I'm looking to start investing out of state with my two siblings. All 3 of us make very good income and even after maxing out retirement accounts we have plenty to dive into real estate with. Unfortunately we live in NYC which means our money won't go too far, or the cash flow will not be good. We plan on buying out of state and having a property management company running the property.
I'm unfortunately also going through a lengthy divorce so obviously can't buy any property until that is finalized. Trust will not be an issue with my siblings (and no I'm not being naive). To simplify the purchasing process we plan on only one of us taking out a loan for a property but have the ownership of the property distributed between the 3 of us depending on how much each one contributes to the down payment. I do have some questions about buying property with others.
1- Does it make sense to set up an LLC for this or can we split ownership without it?
2- We're most likely looking at buying 1-2 properties a year to start out, but possibly more. Does it make sense to set up an LLC for each one?
3- I can't have any property under my name until the divorce is finalized. How would I be able to obtain my share of the property after the initial purchase has been made, and what is the typical cost?
4- Is it a better idea to use the cash flow to further pay down the mortgage on a property or to just use it to eventually make more purchases? I understand people generally like to save some of the cash flow for vacancy and repairs, but we earn enough that having to come up with cash quickly won't be an issue.
Thanks for the feedback and glad I found this community.
@Will Rodriguez welcome to BP! I saw no one had jumped in on your post so I thought I'd offer a couple comments.
I haven't utilized LLCs yet, but there's VERY mixed opinion of them in the forums. That being said, the times when they tend to be used are when there are partners involved or when an individual's portfolio becomes quite large. So that might be something to consider. I've also read that it's smart to be very detailed in the contract, to avoid misunderstandings later. I've managed people and worked in teams long enough that I know the challenges of having multiple people with the same decision rights. I'd HIGHLY recommend each of you have defined roles and responsibilities (and decision rights) to minimize potential for bad blood. Family relationships are too important!
I do have much more refined experience / opinions regarding your 4th question. Even though coming up with cash might be easy now, you never know what the future holds (divorce, job loss, incapacity, bad luck, etc). As such, I would highly recommend treating each property as it's own business and build / maintain a property-specific reserve for items like vacancy, repairs, capex, etc. To your question about how much equity to maintain in the properties, I look at equity as a place where smart money goes to die. Maintain the minimum amount of equity to keep you and your banks happy, and then use your remaining funds to build your portfolio.
Certainly more that could be said, but hopefully there's a helpful nugget or two in there. Best of luck to you!
@Chris Jensen awesome feedback. Thanks for taking the time to respond.
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