First Time Rental Property Purchase

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My wife and I have been considering investing in rental property for about a year now. Within the past year we have built a house, had a child and my wife has quit her job to stay home w/ junior. Anyway, long story short we have enough income to get a loan, not a lot of cash to put down and are not sure if and or when we should buy our first rental property.





A few things that I am wondering about are:





1. Are there any financing loopholes that will get me a low down payment with a reasonable rate?





2. Is it wise to set up an LLC to hold the property. To limit personal liability.





3. I have done a lot of research, I know the tax laws and I have run the numbers. I don't see how this could not work. What am I missing? (Asside from poor tenents, location etc.)





Any input will be greatly appreciated.





Thank,





NumberMan

Comments(2)

  • Russ18th December, 2002

    Here is my answer to first time investors regarding #1 above:




    First I ask the following question, Are you wanting to become a real estate investor, or own just one or two properties?




    The reason I ask is because I find that a lot of wannabes think there is no time involved in real estate investing. There is. If you want a successful business, you must be willing to put in time.




    If the answer is "I want to be an investor!" here is the advice I give. Go down to your local fast food joint, or other area that might be offering part time work. Get a part-time job and work it for as long as you need in order to accumulate enough to put 20% down on the property type you have in mind.




    I can hear it already. "Russ, are you nuts???"




    Here's my reasoning. If you can't get yourself to work a parttime job, where you know the money will be coming in, how can you possibly believe you can work it when you might not get anything for your time???




    See if you can handle giving up the free time that running a successful business requires that you give up. As you do so, you will be earning money that will help make it even easier for that business to get started off on the right track.




    Don't start a business underfunded. You can cause real damage to your credit rating, and your financial future.




    If you're not interested in a business, but rather just an investment in one or two properties to provide a little income, or to build net worth for retirement, then don't worry about going through the trouble of seeing if you have what it takes to give up your time. You can rest assured that the only "loopholes" you are likely to find are "seller financing" which generally means you are buying a property with a defect (material or just marketing), or you have a savy investor that wants the higher interest that a loan will provide.




    One can sell this point to older people. Find a retiring person that is selling his house with plans of putting the proceeds into bonds or such for money to feed himself on. Show him the difference between the money he gets from a 3% bond return, and a 9% return you are able to provide. Remind him that his money is backed by the value of the real estate.




    If you can't get seller financing, then consider one of a myriad lenders that will do 90-95% financing as long as you provide a bundle in PMI. I would recommend getting the parttime job. Earn the other 10% (assuming you aren't lookin g to buy the Trump Tower), put down 80%, get better cash flow (through lower payment and no PMI).




    #2




    Again, business or just a side thing? For those with business intentions, start it out right, and go for the LLC. Side thing? A liability umbrella insurance policy could do the job find and dandy. It covers you for a lot more than the LLC would, but also costs more.




    There is a website that will help you set up an LLC quite inexpensively. I can't find the URL right now. Maybe someone else will help.




    3. If you are doing all of the work yourself, your numbers won't lead you astray. If you are going with a business, and you will need to hire, understand that today's workforce really stinks. Even at 6% unemployment, anyone that really wants to work has a job. You will have to make your position good enough to remove someone from where they are now. It can be costly. However not as costly as trying to work with the non-working trash out there that is just looking for a hiring newbie to rip off.




    Sorry, but that's my experience. Others might differ.




    I hope this helps! It's a good business, but it is a lot of work. It's not easy. It's best not started underfunded.




    Good Luck!




    Russ

    • NumberMan10th February, 2003 Reply

      Russ,




      Some time has passed since you replied to my post, but I wanted to be sure to thank you for your response. I should have been more specific in my origional question. It will only be a side thing. I am a 28 year-old business consultant and make good money. My wife is an accountant turned stay-at-home mom, so she would be handling most of the property issues. We want to invest; 1. to help out with college when the time comes 2. because we feel that it's a good investment that can provide a "hopefully" predictable revenue stream.




      Anyway, again I greatly appreciate the time you took for your response. I found the info very helpful.




      Thanks Again,




      NumberMan

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