New member from King George, Virginia

12 Replies

Hello everyone! My name is Brian and I am an aspiring RE investor in search of knowledge, advice, deals, and opportunities to succeed in this business by helping others.

I am currently an Engineer working on contract with the US Navy (with regular deployments overseas), but looking to escape the 9-5 under someone else's guide and work towards freedom on my own terms; to be able to provide a quality life for my wife and two kids, as well as be able to give them more of my time than I am currently able.

I have started my education with a few seminars and courses from Rich Dad Education, and of course lots of reading. I intend to operate (at least to start) in the Fredericksburg, VA and surrounding areas (basically anywhere from Washington D.C. to Richmond). My current goal is to flip 3-5 properties and using their proceeds to acquire a rental to hold. I would like to repeat this process until I have a reasonable portfolio of rentals that I may leverage to break into commercial multi-family residences. I know I have a long road ahead of me, but I look forward to the challenges.

I look forward to learning more and more each day and networking with like-minded individuals. If anyone is in my area would like to connect, or recommend local REIAs or meetups, I would greatly appreciate any help as I begin my REI journey.

@Brian Hesler  Welcome to the community, of BiggerPockets! Be sure to check out the forums, the blogs, podcasts as well as other parts of this amazing website and like minded community. The people here have a vast amount of knowledge and are more than willing to share their experience and provide sound insight and advice. Do not hesitate, to post questions and bounce ideas around in applicable forums. I will bomb you with several posts containing information that you may or may not find useful. I hope you are ready to do some reading. Much to your success!

@Brian Hesler Be careful of REIAs. Many of these give sales pitches, gurus try to sell their products or mentoring programs, or someone tries to get you to invest in a REI Fund by a group of people pooling their money, for some REI and promising an unrealistic return. I am sure there are good REIAs out there. In a large city, people are cut throat and motivated, by greed. I would suggest your decision to join a REIA is similar to buying a new vehicle. You take a new vehicle for a test drive before making a decision. Why not attend several different REIA Meetings before you decide joining a particular REIA?

Promotion
Roofstock
Buy & sell single-family rentals online
Radically accessible real estate investing
Get access to exclusive property listings, proprietary data, and support to build your portfolio.
Learn More

@Brian Hesler Since you are interested in fix and flips, I propose the following action plan. The first step would find an Investor Friendly Realtor assuming you do not have access, to the MLS. I would suggest that you interview several Realtors and ask them the following questions, to ascertain if they are truly Investor Friendly, or if they are throwing you a sales pitch.

1. How many investors do you currently work with and how many investors have you worked with, in the past?

2. How many transactions have you closed, with investors?

3. Do you currently own any Investment Properties? If so, what type do you own?

4. Are you a member of any REIAs?

The next step would be to work with the Realtor and determine the hot markets, in your County, with the greatest number of sales over the last 90 to 120 days. Personally, I would prefer 90 days because markets are always changing. This list would contain the zip code and corresponding name of the municipality, and a breakdown of the number of SFRs. This will be your Farming Area. From this data, you can utilize a website bestplaces.net that will give you a breakdown of the percentage of homes that sold, in various price ranges, for a given zip code. This will identify the retail price ranges, in which you can list the rehabbed property and the price ranges, of distressed homes, you should target.

You can use the Realtor to help you find deals and also use Wholesalers. If you acquire a property, from a Wholesaler, once the property is rehabbed and ready for the Retail Market, allow the Realtor that provided you the zip codes, to list the property for sale. This creates a WIN-WIN Situation and gives the Realtor incentive, to work harder on your behalf. 

@Brian Hesler Since you are interested in Residential Multifamily Property, I invite you to consider the following. Many Realtors will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a 203k Loan. A 203k Loan is where the purchase price and rehab costs are rolled into a single loan.

Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). Because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC.

If you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.

If you think you will go FHA, Conventional, 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.

Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You many be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.

Hello@Brian Hesler I was actually over in your Walmart last night. 😄 I'm over in St Marys County working on the base in St Inigoes. I'm hoping to pick up a rental over here eventually but right now my kids in private school and college are eating up my extra bucks. I do have a condo out in de I rent as a vacation home. A lot of back and forth doing weekly rentals.

I would strongly suggest you establishing a Corporate Entity such as a S Corp or a LLC. This is a relatively inexpensive process. I invite you to Google "Creating a LLC or S Corp in Ohio," "Division of Corporations in Ohio," or another phrase. You can go to http://www.sunbiz.org and see how Florida does things, to give you and idea what to look for, in a website. I invite you to please consider the following, from a Federal Income Tax Filing Perspective. I cannot stress the importance of finding a very good Investor Friendly CPA. Below are some things you may wish to consider, as to which Corporate Enity is best, for your Business Model as well as your REI Goals and objectives.

Flipping Properties

If the primary objective of your real estate business, or one of your real estate businesses, is to buy, potentially fix up an existing property and resell it within one year, the Internal Revenue Service can consider that to be an active trade or business. Unlike passive rental income, the income from an active trade or business is subject to self employment tax (a nasty 15% tax commonly referred to a "social security and medicare" by working folks). If your goal is to reduce that self-employment tax to a minimum, an S Corporation is the best entity to use. Why?

It is the only entity structure whose rules allow the business owner to take a "reasonable salary" (subject to social security and medicare) and then take the remaining profit (often as much as 50% of the remaining income) out as distributions not subject to self-employment taxes. Correspondingly, all business income taken from an LLC under similar circumstances is subject to self-employment taxes. For a business owner with $100,000 taxable annual income, the net tax savings for using an S Corporation instead of an LLC in taxes paid every year can be as high as $7,500.

Holding Properties

When holding properties as a cash flow investor, the LLC (or LP) is generally the better choice because an LLC has more liberal distribution rules. The key here is flexibility. If you purchase a large piece of property and later decide to sub-divide it, you could distribute out a piece from an LLC without incurring a taxable event. LLC distributions come out of the LLC at cost basis. The members of an LLC are issued K-1 Form and have to pay taxes on all profits as though it were income, which could expose the owners to high employment taxes. Also, an LLC can elect to be taxed like an S Corporation.

While there is never only one answer that is correct for all circumstances, there is a general rule that is almost always the correct choice. So remember, for legal and tax planning, a good CPA will recommend that clients hold their properties in an LLC or Limited Partnership and run their businesses as S Corporations to avoid self-employment taxes.

Welcome. I'm in your area and invest in King George, happy to chat over lunch and give you the lay of the land.

@Franklin Thomas - Lots of info, just as you promised, and I greatly appreciate it! I currently have a good agent (who is also an experienced investor), a good contractor and a HML that I have spoken with and will likely use for at least my first few deals. As for the REIAs, I thank you for that advice. I haven't had a lot of time at home to attend any, but I will at least attend a few as a non-member as soon as I am able. In regards to an entity for business, I established an LLC (H6 Holdings LLC) in June 2015 in order to conduct and grow business. I will be looking further into entity selection and speaking with an asset protection attorney as well to be sure I am best positioned for protection and financial responsibility. I travel a lot for my 9-5, and I am currently deployed to the Middle East until July, so I haven't done much other than studying to this point, but I look forward to pulling the trigger on my first (of many) deal upon my return. Thank you again!

@Levi Thornton - I would love to chat over lunch as soon as I get back stateside. It'll be early July, but I am eager to get down to business as soon as I get home. In the mean time, I will keep on reading here and searching for the first deal. Thanks!

I'm an engineer from Pax River (connected to Dahlgren, St Inigoes, Indian Head). I now live in DC. Can anyone refer me to a buyer agent with 203k (or conventional renovation) experience in Fredericksburg? I want a realtor who knows local 203k inspectors, coordinators, and lenders. Thanks!

@Tim Evans PM me, I myself and my mentor deal in 203k projects, and my mentor has been THE "go-to" guy in the Fredericksburg area for many years. So between the two of us, we should be able to answer any questions you have. Thanks!

Promotion
Contracoin
Bridging between Crypto and Real Estate
Get ready to buy your next property using Crypto
Using crypto to own property, leverage #CTCN in buying your next home and more
Time to buy property

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you