Buying/building appartments
 

My wife and I were thinking of buying/building some duplex rental units. We were thinking larger units geared towards familys.

I have read up on the subject, but I am looking for pearls of wisdom, in particular about financing. What are the best options? We have a strong credit history personally. Our plan was to form an LLC. How does credit work for a newly formed LLC? What sort of assets would they be looking for? Should we just plan on having a huge chunk of cash for out first units?

Thanks in advance.

You and your wife would have to personally guarantee any loans to the LLC. The asset they will be looking for is value in the property you are buying. So a decent down payment would help to give the lender an equity cushion.

The financing will ultimately come down to your DTI ratio and how much debt you will be able to service. If you can find a duplex that you want to buy that has existing tenants, you can convince a lender that the rental income should be used in calculating your DTI and that you can service more than your regular income would reflect. That, plus the value in the land, should make the lender happy. But if you lose a tenant or two, things get tight very quickly. Be prepared to weather a storm of vacancy...even if you don't ever have to.

With current mortgage rates, I believe the vacancy rate is pretty high. A lot of would be renters are buying on ARMs.

If you really wanna run high risk/high reward, you can probably find a lender to give you an interest only loan on a short term to make a particular purchase fit within your DTI. But I personally think that is scary business and while I'm sure many are making money with that program right now, it has all the markings of margin buying in the late 20s.

You will need to sign a personal guarentee. The LLC will protect you from lawsuits, but not from the bank if things go sideways.

Seattle has its own landlord/tenant law that is much more tenant friendly than Washington state law. For that reason, I will not buy anything within Seattle city limits. I don't want to have to keep track of two sets of laws.

Thank you both.

An aquaintance who is a landlord has told us that things are terrible right now. Money is cheap, and people are in houses.

We are planning longer term. What goes up.....

While it is true that I have had a greater turn-over rate lately, there is always somebody else right behind looking to rent from me, so I stay pretty full.

My favorite way to loose a resident is when they buy their first house.

Rent only to well-qualified, nice people, and being a landlord works great. If you hand the keys to your property to scuzzballs, get ready to drop your trousers and grab your ankles.