Starting out - Team of 4 newbies

[Christopher Weber]

We are a small group of first time home buyers looking to build out a collective real estate investment portfolio. We are interested in getting some advice about how we should proceed.

Currently we have been looking for multi-family complexes under $100,000 that we can purchase with cash. We have focused on the Cleveland, OH market because of the low property prices and relatively high rent compared to those prices. We figured it could be best to purchase our first property using cash to avoid the hassle of getting financing with an LLC.

Ultimately we want to acquire a few of these properties together, so that we can use them as collateral and be able to get loans for more expensive properties.

Some questions related to this general strategy that we have developed include:

• Is forming the LLC now and purchasing our first property through this company the best way to go?
• Is this proposed strategy -acquiring smaller properties with cash and then eventually using those assets as collateral- a viable option?
• What is the optimal way to pool our capital and structure ourselves for success in acquiring our first 1-5 properties?

Any and all feedback is greatly appreciated. Thank you for your time.

[Richard Bechtol]

You could do this in various ways, as you suggested. However, in this situation it might be best to establish the LLC first and lay out the roles that are within the group. This way you can address different issues that may arise when you have multiple non-spousal parties involved. Also, another issue that has not been addressed in this post that an LLC with a good operating agreement could address is if one of you passes away. This can be addressed in the operating agreement and avoid the probate process and if you are not a resident of Ohio this process could be very costly and time consuming.

Last, if you are looking to acquire multiple properties and scale like this post sound like a structure like a series LLC might be a good thing to look at. This allows for expansion without the cost and upkeep associated with multiple LLCs. I hope this helps and good luck on your new venture.