Need Advice - First Deal - 28 units, Owner Financing

[Matt Franklin]

I need help exploring my first investment property deal please. I've always had an interest in real estate, but have no experience. A family member owns 28 rental units and wants to do an owner financing deal with me soon. I work full time and am early in my career so I don't want to quit my job. Obviously, I have tons of questions and don't know where to start. I know enough to know this is a good deal considering its owner financed and the banks wouldn't be involved. Total rental income is roughly $17k per month and my payment would be roughly $9500 per month. Please share your general thoughts and advice for me to consider. I am planning on taking the deal, but need to know what I should do to ensure success. Do I need LLC? Should I hire a property maintenance company? Do you recommend any property management software? Should I have the units appraised? Insurance advice? Do's and don'ts? I know this family member won't take advantage of me, but who should I be cautious of as a new young investor/landlord? I appreciate any advice or tips you can provide. Thanks!

[Nathan Miller]

Hi @Matt Franklin,

For managing 28 rental units, I would certainly recommend setting up a LLC. Purchase and manage the properties through the LLC. You own the LLC, and the owner financing is between your relative and the LLC. If the relative has any issue with that, the reason is because you want to protect yourself from any possible tenant issues.

On the finances, ask them for the past few years books on the property.  Find out how much maintenance is required, and utilities, etc.  They could quickly eat into that $7500 monthly profit.  

I highly recommend using a software designed for property managers, it's the only way to go.  Without recommending any specific products, I can tell you the primary features our clients look for when shopping for property management software:

• It should be an active and reliable company - data security is super important so ensure your solution supports 2-factor authentication.  Then even if somebody guesses (or steals your pw from some other service), they still can't compromise your data.
• It should include tenant screening so you can run credit, criminal, and eviction reports on all prospective tenants.
• It should have built in ACH and CC payment solutions so you can automate your rent collection.
• It should include a tenant portal so your tenants can look at their status online and pay their bill online without having to bother you.
• It should automate your taxes at the end of the year, and file your 1099s electronically.
• It should keep track of all your repair requests so nothing slips through the cracks.
• It should include a way to centrally communicate with your tenants via email and text-message so every single message is recorded and tagged to the tenant (for liability and record keeping).
• The list goes on, I'll stop here before the reply gets too long. =)  Do your research and discover which system works best for your processes.

For insurance, if you go the LLC route be sure to have insurance on that business. If you don't setup an LLC, I would recommend a whoppin huge umbrella policy for yourself. You want the insurance company to have as much on the line as possible so they will put up an exemplary effort in defending you against any claim.

Finally, when you do take over the management, and if you do it yourself - pay ultra attention to screening your tenants.  It's super simple for owners and landlords to obtain tenant screening reports instantly at very little cost.  There's no excuse not to be picking the very best tenants and let the other apartment complexes in town handle the less than desirable ones.

Good luck with your new business!