All Forum Posts by: Maureen McCann

@James Wise ABSOLUTELY! An LLC doesn't serve you if you're planning to househack - there's a lot more to it than just liability reduction.

@Michael Temple My honest feedback is that it looks like you are trying to make the numbers work because you want to just get started in REI and this is the most available, low-pressure opportunity available to you right now. Harsh, but it's a VERY common issue with new investors - you spend all that time learning and reading and listening to podcasts and then it's like 'ok when do I actually DO something'. So I get it, I see it all the time.

But your cashflow is not only low (not always a deal-breaker) but you've got some really low expense figures you're using to get there. Because even though there are tenants NOW, you can't budget 3% vacancy assuming they won't move on next year. If you had been managing this property for 10 years and you had a 3% rate based on historical data, that would be one thing, but you don't. This is doubly true if you're considering raising the rent.

Same for maintenance - you haven't had an appraisal or inspection done, so a 'pretty new roof' is just what it looks like to you, you don't know what's going on with the foundation or under sinks etc. 3% is basically betting you won't even need to fix a toilet in the first year. Especially since it sounds like putting down a lot of cash upfront is an issue for you, I would STRONGLY advise you not to sacrifice the security of having reserves set aside just to 'get moving' on your REI journey.

I also see you have 4% as your rate - are you preapproved at that rate? If so, congrats! If not I would take a closer look at the rate you're likely to get based on the location, your credit score, etc. I know rates are low right now, but depending your specific circumstances you may end up paying more if you have non-excellent credit, if you need to make a lower down payment, if the bank is iffy on the location of the property, etc.

One thing I notice on the plus side is that your tax rate is high. OH taxes are still some of the highest in the US, but just based on Kenwood OH zip of 45236, your average prop tax bill should be about $2300 annually, which works out to about $192 per month or 13.7% of your gross rents: https://smartasset.com/taxes/ohio-property-tax-calculator#rug602DuLl

So that will boost your cashflow a good bit, but then upping your withholding for vacancy and maintenance will likely even it back out.

Basically, this deal seems like more hassle than its worth. I would recommend that you keep saving and looking for something more BRRR if that's your cup of tea. Something you can add value to and force some sweat equity.

Sorry to be the debbie downer lol

@Jared Friedman Have you looked into DSTs? The IRS approved them for use in a 1031 exchange in 2004 and they are, by law, extremely passive. However, they usually require that you leave your capital in place for 5-10 years, and you'll have no control (again legally) over the investments held in the DST. It's essentially like investing in a mutual fund of real estate, but you can't typically just sell your shares whenever.

Do some research because there are certain things not everyone likes about DSTs - they can't raise new capital once the DST offering is closed, so big ticket repairs on props held in the trust can eat into returns, just like with any REI, but you don't have any control over how and when repairs etc are dealt with. So if you want truly hands-off and you're ok with your capital being tied up long-term, a DST might be a good way to go.

Not able to tag for some reason, but Dave Foster is a good resource for all things 1031.

@Ryan Rush OOF that stings. I'll be honest I haven't read all 160 replies (clearly your post resonated with the BP community!) but I will say three things:

• If you just keep your head down and moving forward, you can do this. It doesn't matter how fast you move, just that you keep moving.

• It sounds like a lot of these properties came with some pretty hefty baggage in terms of deferred maintenance. This can be a very common issue for new investors ( i know you're not new now, but you likely were when you bought some of them) but also in lower-tier properties where many landlords (whoever owned the props before you) just sort of figure they don't need to maintain the properties since the rent is lower /the neighborhood isn't nice. But, really, if you keep your properties safe and maintained, you get better tenants (who also deserve a quality place to live no matter how much money they have) who stay longer - so it's win-win. This is a lesson it sounds like you might be learning. It's a tough one, esp since the low ticket prices of C and D class props can be SOOOO enticing - they all look amazing on paper but often turn out to be...this.

• Do you have any equity built up in any of these properties? Would unloading one of them take some of the financial stress off? There is a lot of focus on BUILD BUILD BUILD for new investors - trying to get as many properties as possible, but that's not always a great strategy, something I don't see a lot of the Pros mentioning - scaling without adequate reserves or systems in place can be very dangerous.

• OK fourth thing - do you have cards with 0% interest balance transfer options? Sometimes the fees can be as low as 1%, so you could potentially pay 0% on a $10k bill for a year or more for $100 or so - sadly a drop in the bucket at this point. If all your expenses haven't hit your credit report yet and your credit is ok, you could look into opening a balance transfer card with really good terms, like the Citi Simplicity (no I'm not an affiliate lol) which has like 21 months of 0% or something, and NO fee for balance transfers in the first 6 months, I think. Anyway, an option to consider as you plan your way out of this hole.

I'm sorry to hear things took a turn, BUT as many I'm sure others have said, there will be LESSONS all over the place that you won't appreciate fully until you're out the other side. I have no doubt that you will be a better investor for this experience - we ALL have had sh*tstorms come our way at one point or another. 

But you GOT THIS.

The way you invest in Huntsville (ie DIY using a BRRR method or flipping, or using a turnkey company to keep it as passive as possible) will depend on your goals, your time, and your interest (because we're all better at things we enjoy, so if going the DIY route doesn't sound like FUN even though its hard work, then consider whether you'll actually stick it out).

So since you're already in such a good market, you sort have one MAJOR thing checked off your list already. Your focus needs to be on nailing down your goals, in writing, for your REI both short and long-term and then having a serious come-to-jesus with yourself (and your partner if applicable) about how much time, money, enthusiasm, and brain-space you can reliably dedicate to building your portfolio week after week. The answers to those questions will point you in the right direction – after that, BP has pretty much got you covered resource-wise.

Good luck and CONGRATULATIONS on this awesome new adventure!

@Charles Hirst Welcome to BP! This is the BEST place to learn all you need to know. You're actually one step ahead of a lot of people here tho - you already live in an AMAZING cash flow market!  Our company recently expanded into Huntsville from Birmingham and I can't tell you how excited we are about it. Your city has got it going ON and the future is looking pretty bright. 

If you've only lived there for two years and are new to BP, I get that you might not quite know how to analyze a market yet. Huntsville is a lot like Birmingham was a few years ago, just really getting its renaissance going. But the Big Picture plan for Huntsville's next 50 years is ambitious, future-focused and pretty much guaranteed to boost values, rents, and demand: https://bigpicturehuntsville.com/

What's more, Huntsville's internal and external (including, crucially, foreign) business investments are FANTASTIC. Jobs growth should only continue to ramp up as the projects currently underway get completed and new jobs hit the market. Unemployment is already crazy low at 2.5% https://fred.stlouisfed.org/series/HUNT601URN AND it has a diverse economy with no one industry accounting for more than 30% of jobs, which means it will be resilient if one industry takes a hit. https://www.bls.gov/eag/eag.al_huntsville_msa.htm

@James Wise this is such an important topic! So many people talk about LLCs as being the most important first step to REI, but EDUCATION is ALWAYS number 1 - not everyone needs an LLC, and where you form it matters. A lot of people tout Nevada because its tax system is business-friendly, but you may end up having to pay to file in the state you earn income in as well if you have a physical business or even solicit business in another state (like if you're trying to build an OOS team in a market with better cashflow than your own). It's all about the cost-benefit analysis when it comes to REI, and forming an LLC (and where) is no different!

@James Wise this is such an important topic! So many people talk about LLCs as being the most important first step to REI, but EDUCATION is ALWAYS number 1 - not everyone needs an LLC, and where you form it matters. A lot of people tout Nevada because its tax system is business-friendly, but you may end up having to pay to file in the state you earn income in as well if you have a physical business or even solicit business in another state (like if you're trying to build an OOS team in a market with better cashflow than your own). It's all about the cost-benefit analysis when it comes to REI, and forming an LLC (and where) is no different!

I am so excited about this new growth in Huntsville! To add to Caroline's awesome resources, I think anyone considering this market should check out the official Big Picture website: https://bigpicturehuntsville.com/

Hunstville's leadership is forward-looking and FUTURE-FOCUSED!

As a little tip, if you're still vetting providers or team members or markets, take a little virtual walk around different areas using Google Earth. It's not 100% reliable as things do change over time - and it's not a replacement for a visit, ESPECIALLY if it's your first investment in that market – but you'll see pretty quick if properties in each area are well maintained vs. have cars up on cinder blocks, have people loitering around outside during the day, etc. 

This is also helpful just in terms of weeding out less-than-virtuous marketers or faux turnkey providers (a la Morris Invest) - if they send you addresses, or have online listings, check the neighborhood out on google earth to see how truthful they're being about the quality and class of the properties their selling. If they're misrepresenting their property classes, it's time for your boots to do some walkin'.