BiggerPockets

On deals where you plan to rent, lease option, seller finance, or hold for any amount of time, which do you guys normally do? Obviously both have their advantages...but what strategy do you prefer?

I don't rent or lease option houses with bucket loads of equity, I sell them...

I don't like passive income... I like massive income... With that said there are those who like long term gain.... In that case leverage and buy more as you want as little equity as possible and are relying on maximum gain on per dollar invested or dollar at risk... Assuming that you don't create a negative cash flow...

Mike what do you think?

Michael Quarles

lol. I like that. What book was that in? :mrgreen:

With cheaper homes, like I have, pulling out 80-90% LTV still allows your payments positive $100+ in cash flow per month.

Is that using 50% of the gross rents as expenses? I've never seen a property that would cash flow $100 per month using real world expense numbers at 90% of the market value.

Mike

Sorry, I missed that you were selling them.

Mike

what if your in a market where house aren't selling and you have equity and renter but with a negative cash flow.

would it be ok to pull out the equity if you have a better place to put it. and you can aford the negative cash flow?

I believe in getting the best Internal Rate of Return for your investment. Normally that will mean cashing in the equity gained in a good buy by selling it in the first couple of years after purchase, then starting the process over again. If you're good at finding deals, you could keep it going. More work, but better ROI.

Here is what my CPA recommended - Pull as much equity out of my SFR rental as possible. Every individual property is in a seperate LLC and as broke as possible, this limits the liability should something go wrong (lawsuit) at any one property.

Your CPA talks more like a lawyer. And a good businessman -- but for himself, not you. If you have a separate LLC for every property, you're going to have big administrative hassle, depending on the state yearly minimum taxes for each, and -- this is where he comes in -- a separate tax return for each. If you're dealing in SFRs, that's a lot of extra work and cost when you're working with a small margin like on a SFR. If it's multi-unit properties, different story, but by multi I mean 25+ units, not 4.

Just my 2 cents, but I'd rather put them in one LLC and just make sure I have enough insurance to cover me if there are any problems. You can get umbrella insurance to cover the higher liability ends for pretty cheap. You can still pull out the equity and leverage yourself to your neck if that's your liability avoidance strategy.

The single LLC can be really bad advice depending on the state. Some states have high annual fees per LLC so you are taking a significant hit. More so if the property are not all that valuable.

The CPA is maximizing the risk protection angle. It is not a balanced view.

The idea of having significant debt on the property does make it less obvious that the owner has equity or other assets. Mike-OH will be able to comment on reducing the visible profile (LLCs/trusts and otherwise).

As someone else noted using liability insurance has to be part of a good solution.