Residential Real Estate Agent · Buffalo, NY · Member since 2008 · 16 posts · 0 votes
A friend and myself have decided it's time to start buying properties due to the fact my local market is in a bottom market and interest rates are so low, it's practically free money. I feel in my market it's best to buy and rent due to the property values being so low. Would we want to open a LLC to do this? Should we put our own names on it without a company? Our 1st couple properties will more than likely be 2 family properties that are already rented out to get posotive cash flow. Then possibly a rehab. What tips can anyone give so we don't get over our heads too quickly?
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
18y
My "tip" is DON'T BUY ANYTHING UNTIL YOU LEARN THE BUSINESS. The vast majority of newbies fail in a short period of time because they don't understand operating expenses, cash flow issues and how to properly deal with tenants.
Residential Real Estate Agent · Buffalo, NY · Member since 2008 · 16 posts · 0 votes
18y
I understand the current market. I've been a Realtor for 2 years mainly selling SFR not multi and my partner is an accountant. Is an LLC the way to go?
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
18y
There's a HUGE difference between understanding the market and understanding the rental business. Yes, I would start a LLC, but of course your Accountant partner should know what is the best entity for you.
Real Estate Investor · Portland, OR · Member since 2008 · 1k+ posts · 23 votes
18y
I mean this as a positive statement… So don’t take it wrong!
Many Loan Officers, Realtors, Financial Planners, Bankers, Accountants, Attorneys, and the like “think” they know how to invest because of their background…
Actually, sometimes (almost all the time) it is better to know none of those… And learn from scratch.
I agree with Mike… You need to understand the “Business” that you are getting into! Period.
A great way to make bad decisions quickly is to think you know what you are doing.
I can’t tell you how many people I have seen overpaying at foreclosure sales over the years…
Being an “Investor” with Dad’s money. I usually only see them there once… Maybe twice… Just long enough to decide they can’t make any money in Real Estate…
Real Estate Coach · Virginia Beach, VA · Member since 2008 · 6 posts · 0 votes
18y
I agree with some of the responses here that you need to understand what you're getting in to, and most importantly understand the 'metrics' of every deal.
If the numbers work, and you've minimized your risk by knowing them and gaging your deal by them, then you will be fine, regardless of market conditions.
I agree with one of the posts here that just because someone is a loan officer, realtor, or banker/accountant, that does not make them an 'expert' in this arena.
If you understand the numbers of every deal, and you know how to apply them, YOU become the expert.
EVERY Time.
Everyone needs housing, and rentals are a great start right now for newbies, since that market is going to be expanding as we go along here these next few years.
People that could have qualified for a mortgage now HAVE to rent, so if your metrics are in order, your exposure should be limited and your upside should be more 'blue sky' than what may appear evident to others.
Residential Real Estate Agent · Buffalo, NY · Member since 2008 · 16 posts · 0 votes
18y
I understand the old saying "practice makes perfect" which is why our first couple deals will be 2 family properties that are purchased already rented to gain positive cash flow (minimal at most however they still are positive). I understand like any investment there is risk however I feel a property already rented by good tenants shows the lowest risk. I'll get into a bank owned property once I become more established. Does anyone have any tips they have learned over time to maximize profits? I've been reading up on "discounts" for rent early, charge more for dogs, charging late fees, and incentives
Real Estate Investor · Charles Town, WV · Member since 2008 · 17 posts · 0 votes
18y
Some great advice here. I wish I had listened to some of it when I first got started investing. I lost a lot of money (for me) "practicing" real estate. Thankfully I didn't give up.
LLC is a good option for protecting assets, but your CPA friend would know more about tax implications.
Want to maximize cash flow? There's tons you can do, but market rents and good tenant screening is a good start. Creating competition doesn't hurt either.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
18y
Looks good to me. $945 rent, less 50% for expenses leaves about $475. P&I payment should be about $270. Leaves right at $200/month positive cash flow.
Jon
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
18y
Originally posted by "joelhusvar1":
A quick example for what I'm working with
2 unit
asking price $43,000
the rents are $495 down and $450 up
fully rented tenants want to stay
I think you need more information here...
In terms of income, what vacancy rate do you expect? To determine this, consider the local vacancy rate for duplexes, how long the tenants have been renting those units, how those rents compare to average market rents for similar places, etc. Additionally, is the town where this duplex is located improving or declining in terms of rents and vacancies?
You didn't include any expense numbers. Are you going to manage the property yourself? What about maintenance/repair costs? Is there deferred maintenance from the previous owner? Advertising costs? Utilities? Landscaping? Are taxes high or low for the area? Is insurance how or low for the area?
What about your financing? How much will you be able to put down? What type of loan will you be able to get? At what rate?
Once you have all this information, you should use these numbers to calculate your NOI and your cash flow to see if you'll make money or not. And remember, if you're cash flow is small, you need to account for large recurring expenses (like a new roof, appliances, etc) and ensure that you have funds to cover those.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
18y
Jason,
I don't buy that detailed analysis. Local vacancy rates are irrelevant for a single house. If you keep it rented the entire year, your rate is zero. If it goes three months for a fixup and re-rent, you're at 25%. Either could happen. A much more relevant number is how long it takes to fill a vacancy.
Some expenses are fairly stabil. Taxes, insurance, utilities the owner pays. Others are highly variable - major tenant damage, evictions. Others are irregular, but frequent - routine maintenance, snow removal, mowing.
If you're looking at a 24 unit apartment building, 50% of rent is a pretty widely used number. That includes vacancies, expense, and capital reserves. For a single SFR (or duplex) rental, its more variable. In a good year, it might be 25-30%. In a bad year, it could be 150%.
Don't try to do too detailed of an analysis, and convince youself - this won't happen and that won't happen, therefore my expenses will be really low.
Financing doesn't really change what's a good deal and what's a bad deal. Financing is dependent on your personal situation. I usually look at deals two ways. Either assume 100% financing. If the property works with 100% financing, it will work better with a down payment. If it doesn't work with a 100% assumption, throwing in a big down payment won't make it a good deal. Or, figure the NOI divided by cash invested to get cash-on-cash. If that's at least 15% with realistic expense projections, it meets my cut-off.
Real Estate Coach · Grand Rapids, MI · Member since 2008 · 204 posts · 188 votes
18y
You mentioned having a partner. I would definately watch getting into a partnership for any venture. In 90% of cases one partner ends up doing a vast majority of the work, and bitterness will follow shortly behind.
Unless you need the capital, then I would avoid partnerships all together, many headaches can come up because twice as many things could go wrong.
For example if your partner runs into a financial hardship and can no longer take care of his end of the deal, then you are left holding the bill.
If you do decide to take on a partner be sure that you get absolutely everything in writing and I mean everything. Plus look into taking out life insurance policies within the business that are at least equal to your partners part of the biz.
Residential Real Estate Agent · Buffalo, NY · Member since 2008 · 16 posts · 0 votes
18y
update: We have began to talk to attorneys, insurance carriers, LLC being formed as a equal 50/50 partnership in writing( monthly jobs created, nothing can be done w/o other's consent) We still must speak with a mortgage broker to see what we can get and start relationships with uhaul, home depot, inspectors, general contractors,ect. We have decided to get our feet wet, we will purchace 2 already rented properties with tenants that with to stay for quick cash flow. Also we have also sparked the idea to potential renters and have 2 other 2 family properties already rented once they are purchased and refinished. I hope to have good news soon. This site has helped me more than I could have imagined. It's jam packed with every senerio.