All Forum Posts by: Brian Garrett

Hi Greg - I too am reasonably new to RE investing - still working toward my first real deal. I've just spent a fair amount of time the past few months getting my finances in order so I'm well positioned to pull the trigger when I find the right property. I'm not in a rush and want to take purposeful steps rather than emotionally driven and incorrect steps (just explaining my slow process). Here's what I know about LLC's from what I've listened to on the podcasts.

1. Would it be better to set up an LLC for owning the rental properties?

You absolutely can do this, but with regards to the LLC, my understanding is you can't acquire at least SFH's (which also include multi-family properties up to 4 units) under the LLC, but rather you have to do what's called a "Quit-claim" to transfer the property under the LLC. The challenge is if you do this, the lender could at any time call the loan. However everything I've heard of is that this has never happened. So while there is some risk, it's somewhat low in doing this.

2. Should I have a separate LLC set up for each property?

I've always thought if I was going to go down the road of doing an LLC for properties I would do a master LLC and then assign an LLC per property, or a series of properties. However, IMHO the amount of overhead with the LLC's that I've seen vs. the benefits I'm not sure how much effort I'd put into it yet.

3. It may be too late to get an LLC set up for the first deal set to close on June 1. If I close on it with the existing company, how difficult is it to transfer it to an LLC afterwards?

Because you can't buy the property under an LLC you may be able to set up the LLC and transfer it even after the closing.

4. If an LLC or multiple LLCs is the way to go, what is the simplest/best/least expensive way to set these up?

The crazy part about LLC's is they don't have to be local (again - my understanding). So you could set up an LLC somewhere that it's less expensive to do so and then quit-claim the property to that LLC. It can all be done online in most states simply by googling the state and llc

Best of luck with the process - I hope to be following behind you soon!

Stephen,

I'm not exactly super-experienced, but here is what I know based on what you have asked.

1. Whenever you're building a home (pretty sure this would apply to a 4-unit as well) you wouldn't have a mortgage during the construction process, you'd have what's called a "construction loan".  it's not the same as a traditional mortgage.  Once the property is completed, then you would switch it over to a traditional mortgage.

2. Building up would be a matter of checking with local city ordinances to see how high you can build.  The community I grew up in had height limits on buildings at the city code level.

3. Again, this would be best to check with the city you are planning on building in.  That information should be of public record and easily found through "the google".

At least that's my $0.02 worth.  That and $5 may get you a small at Startbucks.  :)

@ Ben Wilkins -you drive a hard bargain indeed.  :D  I'll be happy to provide some feedback.  :)

Ben - any chance you're sharing that spreadsheet out?  Great work on it btw...

So much to learn... the thirst is great.  :D  Thanks for the info...

So my wife and I are the type that like to buy brand-new cars and then drive them for 10 or more years.  Ten years ago we bought an Acura TL with the thought of keeping it for 10 years and then re-evaluate at that time.  So I started to look at new cars.  I was leaning toward the Toyota Highlander as a possible replacement.  Nice car certainly.  But when I sat down and started running the numbers, the overall cost was going to be around $500 to $600/mo if I took the total cost of the car (we pay cash), along with fuel, insurance and maintenance.  

As we were leaning towards that option I stopped and asked myself - would we spend $500 to $600/mo if we used Lyft?  When looking that the Lyft app, there's always a car within 5 to 10 minutes of our house (and we live in the suburbs), we live right across the street from a grocery shopping center (not even major streets to cross), my wife works from home (and is a bit of a homebody), we typically run all of our weekend errand messages together, and I work about 15 minutes from the house.  If there was ever an emergency, better dial 911 over driving anyway.  If we need a bigger car for a long trip we can always rent one with the cash we weren't spending on a new car.  

To me (and my wife) it started making absolutely no sense to buy a car.  She was immediately on board and was ready to sell the TL.  We sold the TL this past week, took the cash from the sale and put it into a new bank account that we are going to be using for all property investing purposes.

It's not exactly "property investing" - however I think it's still a better/smarter use of our money.  :)

Kevin - based on everything you've said from your first post I could have easily written the same post with the exception of the third factor.

I like the input on how out of town properties always look better on paper, however given the Denver market right now I think my money goes farther in other cities.  The real issue is how to assemble the remote team to help support the purchase/buy/hold process.  So for me - buying remotely hasn't been as big of an issue as long as the team is in place.  

I'm fortunate enough to be working with someone (in my office) who already has several buy and hold properties in other states and has established the process.  He doesn't mind me shadowing his process, so I think that's going to be the path I follow.

At least that's my $0.02 worth.  That and $5 might get you a coffee at Starbucks..  :D

Loretta,

My wife and I are in a similar boat and just starting out.  We have a significant amount of cash saved up (enough to pay off the existing mortgage) and over 2/3rds of our mortgage paid off (when factoring in what we have in savings.  So we're well positioned to start our journey (which I'm actively investigating).  Also, about 11 years ago when we got married, she owned a home and I owned the home we continue to live in.  At the time we got married we financially couldn't afford to have both homes with a renter in one and have the renter miss a single payment - or move out in search of a new tenant.  So for safety we sold the first home.

I'm not a big fan of the HELOCs because of the terms and the interest rates. I'm thinking more long term rather than short term and because of our cash position I'm looking to get our feet under us from that perspective first. If that goes well, then my plan is to refinance our house to take the equity out. This allows us to lock in a fixed long term expense vs. the shorter terms and variable rates of the HELOC. I could be wrong about this, so take that for the grain of salt that it is.

Now - with regards to your questions:

How do I know that the values will keep rising and this risk it worth it. 

You don't - it could all come crashing down tomorrow, or it could grow at the rate we are at for the foreseeable future.  Things I look at are areas like, current available inventory on the market, new building starts, demand, unemployment and other growth factors in the Parker area (Parker is just stupid hot from what I've seen).  IMHO Parker is a good area for continued growth.

The low inventory and numbers trend the right way but how do we even calculate if the risk is worth the potential future equity?

I'm not entirely sure how to approach this - but initial thought would be to assign a value to the pain point taking into consideration of "what if the property suddenly sits unrented for several months" - you could draw out all the doomsday scenarios you can think of and then walk it back.

What would you do?

1. Rental #1 Cash Flow $710 per month - Maintenance as needed (Is there a standard % for this?)

2. Rental #1 Equity = 330-197-47=86K (I subtracted the HELOC on my home and the 1st mortgage on it). Take out about 30K for closing & down payment on the next primary. That would put us at 70% LTV

3. "Turn my current Primary into a rental #2" Cash Flow 3k-2,570 = $430 - Maintenance as needed. It is mortgaged at 90% LTV already.

4. Get a 4.75% FHA loan for the next primary residence with 3.5% down due to high balance FHA loan and Fair credit scores. It would have a 96.5% LTV

I think I could make an argument for any one of these options depending upon what the goals are.  Are you looking to do more cash flow?

Regardless - it's a tough call on how to best approach it.  I know our long term goals is cash flow.  Any equity gains are just funny money until you cash them out in one way or another.  And if you pull on the equity string of an existing home, it drags the passive income down because you'll have a higher mortgage to contend with.

Definitely areas of struggle I'm working though.  :)

Thanks Jerry for the advice.  I just got done this past April with my mom over Alzheimers - let's just say that I'm super-thankful for a good estate to help care for her during her remaining years.  And the $7k/mo isn't a surprise with what we were paying for my mom (anyone reading this - if you don't have Long Term care setup you really should consider it for that very reason!)

My in-laws did a similar deal with my wife's grandma.  Her kids (my wife's mom/uncles) bought the property.  I'm not sure of the exact details around it, but it is something to consider I guess.  I just need to figure out the three-way split thing.  That's the conundrum.  :D

Hello BP Community.  We're still getting our feet wet here and on sound financial ground to shift into real estate investing (someday I'll post in the newbies forum (I'm still considering myself a newbie).  But I had a moment and thought I'd toss this out to the crowd to see about strategic options.

My wife is one of three siblings.  Relationships between the siblings is good, so no real issues there.  We are the only DINKs of her sibling group, so we are in a better position financially overall.  My wife's folks live in a very desirable townhome in Westminster about 200 yards from the townhome we are in and are in their 80's and slowing down.  Their townhome is paid for and with any luck their remaining days will be spent there.

My wife really would like to buy the property as an investment vehicle and the ranch townhomes regularly go for around $300/$325k at least.  If they are on the market for 24hrs that's considered a long time.  Certainly we don't want to assume that we would inherit a third of the property, but that's the way the math would work out given that they should pass while living there.  We would like to approach not only her folks with a deal where we would trade her inheritance in the home for equity in the property and buy her siblings out for ownership in the property.

The reason I ask this is because we want this to be all above board and everyone agrees to the deal so there are no hard feelings should/when the time come to pass.  If anyone is against the deal, no biggie, we'll walk away from even suggesting it in the future.

So - the question is, is there a method or way to use the 1/3 of the potential inheritance as equity in the property and only needing to borrow against the remaining inheritance balance to pay off the other siblings?

The easy way is to obviously take out a full loan, pay off the other siblings, but then we would be borrowing more money than would be necessary.

Maybe I'm missing something obvious - but that's the only clean way I can see to approach this process.  I'm hoping greater minds may have a better idea on how to structure the deal.

Input is welcome.

Thanks.  :D