First purchase of a rental property. What would you do?

Question

In the spring of 2018 I have the opportunity to purchase a townhome valued at $110k for $79k. The owner is a friend of the family and just doesn't want it anymore and doesn't care to make a profit. they are very well off anyway. They know I've been interested in getting into real estate (flipping and rentals). It is in excellent condition. No issues at all. Current tenant has lived in it for over a year with no plans on moving. Currently pays $1100 a month rent.

My fiancé is all on board for starting out in real estate. We were thinking about creating a LLC and use this townhome to help start our journey. We have alot of cash saved and along with the equity in the townhome I think we have a decent start. We also have decent jobs as well but want to try and not use it. Our credit is pretty much perfect as well. So, what would you do? Thank you all for your input. I'm anxious to see what the pros say.

Thomas S. · Answer

A LLC is not necessary and will hinder your ability to borrow in the future. Will likely not provide any more personal protection than insurance and set up improperly will be worse than not having a LLC at all.

The HOA basically negates your savings on the property purchase however if the property cash flows you may still be OK. Hire a lawyer to assist in the purchase and to review the HOA financials and regulations pertaining to investors.

Buy with minimum down/maximum leverage if you hope to gain true positive cash flow.

Dead equity and HOA fees will seriously cut into your cash flow and turn the investment into a liability. You must fully understand how to invest and the opportunity value of cash if you hope to profit.

Make sure you study your state landlord tenant regulations before you invest a dime. You are responsible for knowing and understanding the regulations that govern your business.

Bryan Wilson · Answer

Thank you for all the replies. A lot of information to take in.

There is an HOA but the current owner said no issues at all with them. There are numerous rentals in the community there. She purchased the townhome from a landlord who just wanted to unload it himself. The current renter has been there for years. The townhome was built in 2008 and has only had 3 tenants.

I have a few title companies in the area so that shouldn't be an issue.

The forming of an LLC is due to us wanting to have more than one property and begin flipping as well. After researching I see that having an LLC protects our personal assets in case of a lawsuit by a tenant or contractor or whatever else.

I will have roughly $25k+ in equity from this townhome and that along with our own cash is where I'd like to start with my first flip.

Corby Goade · Answer

Sounds like a decent deal, congrats! You can use an attorney you trust to help with the paperwork if you prefer to not use an RE agent. Also, this being a townhome, I assume there is an HOA? If so, I'd take a very close look at the bylaws- in some cases an HOA can dramatically influence your ability to manage your investment and what your cash flow and appreciation look like. Good luck!

John Thedford · Answer

Forget the LLC. Get liability insurance. See if you can download a copy of your state forms for purchase and sale and you can use those and you can always use an attorney to help both of you consummate the deal of course take it through a title company.

Ali Boone · Answer

I agree with the other posters- sounds like a great deal! The only part I would hesitate about is the LLC idea. Here's an article with a ton of info-

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

Just some considerations to think about on the LLC front. Read through the comments too- tons more information in those as well.

Good luck!

Sam Amir · Answer

Is this a trick question?

Haha, looks like you found a great start! Do your due diligence and hop in the game Bryan. You have cash, a stable job and happen to be in a time where we have favorable interest rates. If you're smart, you can really jump leaps.

Not sure if there's a blog or guide specifically for buying property without agents, but this might help? https://www.biggerpockets.com/forums/311/topics/24...

I'd PM anyone on that thread you think would help if you have questions.

Congrats and good luck!

-Sam

Bryan Wilson · Answer

Also, if someone can point me in the direction of a thread dealing with purchasing property without an agent. What steps to take and who to contact. Thanks.

First purchase of a rental property. What would you do?

First purchase of a rental property. What would you do?

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