VERY beginning; How to start in STR investing?

Question

Hi Everyone - I've just become a member of BiggerPockets and super excited to be here!

Keeping this concise - My girlfriend and I are looking to begin our STR investment journey together, but aren't sure where to start.. should we start with forming a business (LLC?), or just worry about buying our 1st STR 1st? What are the advantages or disadvantages of each scenario (Tax implications, timing, etc.) ?

Any and all advice is greatly appreciated. Thank you in advance!!!

Nathan Gesner · Answer

Until you are married, I suggest a partnership agreement. You should both protect yourselves in case the relationship goes south.

I recommend you build a strong foundational understanding of real estate investing.

1. Start with BiggerPockets Ultimate Beginners Guide (free). It will familiarize you with the basic terminology and benefits. Then you can read a more in-depth book like The Book On Rental Property Investing by Brandon Turner or The Unofficial Guide to Real Estate Investing by Spencer Strauss.

2. Get your finances in order. Get rid of debt, build a budget, and save. The idea that you can build wealth without putting any money into it is a recipe for disaster and the sales pitch of gurus trying to steal your money. A wise investor will not try to get rich quick with shortcuts. If you can't keep control of your personal finances, you are highly unlikely to succeed in real estate investing. Check out my personal favorite, Set For Life by Scott Trench , or The Total Money Makeover by Dave Ramsey.

3. As you read these books, watch the biggerpockets podcasts. This will help clarify and reinforce what you are reading. You can hear real-world examples of how others have built their investment portfolio and (hopefully) learn to avoid their mistakes.

4. Now you need to figure out how to find deals and pay for them. Again, the BiggerPockets store has some books for this or you can learn by watching podcasts, reading blogs, and interacting on the forum. There is a handy search bar in the upper right that makes it easy to find previous discussions, blogs, podcasts, and other resources. Biggerpockets also has a calculator you can use to analyze deals and I highly recommend you start this as soon as possible, even if you are not ready to buy. If you consistently analyze properties, it will be much easier to recognize a good deal when it shows up. Find Brandon's videos on YouTube for the "four square" method of analyzing homes and practice. It doesn't take long to learn how to spot a good deal.5. Study the market. You can learn to do this on your own or get a rockstar REALTOR to lead the way. I highly recommend a well-qualified REALTOR that works with investors and knows how to best help you.

6. Jump in! Far too many get stuck in the "paralysis by analysis" stage, thinking they just don't know enough to get started. The truth is, you could read 100 books and still not know enough because certain things need to be learned through trial-and-error. You don't need to know everything to get started; you just need a foundation to build on and the rest will come through experience and then refining your education.

You can build a basic understanding of investing in 3-6 months. How long it takes to be financially ready is different for everyone. Once you're ready, create a goal (e.g. "I will buy at least one single-family home, duplex, triplex, or fourplex before the end of 2019") and then do it. Real estate investing is a pretty forgiving world and the average person can still make money even with some pretty big mistakes.

Ryan Deasy · Answer

@Jacob Thoren

welcome to BP! happy to help. purely from a lending perspective, if you are trying to do hard money (and you should consider this if you want to do anything with rehab - BRRRR or flips etc) you will need an LLC, at least with HMLs i have used

Kevin Chubet · Answer

In TN real estate in an LLC can have negative tax implications. You and your girlfriend are not married so you currently won't qualify for a FONCE exemption which means TN is going to charge you franchise tax .25 cents per every $100 worth of assets and excise tax 6.5% on the income.

STR's are taxed differently than rental property and I can't write a book on here but they are not alike (STR's good for folks who aren't real estate professionals)

With your girlfriend you are looking at either a joint-venture or a partnership. I would probably go partnership as stated above (multi-member LLC defaults to this filing status)

Bruce Woodruff · Answer

Like @Nathan G. said. All good points.

Get a property in mind first and do the math, lots of research in the areas you are considering purchasing, make sure it will work. Start a partnership since you're not married yet. Study and learn, learn, learn - hint, this forum is a good place....

Chris Davidson · Answer

@Jacob Thoren definitely start worrying about buying the 1st one first. As no need to make a company if you can't do anything with the company. However you need to know what you are getting into and if this is the path you want. Are you going to self manage or hire it out. Are you looking to buy turnkey or rehab a property. Are you going to use a loan or buy outright? If using a loan you are going to have to do what the lender needs to get the property for conventional or hard money.

Just keep reading up and listening to podcast and asking questions.

VERY beginning; How to start in STR investing?

Most Popular Reply