Review My Gameplan :)

Starting Out
6yFollow

Review My Gameplan :)

Nicholas Daniels
Member since 2019 · 54 posts · 13 votes

Okay, so I'll be graduating with a business degree next year around mid-May 2021 (I'll graduate just before I turn 22). I estimate I'll be making ~$50k/year and my credit score is currently 750. And I've been doing a bunch of research on real estate and believe I've formulated a good strategy. Feel free to tell me if you see any holes in my strategy, and I have a couple of questions at the end that I'd greatly appreciate your input.

From my understanding, I can utilize an FHA loan on a multi-family property. The advantage of this, of course, is that it will allow me to put down a 3.5% loan, instead of the conventional 20%. This does come with the downside of a PMI, but I personally still believe this is a viable option.

My goal is to purchase a 4-plex using an FHA loan and live in one of the units rent-free (for at least a year, but I don't have a problem staying longer of living near people). I'd manage the property myself, and gain experience as a landlord whilst living in a rental property. I'd purchase an umbrella insurance policy for personal protection.

Then, my plan was to save up 25% and purchase another 4-plex property, then tuck that inside an LLC. I know I can convert the first 4-plex into a conventional loan, but I feel like this strategy will slow down my property accumulation. There's also less risk in the property I'd live in because I'm confident I would always pay rent, lol.

Once I have the second property inside an LLC, I'll convert the first property to a conventional loan, then put it in a separate LLC. So now I'd have two 4-plex properties inside two separate LLCs. I would then move into a small house for myself, and then hire a property manager and manage things on a less time-intensive manner from then on.

Questions:

1. I know I could qualify for the first FHA loan, but what about the second 4-plex loan? Or the single-family home after I move out of the 4-plex? Would the bank lend me money for these? I feel like my income wouldn't be enough (let's assume each 4-plex costs 370k and the single-family costs 180k which is standard around where I'll be living)?

2. Is putting them inside separate LLCs a smart decision?

3. Do you have any advice on how to force up rents and appreciation on the properties?

4. Would it be smart to pay off the properties? I know this wouldn't make mathematical sense (given the extremely low-interest rates, but what about from a risk perspective? I don't really want to build a real estate empire, just two 4-plex's will do and a single-family :)

5. If a 4-plex is inside an LLC, and I can't pay, would I be liable if the house is inside an LLC?

6. Any advice on finding good property managers?

1Reply
22 views

2 Replies

Jump to latestLatest
  • Avery Rustad
    Member since 2020 · 48 posts · 32 votes
    6y

    To try to answer question number 1, one factor the bank will look at is your debt-to-income ratio. Depending on whether or not you're allowed to include your rental income here, you may or may not have issues. If you do, you could always search for a portfolio lender or go the private money route. 

    2. Putting them inside an LLC is not a terrible idea if you're fine with the added paperwork. If not, you're not going to have a ton of equity in the properties for the first few years so lawyers will be reluctant to try to seize these properties anyway.

    3. I am not certain on how to force market rent, but forcing appreciation can be done fairly easily. I would recommend reading the book on BRRRR investing by David Greene, but in essence you'll want to buy a property with mainly cosmetic issues that seem very costly to fix (to the average joe), but in reality aren't and have a great affect on the property's value once tended to. Some examples would be outdated interior finishes that just need a repainting, old carpet that can be replaced with vinyl flooring, mold- depending on the area, while it can be an indicator of a major roofing problem, can usually be solved fairly easily-, urine smell, exterior painting, overgrown lawns, etc...

    4. Depends on your goals, for me, I would be fine having as little equity in the properties as possible and allocating my funds to more deals, but it seems as though you are totally fine with the three properties. 

    5. The asset's of the LLC's operations would be liable, however, no personal assets. That being said, the property would likely be seized if you continued to miss payments, but that is why we analyze deals before we buy them! (Also, I'm not a lawyer)

    6. I cannot directly recommend a property manager, however, here is a list of questions provided in the book The Book on Rental Property Investing by Brandon Turner:

    - What are your management fees?

    - How do you communicate with owners? How frequently? What about?

    - How many properties do you manage?

    - How long have you been a property manager?

    - Am I locked into a management contract with you? If so, how does that work?

    - How many evictions do you have each month?

    - What kind of reserves do you/does your company require?

    - How long does a typical tenant stay in a property?

    - How long do properties usually stay vacant before being rented?

    - How do you screen tenants?

    - Do you accept people who have had an eviction on their record?

    - How do you handle maintenance requests?

    Hope you find some use in my responses :)

    1Reply
  • Nicholas Daniels
    OP
    Member since 2019 · 54 posts · 13 votes
    6y

    @Avery Rustad Wow thanks! Great response!

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free