7 Questions About Investors We Hope You’ll Help Us Answer in 2017

by | BiggerPockets.com

Have you ever listened to a BP Podcast, read the blog, or browsed around on the forums and seen all the creative stuff that investors are doing to source deals, make money, and build wealth through real estate?

It’s amazing what you’ll find there. Folks have incredible hustle, grit, and intelligence, and they are being rewarded for their efforts.

But I have a suspicion that much of this talk ignores a silent majority of real estate investors in this country who are investing in real estate without all the bells and whistles, who are doing so by diligently saving up, investing locally, and working full-time.

Well, BiggerPockets is now collecting BiggerData, and it’s time we start using that data to help real estate investors make informed decisions  — and to see if my suspicions have any merit.

Here are 7 questions I hope to answer using data sourced from BiggerPockets many real estate investors all over the country. I plan to answer these questions in a series of polls over the course of 2017.

In this article, I want to highlight these questions, ask for feedback in the comments about which additional polls to conduct, and determine how useful this will be in helping new investors make important decisions about how they will go about approaching their first or next real estate investment.

The Questions

1. Do a majority of investors use LLCs to invest in real estate?

“Do you need an LLC? Absolutely. There is no debate about it.” — A lawyer on BiggerPockets

Many investors are led to believe that this is a must for their situation, and that all real investors are using LLCs. While I’m sure that many real estate investors do use LLCs, I’m sure that an equal number do not, and that there is, in fact, good reason why this is not an absolute.

My prediction:

Over 50% of landlords taking this poll will indicate that they DO NOT use an LLC for any of their rental property investments, and 75% will not use one for at least one property in their portfolio.

Related: 6 Essential Considerations When Looking at Real Estate Statistics & Data

The poll:

Landlords: Is your property held in an LLC?

  • All of my property is held in one or more LLCs
  • All of my property is held in my own name
  • Some property is owned personally; other property is in an LLC
  • My property is in an entity other than an LLC
  • I do something very fancy with LLC layers, trusts, etc.
  • Other

We’ll find out!

landlord-lessons

2. Are investors really using “creative” finance to buy their very first rental properties?

Lack of capital is one of the major barriers holding new investors back from real estate investing. But I suspect that polling will bring bad news to cashless aspiring investors unwilling to house hack. I believe that the data will confirm that over 80% of investors did one of three things to acquire their first property:

  • Used owner-occupant financing and lived in the property for a time
  • Used a traditional down payment with bank financing
  • Bought the property with all cash

My prediction:

Sorry, gurus! Most investors will be purchasing property in predictably boring ways, with over 80% of investors acquiring their first property with a typical down payment and/or cash or will be owner-occupants who vacated but held on to the property.

The poll:

Landlords: How did you come to own your first ever rental property?

  • I paid for it entirely with cash
  • I borrowed from a private lender (not friends or family)
  • I borrowed from friends or family
  • I put down 10-25% and used a conventional mortgage
  • I formed a partnership or syndication
  • I purchased a rental property with a commercial loan
  • I kept a former home or house-hack after moving out
  • I came into possession via inheritance or a gift
  • Other

3. Are newbies actually buying off-market real estate deals on their first investment?

Really? Are investors really buying their FIRST property off-market by finding a motivated seller? Is it real life that people are sending direct mail messages by the thousands, forgoing work with a licensed real estate agent, and buying directly from a seller on their first deal?

We’ll find out. 🙂

My prediction:

Over 85% of investors will answer this question with a “yes.”

The poll:

Did you buy your first rental property with the help of a real estate broker or agent, and was the property listed on the MLS?

  • Yes, I bought a property that was listed on the MLS at the time of sale
  • No, the property I bought was not listed on the MLS when I acquired it

4. Are people really quitting their full-time jobs to go into real estate investing?

The decision to quit a job to invest in real estate never even made a little bit of sense to me. It seems like it’s pretty easy to get a mortgage if you have a job — and nearly impossible if you don’t have a proven income stream.

My prediction:

I’m going bold — I bet that over 85% of current landlords were working a full-time job or operating a business they own as a primary source of income full-time when they bought their first real estate investment.

Related: Why People Move and What The Data Means for Real Estate Investors

The poll:

Which best describes you when you bought your FIRST rental property?

  • My spouse or I was working a full-time job
  • My spouse or I was working a full-time job, but quit it as soon as I bought my first property
  • My spouse or I was working full-time on a business I owned
  • My spouse or I was working part-time
  • Neither my spouse nor I was working

apartment-value

5. Are investors really using property management — is real estate truly passive?

Many new investors think they will manage property themselves, while others plan to hire it out. Property management, like any other job, is a worthwhile pursuit for some investors, but not for others. I suspect that the bulk of landlords manage at least some of their rentals themselves.

The poll:

Do you manage your own rentals?

  • I manage all of my rental properties
  • I manage the majority of my rental properties
  • I manage a minority of my rental properties
  • I manage none of my rental properties personally

6. Do investors invest out of state?

Investing out-of-state is frequently talked about on BiggerPockets, but I suspect less frequently acted on than purchases local to the investor.

My prediction:

Seventy-five percent of current landlords have never purchased real estate that was not within a 1-2 hour drive of where they were living at the time of purchase. Eighty percent of investors will respond that the majority of their real estate portfolio is within 100 miles of where they live currently.

The poll:

Landlords: Have you ever purchased investment property that was not local to where you lived?

  • I have never purchased property that was more than 100 miles away from where I was living at the time of purchase
  • I have purchased property that was more than 100 miles away from where I was living at the time of purchase

Landlords: Is the majority of your current portfolio within 100 miles of where you live?

  • Yes
  • No

7. Who are real estate investors and what do they do?

I suspect that the silent majority of rental property owners in this country are regular folks who happen to be frugal, smart with their money, and hard-working middle class wage-earners building up passive income streams over the years.

Let’s find out.

My prediction:

Seventy-five percent of real estate investors will fall in the first two buckets.

The poll:

Landlords, what best describes your full-time profession at this moment?

  • I work a full-time job that pays me a middle class salary ($50-$100K)
  • I work a full-time job that pays me a large salary ($100K+)
  • I work a full-time job that pays me a modest salary (<$50K)
  • I am an entrepreneur with my own business
  • I am a full-time real estate investor living off my real estate income

Conclusion

I hope that the results of this polling help real estate investing seem far more achievable for hard-working, thrifty people who are consistent and long-term about their pursuit of wealth and financial freedom. I also hope that the data works in the opposite manner for folks who are looking for a totally passive investment that will make them rich overnight with no personal liability or risk whatsoever. If you aren’t in position to invest and aren’t willing to tackle the challenges as they come up, you probably shouldn’t be investing.

I also hope to be proven wrong. I think that we have an incredible gift here at BiggerPockets in the sense that we are able to quickly and easily poll hundreds, thousands, or even tens of thousands of investors on a regular basis, depending on the subject, and get samples large enough to be meaningful. I am incredibly grateful for this gift. I hope that you find value out of this data as well!

In the comments below, please provide your own predications, and suggest additional future polls for us to conduct!

Looking to set yourself up for life as early as possible and enjoy time on your terms? Scott Trench’s new book Set for Life, slated for release April 23, 2017, and can be preordered on Amazon, Barnes & Noble and other fine booksellers! Whether you’d like to “retire” from wage-paying work, become less dependent on your demanding nine-to-five, or simply spend time doing what you love, Set for Life will give you a plan to get there. This isn’t about saving up a nest egg. It’s not about setting aside money for a “rainy day.” Set for Life is an actionable guide that helps readers build the accessible wealth they need to achieve early financial freedom.

What would you like to see polled? Leave your questions, comments, and predictions below!

About Author

Scott Trench

VP of Operations at BiggerPockets.com, Scott is also a licensed real estate broker/agent, real estate investor managing 8 units in Denver, CO with a partner, a house-hacker, and personal finance nerd. His book, "Set for Life" (published through BiggerPockets Publishing) thoroughly details a step-by-step journey to early financial freedom for full-time workers earning median incomes and starting with little or negative net worth. When he's not helping full-time workers move toward early financial freedom, the 26-year-old can be found playing rugby, biking, or skiing.

21 Comments

  1. David Krulac

    1. LLCs, INCc, LPs, dbas, sole props. and individual names
    2. Yes, 100% financed first 11 properties, see BP Podcast #82
    3. Yes, state highway dept, not MLS listed, second word of mouth not MLS, third relocation company, not MLS, fourth word of mouth not listed, fifth property MLS listed, sixth property word of mouth not MLS listed, seventh property foreclosure not MLS listed, eighth property foreclosure not MLS listed, nine and ten properties foreclosures not MLS listed…
    4. Started part time, now been full time for many years. One year when part time with full time non-real estate job bought and sold 74 properties.
    5. Most properties are self managed including out of state, but do have about 20% professionally managed by others.
    6. Have owned property is seven states.
    7. Full time real estate investor, broker, author and speaker

  2. Peter Mckernan

    1. Since I started the properties I have had have not been held in an LLC. Only Inc. my business.
    2. Conventional loans on all properties.
    3. All deals that were found were off the MLS
    4. I was and am still working a full-time job, and also a Realtor to build capital for other deals.
    5. I manage my own rental properties.
    6. This last summer I was going to move money into five SFR out of state, but deal fell through. Currently hold all rentals within 100 miles of my primary residence.
    7. I work a full-time job as a firefighter and Realtor.

    • Christopher Graham

      Hey Peter, When you took out the conventional loan for your first property, did it include any repair expenses that were needed or did the loan just cover the property? I have been told that conventional bank loans only pay for the property and not for any repairs.

  3. Eve Mahoney

    1. Just bought our first property with my SO/partner – yes, it’s in an LLC.
    2. Conventional loan with 25% down.
    3. Listed on MLS
    4. Neither of us is quitting our jobs or even remotely contemplating it.
    5. We are managing it ourselves
    6. It is local to where we live and I can’t see us traveling to look & buy anywhere not local.
    7. We both work full time and make over $100K.

    Now, to put this in perspective: we are very new at this. Our purchase closed a month ago, we rented back to the seller for a month, so our first “real” tenants move in in two weeks. When we are further down this road perhaps our answers will change.

  4. julie oldham

    1. None of my 4 properties are held in an LLC. After doing lots of reading on BiggerPockets, I went out and bought A LOT of insurance instead.
    2. First property was a Fanny May Homepath purchase during the depths of the recession. Great price, only 10% down for a conventional loan, no MIP, and no appraisal required. My second property, I did borrow all but 20% from a family member, managed to pay off that note in 3 years.
    3. Yes, my first property came from the MLS. Of the four I currently own, three were purchased this way, one was off-market.
    4. I’m fortunate that my spouse has a good full-time job. As a stay-at-home mom, I’m able to work at real estate investing while still being available for my daughter.
    5. I manage all of my own properties and plan to continue to do so.
    6. All of my properties are within 7 miles of where I live. I’ve researched buying out of state, but would only do so in a place I’d like to visit regularly, likely somewhere with a beach. 🙂 Haven’t found that deal yet…
    7. This one is tricky, none of the answers truly fit my situation. My husband works a full-time job that pays him a good salary, but I could probably live frugally off of my 4 investment properties if I had to. We’re in our 50’s, investing conservatively for a retirement income.

    I’ve been investing in rental properties for about 6 or 7 years now, but I still consider myself a newbie and learn so much from BiggerPockets. I’ve gotten a lot better at the property management side of things, but worry that I’m not using my cash/equity wisely. If we were younger, I’d know what to do. But investing for income that we’ll be needing soon, not as certain. I’d love to know how other investors in our situation are managing this!

  5. 1. Do not use LLCs; they are very expensive in Illinois and the record keeping must be perfect if you are ever hauled into court. Lot’s of insurance including a large umbrella policy.
    2. All of the above. In the mid 200os, used conventional financing, now I use a small local bank. Also used my IRA. Have bought a few “subject to”. Creative financing is very time consuming.
    3. Most purchases off of the MLS. ( I am a realtor, representing just myself). Have bought a few from investors and folks wanting to get out.
    4. This is now my full time job and my rentals support us. When I started out, my wife had a job, which helped out a lot with financing.
    5. I manage all my rentals. In 10 to 15 years, I may start selling off property. When I am really old, I may keep 4 or 5 cash cows and have somebody trusted manage them. Not a fan of most property management companies, especially for scattered site SFRs and two flats.
    6. All my rentals are within an hour drive. Most are between 30 and 45 minutes. I like to “cluster” 4 or 5 houses reasonably close together, so in a single afternoon, I can drive around and seen 10 to 15 of my rentals.
    7. My wife has a consulting gig and her income fluctuates. We usually make over 100K,. I would love to make more.

    My advice to the group is there is no one right way to find, finance, and manage your properties. It depends on your personal situation, time constraints, and skill set. Learn something new everyday. Look for property everyday. If a tip from a guru works for you, then grab it. If not, ignore it.

  6. Gerardo Dominguez

    1) All of my property is held in my own name. However, that wasn’t by choice (looooong story). I do have an LLC and the goal is to make it a series LLC with one property per series.
    2) I formed a partnership. However, my partner paid for the property all cash. So I’ll let you decide which option this falls under 🙂
    3) Yes, I bought a property that was listed on the MLS at the time of sale. However, we found it on hubzu.com; it just happened to have a corresponding MLS listing.
    4) My spouse or I was working a full-time job.
    5) I manage none of my rental properties personally.
    6) I have never purchased property that was more than 100 miles away from where I was living at the time of purchase.
    7) I work a full-time job that pays me a middle class salary ($50-$100K)

  7. Susan Maneck

    !, I do no use an LLC but the property I manage for my mother does have one because that is required if the house is held in a self-directed IRA. Not required for a solo-401K that holds two of my properties. I would like to find a way of getting an umbrella policy, however.
    2&3,I bought my first investment property going 50/50 with my mother. We paid cash (15K) and rehabbed on credit cards. After a year we got a HELOC for 30K which more or less covered our costs. I don’t know whether you would call that creative financing or not, but I don’t know other people who have done it that way. But Mississippi is a unique situation where a nice 3bdrm 2ba house can be purchased for what a down payment would be elsewhere. The house I used to live in which i purchased via an FHA loan is now rented, but that didn’t happen until I was searching for rental property and found a house I liked better than the one I was living in. I only have conventional financing on one other property, a condo in Lake Tahoe, CA which is currently rented but intended as my vacation/retirement home.
    4. My first rental property was a Fannie Mae property which was listed on MLS though I didn’t find it there. I favor foreclosures. Even the houses I’ve lived in were either purchased from HUD or Fannie Mae. That goes back well before I started investing in real estate. That’s where i look first. Since then I have bought one property from a friend. This year I purchased my first property from a wholesaler, although I remain somewhat dubious of them. I never heard of wholesaling until I joined Bigger Pockets. All but these two properties were purchased with the help of a real estate agent.
    5. I work a full-time job, a part-time consulting job and I invest in real estate. I bought those properties in anticipation of retirement. I’m 61 now.
    6. I just bought an out of state property in anticipation of my retiring in that state. In the meantime my mother manages it. All the rest of the properties are within five miles of where I live. Most are within a few blocks. I don’t think
    7. I receive a middle-class income from my full-time job as a college professor.

  8. Michael Kight

    1. All of my property is held in my own name. I do carry $300K liability + plus a $1,000K umbrella.
    2. Used a traditional down payment with bank financing. Not been bold enough to use “creative” financing yet.
    3. Yes, I bought a property that was listed on the MLS at the time of sale.
    4. My spouse or I was working a full-time job.
    5. I manage all of my rental properties, but I don’t have that many yet.
    6. I have never purchased property that was more than 100 miles away from where I was living at the time of purchase,
    7. My wife and I work full-time jobs that pay us a combined salary of $100K+.

  9. Christopher Smith

    1) No LLC for me. Ca has an $800 annual filing fee right off the top for each LLC, plus I have spoken with a number of folks (insurance and law) that indicate an LLC is really not necessary (way over hyped vehicle). I have separate insurance contracts on each property, and will likely be getting additional umbrella coverage in the next year or two which I’m told will be about 200-300 for all my properties together. Very reasonable.

    2. Used cash on all purchases except for my first property, but that was my home prior to a job relocation.

    3. #1) I built; #2) Purchased directly from builder after #3) preceding buyers failed to get mortgage qualification during height of housing crises; 3) bought from Ltd Partnership Flipper Group listed on MLS; #4) REO listed on MLS; #5) Bought directly from a Trust/Estate; #6) Regular MLS listed sale from a very motivator seller – original buyer backed out and seller was just finishing up the building a second new home so would have been on the hook for two mortgages.

    4. No still Working full time Job, Will likely continue this until normal retirement age even though probably could quit now because of rental activity and other income / savings

    5. Using two property mgrs for all rentals, one CA one OH. I don’t do much of anything except strategic planning / acquisition and prop mgr supervision.

    6. I have properties 2,000 miles away in OH as well as locally in CA (lived in OH before CA job relocation)

    7. Still work full time job from home > 100K

  10. Alex Chin

    1. Some property is owned personally; other property is in an LLC
    2. I put down 10-25% and used a conventional mortgage
    3. Yes, I bought a property that was listed on the MLS at the time of sale
    4. My spouse or I was working a full-time job
    5. I manage all of my rental properties
    6. I have never purchased property that was more than 100 miles away from where I was living at the time of purchase
    7. I work a full-time job that pays me a middle class salary ($50-$100K)

  11. E. Barret

    Interesting idea Scott, the polls should prove rewarding.

    It looks like you have all the bases covered. I suggest changing references of “I” in question 7 to “my spouse or I” or some equivalent, as I suspect it more clearly gets to the root of what you’re curious about. (The poll would be misled if a number of ‘full time investors’ actually had a generous cushion in the form of an SO’s steady income.) As for me, I’m single and volunteer a lot… I’d fit better in a lazy-sounding sixth option: My spouse and I are part-time investors living off real estate income.

    Keep up the good work, I’m sure many of us will find the polls enlightening.

  12. Amy A.

    I’d like to see a survey question about if you’ve been sued and, if so, how much did it cost you and did an LLC help. Of course, answers would have to be anonymous. I’d also like to see a survey about insurance costs and what insurance companies have been good or bad to work with when you have a loss.

  13. LLCs will NOT help you if you are sued. That is simply a real estate guru fiction. An LLC is merely an entity ownership structure. If a renter gets hurt and wants to sue, your INSURANCE POLICY is going to protect you. I own multiple properties. I have been sued once. I had a renter fall down in her basement. She went to a crackpot doctor who hooked her up with a crackpot lawyer. She called me and told me she had fallen. If you own properties and self manage, you cannot just hide from your renters. I told my insurance company. They hired a lawyer and the parties went back and forth and reached a settlement. I had good liability insurance on that property and an umbrella liability policy as well. The settlement was covered by my insurance.

    Please don’t be fooled into thinking an LLC is a substitute for adequate insurance or good landlord habits and practices. I use Country Mutual Insurance here in Illinois. They are fantastic, but they are slowly exiting the rental insurance business. Their premiums go up a lot each year, but the service and coverage is outstanding and much cheaper than commercial insurance companies. Firms like AllState and State Farm want nothing to do with a landlord that owns 40 properties.

    Lawyers are very careful of their time and resources. The guru fiction that lawyers are trolling for landlords to sue is just that: fiction. Lawyers want real clients with real claims that can be contested and won in court. Class Action lawyers want millions of clients; they can’t be bothered with a guy with 10 two flats and a million dollars in equity.

    Speaking of anonymous, I am always very surprised at the “pros” that post their full name and city when posting. I do not wanting prospective renters or lawyers doing an internet search on me.

  14. chris gibbs

    1. My only property is owned in my own name
    2. I borrowed from family and house-hacked for my first deal
    3. Yes, I bought a property that was listed on the MLS
    4. I was working a full-time job
    5. I manage my rental property
    6. I have never purchased property that was more then 100 miles from where I live, yes
    7. I work a full-time job that pays me a modest salary (<$50k)

    I'm from Portland Oregon

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