Question: Is it a good idea to form a company in Michigan to buy a rental property?
Answer: Yes. It limits your liability and is highly recommended by lawyers and accountants that investors should own rental properties under a LLC and not under their private names. A LLC is “pass-through’ entity for tax purposes in USA meaning whatever profits or losses a LLC generates, they are all ‘pass through’ to its owners or partners personal tax returns. So in this case you as the owner will pay whatever tax is due on its tax return and not the LLC so no double taxation. It is one of the main reasons why LLC have become the most popular company structures in USA.
Question: Can you help me form a LLC in Michigan?
Answer: Yes, we assist all of our clients in forming their LLC’s. We charge a flat fee of $299 that includes the $50 filing fee that State of Michigan charges for forming the LLC. Also the registered address of the LLC has to be in Michigan. We let all of our international clients use our office address as their LLC’s address. Basically you choose a name for your LLC, give State of Michigan a local address (we let our clients use our office address) and tell them who will be acting as the resident agent for this LLC if they ever need to contact somebody, which would be you as the investor who owns the LLC.
Question: In the purchase price (investment), is there any additional fees or taxes to be added (Lawyers, accountant, registration fees, etc..) or is it really the Investment cost that an international investor would have to pay?
Answer: Here are the closing or settlement costs involved in buying a Detroit turnkey rental property. Do keep in mind that the following numbers are estimates. You will receive a complete line by line breakdown all the numbers in the transaction from the title insurance company one week before closing. If you have any questions then the title insurance company staff would schedule a phone call with you at that time and go over line by line so you understand exactly every closing cost involved in the transaction.
At Smart Detroit Investment, we act as a real estate broker for selling these properties and as such we don’t charge any selling fees nor any finders or legal fee required. We are paid by the seller to represent them and sell these properties for them and you as the buyer / investor is not required to pay any fees to us.
What you will see on the settlement statement will be the following:
– Property Insurance (covers hazard, fire and liability on your property) – $550 – $660 per year depending upon the cost of the property being insured. You will be required to pay the annual insurance premium for 12 months at closing and then after 12 months, the insurance company will email you an invoice that you can pay directly.
-Settlement fees charged by the title insurance company (or conveyancer as they are called in UK) that prepares all documentations needed for your purchase: $250 – $300
– Recording fees charged by Wayne County (where Detroit is located in) for recording the transfer of ownership from the seller to your LLC: $19
– Pro-rated property taxes (Wayne County and City of Detroit) – they vary depending on when the sale transaction happens: approximate $600 to $1,200. As you know a property owner you pay property taxes to the city and county in which the property is located in; and in many states, like Michigan, when you pay those taxes you are paying them a year in advance. If you are buying a property next week, you will be required to pay back the seller those taxes in an item called pro-ration of taxes.
This means that if I’m a seller, I paid my property taxes on July 1st 2015; and paid them through June 30, 2016. If you wanted to buy my home on January 1st 2016; as the seller, I would require you to repay to me the property taxes from January 1st 2016 to June 30th 2016, because that will be the time period in which you would be owning the house and collecting rent and not my company.
Don’t forget however that is a property asset purchase so all these costs are written off against your rental income when your LLC will file its tax return next year.
So your total closing costs will be around $1,500 to $2,000 per property. They might be $300 less depending up on the pro-ration of taxes (biggest item on the closing cost list) or they might be $75 more. But that is a good number to keep in find while allocating funds.
Question: Who is going to file my taxes next year?
Our third-party property management company does not file any tax returns for our clients. Our USA investors already have an accountant or tax service in their area who does their taxes already. Your property manager will provide them with the rental income and expenses report from our software that they would need to file your tax returns.
Question: How will I receive my rent? How often will I get my rent payment?
Rental income is sent to investors every month on the 15th via electronic direct deposit by our third-party property management company
Question: Do you recommend a personal or LLC bank account for my rental income deposits?
Highly recommend that you open a bank account under your LLC’s name. You can either get a EIN from IRS’s website in 5 minutes and take your LLC articles of formation and the EIN issuance letter that IRS’s website will generate in the PDF format for you to the bank and open the LLC bank account.
The LLC bank account is in your LLC name with you as the authorized signor. You can add as many people you want to your LLC account as authorized signors. For example your spouse, business partner or your children. They do have to be present with you at the bank to add to the account.
Question: What is Section 8 Rent Assistance or Rent Benefits Program? What is good about it? What is bad about it? Who is going to pay the rental? Government or other parties? And if the property is vacant sometime in the future, can an investor still get rental income (given that it’s paid by government)?
– The Section 8 Rent Benefits program is a rent assistance program by the USA federal government to help families who need a house to live in but cannot afford to pay the full rent by themselves. The money comes from HUD (a federal government department and disbursed via various local housing agencies). The amount of rent a tenant qualifies for is based on their income and their family size. Section 8 can pay either the full amount of the rent or a portion of the rent which in case the tenant pays the balance every month. So for example let’s say a property is rented for $900 per month in Detroit. Section 8 can pay the whole $900 per month rent or it can pay $500 per month and the tenant will pay the balance $400.
– The good thing about it is the automatic nature of the rent payment. No rent collected needed from the tenant unless Section 8 has allowed the tenant to pay a portion of the rent. The rent comes in automatically every month to the property management company.
– The thing you need to understand about Section 8 is their annual inspection costs. Once a year Section 8 will do an inspection on a property that is getting payments under its program. And they will find at least $600 to $1,000 worth of repairs that they want done on the property because well they have to justify their visit.
– There are no term limits on Section 8 payments. As long as the tenant is living there and stays qualified the income guidelines that get them the Section 8 assistance in the first place, and your property passes the annual inspection every year (basically do the repairs that they are asking you to do) – you will keep getting Section 8 rent payments.
– The property has to be rented out and a family has to be living there in order to get the rent payment under this program. Section 8 does not pay rent on vacant properties.
Question: How long do I have to wait to get a tenant in my property?
The turnkey rental properties that we have for sale are already tenanted and are being managed by a professional third-party property management division You don’t have to wait for them to get a tenant as these properties are remodeled and rented already.
Question: How long will take from me selecting a property to actually finalizing the purchase of the property in Detroit?
Around 3 weeks.