If you are considering the purchase of a property for investment, one you plan to rent to others, we need to talk. Too many folks buy these properties and then find that, unlike conventional businesses, rental property management has its own set of regulations- and tax considerations. (Part of the reason is that real estate businesses, while cash flow positive, often create negative income considerations for taxes, since depreciation can be a substantial factor.  And, as opposed to other businesses that don’t show a profit for 3 of 5 years, these are allowed to continue and are not considered “hobbies”.)

The first and primary consideration is how you will pay for the property.  Many folks qualify for reasonable mortgages- but the rates for second and third properties are considerably higher than those for a primary residence.  Moreover, some banks have a limit for how much indebtedness you can carry with them.  So, your favorite bank (or servicer) may refuse to loan you money, if that limit is to be breached. Some co-ops (co-operative apartments) have stipulations against LLC members within the co-op.  Other banks refuse to provide mortgages to buyers employing LLCs for their home purchasers.  But, if you are not buying a co-op, or have an alternative bank, we feel this is the best way to proceed.

As stated above, we suggest that you form an LLC with which to purchase the property.  This methodology is one through which your potential liability, should someone be hurt when at your property can’t sue you directly- only the LLC.  (This is called protecting one’s assets.)  It’s also a good idea to have someone other than you serve as the registered agent- and at an address different from your primary residence.

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