in my research it really isn't worth the cost and complexity. Additionally, I've never heard of a lender that requires you to notify them what you do with your property. Now initially to get a mortgage there is a difference in rates between owner occupied and rental, but after that - nope.

Make sure that you get a good accountant for the first year. And don't forget deprecation on the property, its quite the boon come tax time.
Click to expand...

Maybe it varies per state but our mortgage company wants to know if we are renting the property. Maybe because they want to make sure the insurance is proper for the type of property it is. IDK. I'm considering going the LLC route now since I have more than one property and there is a tax benefit, but I'm not done discussing it with my financial guy so I guess we'll see. Everything in my financial world changed so much in the past few months so it's gotten complicated.
 
MapleySyrup said:
Maybe it varies per state but our mortgage company wants to know if we are renting the property. Maybe because they want to make sure the insurance is proper for the type of property it is. IDK. I'm considering going the LLC route now since I have more than one property and there is a tax benefit, but I'm not done discussing it with my financial guy so I guess we'll see. Everything in my financial world changed so much in the past few months so it's gotten complicated.
Click to expand...

Maryland must be a different world that every place else. LLC's are mostly for asset protection, as its supposed to be hard to 'pierce the veil'. Since you can't personally secure it with your own credit, it also makes it really hard to get a mortgage. Usually a $1-2M umbrella policy is enough to secure you. Most injuries that occur will cost less than that even with P&S. Once a lawyer hears you've got an umbrella policy, the lawsuit will suddenly be for that exact amount.

I participate in a couple of real estate forums and have never heard someone doing an LLC for the tax benefit, as its a giant pain in the ass. Got any deets on that?

And it actually states in the mortgage contract that you have to tell them about renting? Why? They can't change anything and you have to have the structure insured anyway...
 
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fly said:
Maryland must be a different world that every place else. LLC's are mostly for asset protection, as its supposed to be hard to 'pierce the veil'. Since you can't personally secure it with your own credit, it also makes it really hard to get a mortgage. Usually a $1-2M umbrella policy is enough to secure you. Most injuries that occur will cost less than that even with P&S. Once a lawyer hears you've got an umbrella policy, the lawsuit will suddenly be for that exact amount.

I participate in a couple of real estate forums and have never heard someone doing an LLC for the tax benefit, as its a giant pain in the ass. Got any deets on that?

And it actually states in the mortgage contract that you have to tell them about renting? Why? They can't change anything and you have to have the structure insured anyway...
Click to expand...

Right now I pay about 33% on the profits of my rentals. Apparently, if you own a certain amount of property and incorporate yourself you can pay small business tax instead, which in my case would be much lower. Perhaps an LLC is not the option my financial adviser is recommending? He didn't seem to indicate that it would be a big deal to get a tax id number and do this.

As far as my mortgage is concerned, perhaps it is that the insurance is not included in the escrow of the mortgage since it is a condo. The master policy for the condo association is sent to the mortgage company every year as proof of insurance but that only covers the structure. Everything from the drywall in is on me, including windows, so I guess the mortgage company has more interest in what is going on there? IDK. I know we had to let them know. It didn't change anything. Sometimes they can demand payment in full and a refinance, but in our case they did not, thank goodness.
 
Typically on investment properties the mortgage company wants 25%-30%down. You can have to 10 mortgages on rentals now, but I think you have to collect rent from a place for a year before you can count it as income on a mortgage application... In other words it takes time to build up 10 properties unless you have the means to cover all the mortgages out of pocket and don't need the assistance of rental income to cover them.

It's always recommended you put them in an LLC just for liability reasons.
 
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