Help buying a personal residence...

[stielle]

Alright,

I've been building my credit back up for a few years now. Most things are taken care of and its time to purchase a personal residence. I am beginning with a small condo for a few reasons.

1) smaller and cheaper than a house
2) Im going to live in it for the time being, then rent it out, it will cashflow a bit easier in my area.
3) Im more comfortable with this expense than a larger one at the moment. Using this one to get my feet wet in the whole deal process.

Now, my main question in all this is, is it better to purchase this as a person or under a corporation?

My business has been going for almost 3 years now, but its been a cash growth business, so no credit built up in it yet. In either case, my personal credit will be the one they use until I build up my business credit.

I don't have the 10-20% down that I hear most business purchases require for a rental. The tenant being myself of course.

If I buy it personally, can I sell it to my business later on?

The entire reason I wanted to let my business buy it was to be building some leverage for the business while having the best tenant in the world... me!

What do you guys think on this?

 

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[yveskleinsky]

Here's my .02.
First, if you are going for a condo, keep in mind the monthly association dues. They can be rather high, and can change at anytime. Second, you said that you don't have the 10-20% that buying a home as a rental would require. You may want to see if you can still get into a home in your area as a primary residence for under 10% (those loans are getting harder and harder to come by). Third, (and this is just MHO) any type of asset protection is set up to protect assets. If you have no assets for your budding business, I don't see the benefit. Can you transfer a personal residence into an LLC down the road? Generally you can, you just want your lender to know what you are doing so they don't call the loan.

Good luck to you, and congrats on looking for your first home!

 

[Russ H]

stielle-

My first purchase was a condo. I'd never do it again.

One of the board members signed up an atty to sue the developer (we had elected him as our representative, which the atty used in his favor). By the time the owner's association voted on this, the atty had already racked up thousands of dollars in fees-- which we would pay if we canceled at that point.

But if we continued the lawsuit, we would owe NOTHING-- since the atty was working on a contingency basis (he would get a percentage of what we won).

Long story short: The developer had gone bankrupt, so there was no recourse there. The condos had been underwritten by a defunct S&L, which meant our only recourse was to sue the US govt (since they had bailed out the S&L).

The lawsuit took close to 7 years. There were 54 condos. Each lost about $110K in value during the lawsuit, since no one wanted to buy a place that was suing the original builder for defects ($110K x 54 = $5.9M, more than we'd EVER get back in a lawsuit).

Sad thing was, there were no defects. Only normal wear and tear that happens to buildings that are 10 years old.

But the homeowner's association was greedy. They didn't want to spend the money to fix/maintain the buildings. So they were perfectly happy to see the value of their condos go down provided they could get some "free cash".

They felt this way until they tried to sell, of course. Then they took it in the shorts.

-Russ H.

 

[phlgirl]

My first purchase was a condo and since then I have owned 2 other condo units, either as my primary residence or as investments.

When buying into a condo, I think it is wise to think of it as buying into a business. You will want to see several years of financials for the condo and clearly understand the condo docs (bylaws, etc.).

What Russ wrote about does happen and it causes serious issues for all owners. My 2nd condo purchase also involved a long & expensive lawsuit with the developers. The condo association should NEVER be able to pocket funds from the condo association, as it is highly illegal, but it does happen.

Like anything else, there are pros and cons. I happen to prefer condo living and look forward to getting back into one. That said, I would always want to be involved in the decision making and, if possible, be on the board. Do your homework and make sure the investment is sound.

You may want to call a few banks and see if you qualify for the FHA financing. It requires very little down and is pretty flexible on the credit score. If you are 100% self employed, that might be an issue.

It is a great time to buy. If I were buying a primary residence right now, I would be patient and I would be making a lot of really low offers. I would find a seller who NEEDS to sell. I would call local banks and ask if they are holding any properties which I could possibly take off their hands.

Good luck!

 

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[randallg99]

I have to agree with Russ... only time I owned a condo was when I was involved in a project that was lasted a about year so I didn't want to rent and instead bought a condo during the crazy real estate "boom"... I sold it a year later and netted 35% return on sale price (500% on cash investment) once the project I was involved with ended.

The person I bought the condo from owned the unit for 20+/- years and sold it to me for what he paid for it....

Thankfully I didn't share the same experience that Russ had, but the condo management was slow to respond to concerns... but all in all it was a fine experience.

That said, I do have to chime in with my 2 cents: Condos are the yo-yos of the real estate markets... they are the ones that fly highest and drop the hardest... the volatility is generally a lot more severe in condo market, so be prepared emotionally and financially.

as far as owning your first piece of real estate/personal property in the LLC? banks frown upon that and it's difficult getting conventional financing for it.... I would think you will want to take advantage of the incredible perks offered only to 1st time home buyers... getting incorporated just for your personal residence is something I personally wouldn't bother going through the extra expense unless your personal business is not incorporated.... but of course, seek counsel from attorney who can guide you better. Estate attorney or business/contractual attorney... tax laws are a little different, too... ask Dianne and other CPAs.

R

 

[Bilgefisher]

That said, I do have to chime in with my 2 cents: Condos are the yo-yos of the real estate markets... they are the ones that fly highest and drop the hardest... the volatility is generally a lot more severe in condo market, so be prepared emotionally and financially.

as far as owning your first piece of real estate/personal property in the LLC? banks frown upon that and it's difficult getting conventional financing for it.... I would think you will want to take advantage of the incredible perks offered only to 1st time home buyers... getting incorporated just for your personal residence is something I personally wouldn't bother going through the extra expense unless your personal business is not incorporated.... but of course, seek counsel from attorney who can guide you better. Estate attorney or business/contractual attorney... tax laws are a little different, too... ask Dianne and other CPAs.

R

I have heard this as well from a few experienced investors. When the market is good, condos do great, when its poor, they can do very poor. Surprisingly though, the average condo price (at least in the Denver metro area) is higher then the average home price. This is mostly due to the very expensive downtown lofts.

Also, be sure to check out Diane Kennedy's blog from last week. www.taxloopholes.com She talks about Freddie Mac not allowing any loans that were held within an LLC within the last 6 months to be refinanced. Its worth the read.

 

[andviv]

To answer the original question, and based on the very little things I know about you, I'd say personal makes more sense.
However....
buying condos is now a no-no in my book (condo fees and associations, as mentioned, are a PITA)
There is a reason why they are cheaper than SFHs.
Also, and just for the heck of it, do the math... how much more house you can buy with the amount you have to pay in condo fees? (for example, if the fee is $100 then you could buy a property worth maybe $80K more than what you are paying for the condo, and trust me the condo fees only go up).

where are you buying? what city? (this should help with perspective).

 

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[phlgirl]

Let’s try not to make blanket statements here. While, in some areas, condo prices per square foot are lower than single family homes, this is not true across the board. For example, in big cities, this is quite often not the case. Some people are looking for more conveniences, amenities and/or a better view.

Keep in mind that condo fees often cover expenses which you would also incur as an out of pocket expense as a home owner – insurance (aside from contents), water, cable, landscaping, roof & facade maintenance, HVAC, gym fees, etc.

I don’t think it’s fair to say that you could take those dollars and buy ‘more house’ with it, as you will still incur many, and perhaps even more, expenses as a single family home owner. If I did a side by side comparison of my condo living expenses to my annual external single family home maintenance fees, I am quite sure the condo would win as the more cost effective option (with the same square footage). This is only based on My experience and would certainly vary from case to case.

Again, condo living is not for everyone and there are different factors which should be evaluated when considering a purchase but, for some, it is the favorable option.

 

[rxcknrxll]

It sounds like buying personally is most likely going to be your only option. Talk to a lender who does a lot of FHA financing. Make sure you use a broker who does a lot of FHA deals also. If you have 3-5% down, you'll most likely be good to go. Nehemiah is still out there but only do that kind of deal as a last resort. I've closed a couple of these within the past few months, so it's still doable, but they are a PAIN. Just a thought.

I'm not saying FHA is the only way to go, but if you don't have a lot of cash and you're buying in today's market, I think you'll find this product to be the most appropriate for your needs.

phlgirl, I agree with not making blanket statements. I also think the heads up about condos from other posters is warranted. Of course, nothing is true for all markets, but condos work differently, and most first time buyers don't even know to ask about the differences.

 

[Bilgefisher]

phlgirl, I agree with not making blanket statements. I also think the heads up about condos from other posters is warranted. Of course, nothing is true for all markets, but condos work differently, and most first time buyers don't even know to ask about the differences.

This is very very true. The problem with starting out is you don't know what you don't know. A good buyers agent can help in this situation.

 

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[^eagle^]

There are FHA programs that do 3% down with 6% concession of seller paying closing costs and prepaids. But the house must pass an FHA inspection whicjh is more rigorous than a normal inspection.

These must be done as a personal residence. The you have to live in the home for 12 months before you can rent it out.

Plusses is that it is low money down. Minus is that you have to stay there for a while.

Other than that conventional is the way to go with 10% down. most lenders allow a 3% concession for closing costs but My broker says he can get me six percent on a conventional. He says coutrywide has a six percent program. I have walked away from 4 REO's because the banks won't meet me at 6% concession even when I give them 3% more on top of thier asking price. I'm on number five now.

As far as selling it to your business I do not see that as being a problem. Could possibly quit claim deed it over to the LLC but I am not sure about that.

 

[phlgirl]

phlgirl, I agree with not making blanket statements. I also think the heads up about condos from other posters is warranted. Of course, nothing is true for all markets, but condos work differently, and most first time buyers don't even know to ask about the differences.

I agree 100%, rxcknxll. It is good to have as much information as possible, from both points of view. This helps people make an informed decision. Too many people go into condo/home ownership without having done the proper due dilligence. I would never recommend this.

 

[Diane Kennedy]

There are FHA programs that do 3% down with 6% concession of seller paying closing costs and prepaids. But the house must pass an FHA inspection whicjh is more rigorous than a normal inspection.

These must be done as a personal residence. The you have to live in the home for 12 months before you can rent it out.

Plusses is that it is low money down. Minus is that you have to stay there for a while.

Other than that conventional is the way to go with 10% down. most lenders allow a 3% concession for closing costs but My broker says he can get me six percent on a conventional. He says coutrywide has a six percent program. I have walked away from 4 REO's because the banks won't meet me at 6% concession even when I give them 3% more on top of thier asking price. I'm on number five now.

As far as selling it to your business I do not see that as being a problem. Could possibly quit claim deed it over to the LLC but I am not sure about that.

The type of loans you are describing are called "conforming" and those just got hammered by a new Freddie Mac ruling that Fannie Mae should adopt soon.

Please see my other post on REI and LLCs. The loan is fine - just don't recommend putting it directly in an LLC. Use a Trust Sandwich instead.

 

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[hakrjak]

I see a lot of folks here bashing Condos, because of the HOA dues... and while I don't deal with them exclusively -- I own 1 condo, and 1 Patio home, both with Association dues.

The thing you guys are leaving out of your calculations is what's included in the HOA dues. 9 times out of 10, you've got structural insurance built in, along with exterior maint.

On my Patio home, a 3600 sq ft $300k home -- My HOA dues are $150 per month. Insurance would have be about $100 a month to fully insure this property. Because I already have the place insured through the HOA, I pay about $3 per month for insurance on the contents. Also included in the $150, I get snow removal, yard work, lawn mowing, exterior maint, painting, roof repairs, the whole 9 yards. So I'd definitely say I get my money's worth. I'll never have to worry about painting the property, or doing a single piece of external maint as long as I have it.

My advice to you in the end is to do the math. There are lots of situations like the above where you will get your money's worth and more by being a member of an HOA, and paying those pesky fees.

On my condo, I pay $66 a month, and get insurance, trash, exterior maint, snow removal, painting, roof repairs, etc... I also carry minimal insurance on the contents, even though it's rented out -- for a few bucks a month (Just incase a fire destroys my appliances, or carpets, etc). This pays for itself, because I don't need to carry a full insurance policy.

Cheers,

- Hakrjak

 

[rxcknrxll]

There are FHA programs that do 3% down with 6% concession of seller paying closing costs and prepaids. But the house must pass an FHA inspection whicjh is more rigorous than a normal inspection.

These must be done as a personal residence. The you have to live in the home for 12 months before you can rent it out.

Plusses is that it is low money down. Minus is that you have to stay there for a while.

Other than that conventional is the way to go with 10% down. most lenders allow a 3% concession for closing costs but My broker says he can get me six percent on a conventional. He says coutrywide has a six percent program. I have walked away from 4 REO's because the banks won't meet me at 6% concession even when I give them 3% more on top of thier asking price. I'm on number five now.

As far as selling it to your business I do not see that as being a problem. Could possibly quit claim deed it over to the LLC but I am not sure about that.

Listen to Diane about quitclaiming the prop to an LLC, besides the fact your lender could call the loan, there are evidently some new disadvantages to holding as an LLC. It will be very difficult to find an REO prop where the bank will grant you concessions.
I'm not saying it's impossible, I've just never seen it happen. For what that's worth...

If cash assistance is essential, I would say look at homes other than REO inventory. Any reason you seem to be looking only at REO property? There are a lot of good deals out there now, not just foreclosed homes. You may already have addressed this of course. Just thought I'd mention it.

 

[stielle]

Wow, so many replies. And so much to think about.

Well, the only reason I was thinking about having it under a business is simply to help the business get more assets under its belt. It is mainly a service business. At this point, pushing money into expanding the business makes more cashflow than purchasing an
asset such as a rental, unless I'm the tenant, since I need a place to live anyway.

I suppose since this will be my primary residence, I will simply go through the more normal route. I chose a condo for several reasons:

1) I'm not home a lot, always out, so less yard work on my primary is a plus.
2) Its cheaper, while letting me build some equity and staving off rent increases, I also have more disposable income on a monthly basis to use in other asset building than if I bought a more expensive place for myself.
3) The Condo Association Fees guarantee me no personal maintenance on the outside of the place. Thus no roof or siding repairs.

My intent is to live in it at least a year or two and focus on my next steps. I just feel kinda funny trying to buy assets when I don't even have a primary residence of my own. Rent does nothing but go up every year, so I figured I'd at least stabilize that money and allow the increases to flow into my business instead of an apartment complex.

Another route I thought about briefly was to buy a mobile home and get a couple of roomies. It is easy enough to set the rent to where I have no living expenses and use that money as a down payment on a primary, selling the mobile home for what I bought it for when I leave. Though not the most glamorous place to live, they can be very nice if in the right neighborhood. I just have to live with the stigma of coming from the "trailer park" for a year or two.

My basic goal is to minimize what I'm putting out until I'm putting it into my own asset.

Oh, my ex-wife and I did own a condo once before. It was a full standalone house/condo. Interesting concept, but it was great. It was sold in the divorce about 6 years ago and the divorce lawyers ate up all the profits. I'm used to the condo/HOA fees around here. The only neighborhoods without HOA fees here are the ones you don't want to live in.

A little speed++ to you guys for the help, great food for thought!

 

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[stielle]

Andviv,

Im buying in Virginia Beach. HOA fees and Condo fees are everywhere, so not much use in trying to avoid them. These small condo's are about half what a house is going for at the moment. They didn't go up as fast as the houses around them. I planned on holding it for a rental later as I live in a high transient area, TONS of military move in and out, so they don't buy as often. The next step up from this small condo would be a townhouse, which I would like better actually. I'll do more homework, I still have 5 months left on my apt.

 

[TaxGuy]

Interesting old thread I found while trying to find one on "best way to find deals for cable/internet" so I figured I'd give it a bump.

I already own property, but figured condos might be a way to get some extra cashflow going, even though I already have some from my primary residence through roommates.