I'm thinking about buying a rental property in Memphis. Do people who own rental properties, buy it on their name or form an LLC? Any tips?
Do llcs; you will have another layer of protection
One of the more important things you can do in buying rental property is to purchase multi-tenant properties in the right location with the right price, take a house price, divide the monthly mortgage /# of tenants and see if that is cheaper then renting a 1 bedroom studio apt. If it is then you could do this. An example might be a 5 bedroom house where each room is $500.00 a month. Since you said Memphis we will estimate that a 3000 sq. ft house at 4.25% interest @ 10% down = $2000.00 a month mortgage including insurance, state tax, and homeowners insurance. And we also assume that a 1 bedroom 900 sq ft studio in the same area (middle class) is $800.00. So 5 tenants at $500.00 each = $2500.00 or $500.00 above your mortgage. Take the first $5000.00 earned and put it aside per house for appliance failures, etc. Multi-tenant rentals keep most of their renters during a recession while single family rentals leave in the middle of the night with you holding onto the entire mortgage without a renter.
FWIW 1. DONT buy your first property in Memphis if you don’t live in Memphis 2. DONT buy a multi family property as your first property 3. DO find a reliable property management firm. It will take some time. 4. DO have a cash reserve. If a furnace dies in winter you will need to fix it. Stat
I get the 2-4 points. But why not Memphis? Not a good market?
Read it as: Dont buy your first property in a market that’s not local to you.
An LLC offers limited protection unless it is properly capitalized. If you flrm an LLC to ONLY hold a leveraged rental property and don't hold any other assets inside it, a judge is going to pierce the corporate veil and take your personal assets because she'll see it as an attempt to evade liability. An LLC isn't a get out of jail free card. You're actually better off just stocking up on liability insurance.
I've heard that till you hit the limit on max number of loans you can take (10?), It's ok to buy them in your name.
The current max is 4. (FannieMae standards) And that includes any LLC you’re affiliated with so that doesn’t help.
limit is much higher if you can do 25%-30% downpayment. There are also creative ways around it (ex: Vendor financing).