Starting REI with out of state SFR

22 Replies

Hello everyone,

We are getting ready to start investing in real estate out of state...primarily buy and hold SFRs and small multi-families. My husband and I are partnering up with 2 friends (another married couple). We are located in Long Beach/Cerritos in California. We all work full time jobs and our main goal is to make passive income.

We were initially going to start an LLC, but our tax guy advised us not to and after reading more about it on BP it, we're leading more into just creating a regular partnership. Any thoughts on this and can you guys refer us to any real estate CPA and lawyers we can talk to to lead us to the right decision?

Also, because of our situation and goals, we are really interested going through a turnkey property company to get started. Has anyone done business with OutYard Invest? If so, how was your experience? And does anyone have a company they would suggest? 

Thanks so much in advance! We're new to this and would really appreciate any comment/advice/referrals. 

@Krizelle Pum Welcome to BP and the world of OOS investing.  I have been investing and working with turnkey companies since 2012 and this is the first I have heard of OutYard until now.  However, I took a quick look at their site and likely they are more of a marketing firm for the actual on the ground providers.  So, what is really going to matter is what those providers and property managers are offering and the level of service they provide.  I'd recommend that you travel to the market and meet and tour with them or anyone you are considering investing with before closing on a deal, at least the first one.

HI Krizelle - Welcome to BP!

Does the other couple have tax experience? If they do not have experience - why do you have an interest in partnering with them? The only reason I ask is because I see a lot of headache for 4 people with limited real estate experience starting an LLC to acquire real estate.
who would take the lead? if there is an issue and you have to evict the tenant, who will find the attorney to evict them; will you have to get unanimous decision among everyone to get anything done?


Did you ask your CPA the question about starting an LLC for tax purposes?
an LLC and a regular partnership are taxed the same way(assuming you didn't elect the LLC to be taxed as a corporation)(LLC and partnership will file a different state tax form 565 vs 568. However, that shouldn't be an issue considering you guys likely wont hit the receipts required to pay any additional llc fees on form 568) .
I am curious on the reason for his answer.

Have you guys decided what area you plan to invest in?

@Larry Fried Thank you so much for your response!!! We were able to set up a phone meeting with OutYard last night and like you said it was a marketing firm. We're going to set up a meeting in person along with our partners to learn more about it next week. The owner we spoke to seemed to be very knowledgeable and responsive to all our questions. We will definitely take your advice and make sure we travel to the markets we're considering. We're super excited and can't wait to close our first deal! :) Again, thank you! 

Originally posted by @Basit Siddiqi :

HI Krizelle - Welcome to BP!

Does the other couple have tax experience? If they do not have experience - why do you have an interest in partnering with them? The only reason I ask is because I see a lot of headache for 4 people with limited real estate experience starting an LLC to acquire real estate.
who would take the lead? if there is an issue and you have to evict the tenant, who will find the attorney to evict them; will you have to get unanimous decision among everyone to get anything done?


Did you ask your CPA the question about starting an LLC for tax purposes?
an LLC and a regular partnership are taxed the same way(assuming you didn't elect the LLC to be taxed as a corporation)(LLC and partnership will file a different state tax form 565 vs 568. However, that shouldn't be an issue considering you guys likely wont hit the receipts required to pay any additional llc fees on form 568) .
I am curious on the reason for his answer.

Have you guys decided what area you plan to invest in?

Thanks Basit for the input! No, the other couple does not have tax experience. They are good friends who share the same goals. We thought long and hard about the partnership and weighed in the pros and cons...in the end, we just decided it would be beneficial to split the liabilities and also with partnering we'd be able to acquire properties faster since we would split all the cost of getting it all started. 

You're absolutely right that it can get complicated as far as setting responsibilities and making decisions considering that we're all newbies too! Right now, we meet in a weekly/bi-weekly basis to make sure we are all on the same page. We set goals and make sure that we're all doing our parts. 

Right now, we're trying to learn as much as we can before we make an offer on our first deal. We know very little about the differences in structure between a partnership and LLC and which one would be better in our situation. When we asked our CPA, it was mainly for tax purposes...We definitely need to network more and hopefully find great CPA and attorney in our area to team up with!

Currently, we're looking at Columbus and Dayton OH/Kansas City and St. Louis MO. Or if we were to do it on our own and not go with a turnkey company...maybe Henderson, NV since we have friends there and we visit Vegas quite often so it will be just easier for us to manage. 

Originally posted by @Krizelle Pum :

Hello everyone,

We are getting ready to start investing in real estate out of state...primarily buy and hold SFRs and small multi-families. My husband and I are partnering up with 2 friends (another married couple). We are located in Long Beach/Cerritos in California. We all work full time jobs and our main goal is to make passive income.

We were initially going to start an LLC, but our tax guy advised us not to and after reading more about it on BP it, we're leading more into just creating a regular partnership. Any thoughts on this and can you guys refer us to any real estate CPA and lawyers we can talk to to lead us to the right decision?

Also, because of our situation and goals, we are really interested going through a turnkey property company to get started. Has anyone done business with OutYard Invest? If so, how was your experience? And does anyone have a company they would suggest? 

Thanks so much in advance! We're new to this and would really appreciate any comment/advice/referrals. 

 Hi Krizelle! Welcome to Biggerpockets.  Sound like you have a really exciting plan in place to start investing in real estate.  Columbus is a fantastic place to look for multifamily property.  Being a state capitol and with The Ohio State University and the many tax incentives that bring companies to Columbus, there is no shortage of tenants.  There are many up and coming areas in Columbus and a lot of well established areas too.  My best advice is to start putting together a team that includes a real estate agent that can be your "boots on the ground" and help familiarize you with the different areas that make up Columbus.  

@Krizelle Pum Investing with partners is a big step. Also CA has tax implications with setting up an LLC, whether you have a profit or not. Also, going out of state also has some risks and cautions to understand. Both can be very profitable when done correctly.

I know someone in Irvine that invests out of state. She might be willing to sit down and chat with you about what she has learned. If you like, I can connect you, just PM me.

Hey Krizelle! I've been in turnkey world for 6 years now, and I've also done a lot of partnerships on them. 

Based on how things are in the current real estate market (prices/returns), and the general stresses of partnerships-- do you guys have options to buy properties for yourselves rather than partnering with the other couple? Prices on the turnkeys are much more bearable than in SoCal (~$100k gets you a great one). If that is afforable by each couple individually, I personally recommend not partnering.

As I said, I have a partner on a lot of my turnkeys. Based on this, the three stresses I've had in having that partner are:

  1. Reporting to the partner every single month and sending him his share (just annoying)
  2. My sanity goes wild when something isn't going great with a property (I don't care about me because I know the properties are good deals still, but I constantly worry about whether or not he's happy and pleased)
  3. I earned so much appreciation on my properties since I bought them, now I have to share all of that with him. I'd much rather have it to myself. (lol, selfish)

Some resources for you-

LLC (to confirm your suspicions)-

https://www.biggerpockets.com/renewsblog/2013/08/1...

Partnering (you didn't ask for opinions on this, but offering it anyway)-

https://www.biggerpockets.com/renewsblog/2014/05/3...

Excellent CPA recommendation- Amanda Han with Keystone CPA. She's a blog writer on here and I've used them for years. She's been a great help for me with the LLC ponderings and the partnership workings.

And then for turnkeys, happy to chat about those anytime. I've been knee-deep in that world for quite a few years and a buyer of them myself.

Originally posted by @Darrin Carey :

@Krizelle Pum Investing with partners is a big step. Also CA has tax implications with setting up an LLC, whether you have a profit or not. Also, going out of state also has some risks and cautions to understand. Both can be very profitable when done correctly.

I know someone in Irvine that invests out of state. She might be willing to sit down and chat with you about what she has learned. If you like, I can connect you, just PM me.

 Thanks Darrin! Definitely a lot to consider and it can be a overwhelming! We'll make sure that we do our due diligence! Would really like to chat with the person you know from Irvine. Let me know how I can connect with her! :) 

Originally posted by @Ali Boone :

Hey Krizelle! I've been in turnkey world for 6 years now, and I've also done a lot of partnerships on them. 

Based on how things are in the current real estate market (prices/returns), and the general stresses of partnerships-- do you guys have options to buy properties for yourselves rather than partnering with the other couple? Prices on the turnkeys are much more bearable than in SoCal (~$100k gets you a great one). If that is afforable by each couple individually, I personally recommend not partnering.

As I said, I have a partner on a lot of my turnkeys. Based on this, the three stresses I've had in having that partner are:

  1. Reporting to the partner every single month and sending him his share (just annoying)
  2. My sanity goes wild when something isn't going great with a property (I don't care about me because I know the properties are good deals still, but I constantly worry about whether or not he's happy and pleased)
  3. I earned so much appreciation on my properties since I bought them, now I have to share all of that with him. I'd much rather have it to myself. (lol, selfish)

Some resources for you-

LLC (to confirm your suspicions)-

https://www.biggerpockets.com/renewsblog/2013/08/1...

Partnering (you didn't ask for opinions on this, but offering it anyway)-

https://www.biggerpockets.com/renewsblog/2014/05/3...

Excellent CPA recommendation- Amanda Han with Keystone CPA. She's a blog writer on here and I've used them for years. She's been a great help for me with the LLC ponderings and the partnership workings.

And then for turnkeys, happy to chat about those anytime. I've been knee-deep in that world for quite a few years and a buyer of them myself.

Hello Ali! Thank you so much for your input! Very true about what you said with having partners. We're hoping that since we've set terms and expectations that we will not run into too many problems with working together. There are so many factors that can go wrong and something my husband and I discussed and considered for a long time. We'll see how it goes! 

If you don't mind me asking, what areas do you have your turnkey properties in? Any specific company you would suggest working with? And did you set up LLCs for the properties you have?

 I will make sure to look at the links you've included here and will definitely contact Amanda. Have a good night! 

Hey Krizelle!

My wife and I are also just starting out investing out of state, we live in the Inland Empire. We considered partnering with another couple who have similar goals, but decided against it for many of the reasons stated already in the thread. If a deal comes along where we don't have the financing to do the deal ourselves, we would consider partnering. But for cheap cash flowing SFH the partnership is seems to be more hassle than it is worth.

If you ever want to talk out of state real estate please feel free to reach out! My wife and I are in Orange County all the time and are always up for some strategic planning and story swapping. Best of Luck!

-James

Originally posted by @James Gates :

Hey Krizelle!

My wife and I are also just starting out investing out of state, we live in the Inland Empire. We considered partnering with another couple who have similar goals, but decided against it for many of the reasons stated already in the thread. If a deal comes along where we don't have the financing to do the deal ourselves, we would consider partnering. But for cheap cash flowing SFH the partnership is seems to be more hassle than it is worth.

If you ever want to talk out of state real estate please feel free to reach out! My wife and I are in Orange County all the time and are always up for some strategic planning and story swapping. Best of Luck!

-James

Hi James! Would love to meet you and your wife and hear about your REI plans... Let's set a meeting soon! :)

With our goals, partnering makes sense because of split liabilities and responsibilities as well as more money to get it all started. Depending on the properties we consider, we might be able to purchase 2-3 with initial investment. We're aware of the possible headaches that may arise, but I think in the long run it'll be worth it. We are also planning on just saving the cash flow and rolling it over to purchase other properties. Hopefully it goes as planned!  

@Krizelle Pum , go ahead and PM me your phone number and email. I'll reply with her name, email, and phone so you two can contact each other.

My properties are in Atlanta but I really don't recommend Atlanta these days. It's a very different market than it was when I was buying. I can make suggestions--shoot me an email or message. For the LLCs, no, and here's why-

https://www.biggerpockets.com/renewsblog/2013/08/1...

I think one thing you are going to run into right now with partnerships is that your cash flow is really going to be squeezed. When I did my partnership on the turnkeys, the cash flow margins were very high due to where the general real estate economy was at the time. Because prices are much higher now and therefore returns are squeezed, splitting that cash flow may be tight. 

Is the partnership for budget purposes? Or mortgage abilities? Who would be bringing what to a property purchase? And what would the anticipated structure be?

This post has been removed.

Going into a financial partnership with a couple that you have a close friendship with is a disaster waiting to happen. You can be friends with your business partners....but not business partners with your friends...... it usually doesn't work out if you want to continue the friendship

Business and $$ develops stress and conflict....the death of friendships. Especially if it's 2 couples....... that's 4 people that all have to get along when there are emotional bonds within and across couples

My advise.....don't do it......

Originally posted by @Krizelle Pum :

Hello everyone,

We are getting ready to start investing in real estate out of state...primarily buy and hold SFRs and small multi-families. My husband and I are partnering up with 2 friends (another married couple). We are located in Long Beach/Cerritos in California. We all work full time jobs and our main goal is to make passive income.

We were initially going to start an LLC, but our tax guy advised us not to and after reading more about it on BP it, we're leading more into just creating a regular partnership. Any thoughts on this and can you guys refer us to any real estate CPA and lawyers we can talk to to lead us to the right decision?

Also, because of our situation and goals, we are really interested going through a turnkey property company to get started. Has anyone done business with OutYard Invest? If so, how was your experience? And does anyone have a company they would suggest? 

Thanks so much in advance! We're new to this and would really appreciate any comment/advice/referrals. 

Buy and holds out of state are a great way to go. They really help when your market is too expensive and does not allow for much room to earn a decent ROI. The Midwest has been excelling for investors these days. Housing is very affordable, but rents are increasing.

I have never heard of OutYard, but just make sure to do your research. 

I always suggest looking at:

The Best Types of Markets for Profitable Turnkey Properties

and

What to Ask When Working With a Turnkey Provider

Congratulations on your decision! I have done business with OutYard before - a group of great people!

@Krizelle Pum I bought in Birmingham Atlanta and Indianapolis. I think it's a great way to start. Just get started.

Originally posted by @Krizelle Pum :

Hello everyone,

We are getting ready to start investing in real estate out of state...primarily buy and hold SFRs and small multi-families. My husband and I are partnering up with 2 friends (another married couple). We are located in Long Beach/Cerritos in California. We all work full time jobs and our main goal is to make passive income.

We were initially going to start an LLC, but our tax guy advised us not to and after reading more about it on BP it, we're leading more into just creating a regular partnership. Any thoughts on this and can you guys refer us to any real estate CPA and lawyers we can talk to to lead us to the right decision?

Also, because of our situation and goals, we are really interested going through a turnkey property company to get started. Has anyone done business with OutYard Invest? If so, how was your experience? And does anyone have a company they would suggest? 

Thanks so much in advance! We're new to this and would really appreciate any comment/advice/referrals. 

I know that a California LLC is one of the most costly LLC's to maintain in the U.S. I believe it's roughly $800/year to renew?

In fact many of our California clients who buy properties here in Ohio don't even use California based LLC's. They buy the properties by starting an Ohio LLC because it's much much cheaper.

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