Plans for getting in to buy and hold

[Matt Pitschman]

So, my friend and I have been researching real estate investing on and off over the past six months. We both have full time jobs in the pittsburgh area and are in our mid twenties. We like the idea of investing in real estate to generate extra cash flow. We are thinking we want to start with a buy and hold property that does not need much in the way of repairs. We don't know anything about fixing up properties and don't have the time. We do not have enough savings at this point to get a loan for 20% down if we were to start an llc. And we are finding that any other loan option really doesn't make sense for two people. As we cannot get a loan together and we cannot give money to one person to buy the property. I think there are laws against "gifting" money to someone. So we are trying to come up with some alternative plans. The first of which is a longer term approach. In this case we would buy separate duplexes with individual loans. Which we could afford individually with conventional loans for 5-10% down. Then save the money from the rent to eventually start an llc together and put 20% down on a third property. Using our first duplexes to back the loan for the llc. This would set us up going forward as a business with three properties between us. I think it would take less than two years to save up. What do people think of this plan?

The second idea is to really go after seller financing. We could potentially find a seller that would give a loan to both of us that we could come together to make the down payment on. In this way we could stay away from some bank rules on loans and have more freedom to potentially make a lower down payment and have the loan as partners. Does anyone have comments on this plan? We are trying to think of others, any recommendations are welcome. Thank you.

[Jerry W.]

@Matt Pitschman , you have several assumptions that are wrong but let me try to help explain some stuff. You are apparently buying a duplex using a FMHA or similar loan that takes a small down payment. You and your friend will each do this, then join forces later. First you can gift small amounts without tax liability, I suggest not more than $12K per person to avoid filing a gift tax. If you can get owner financing why not start an LLC now? Keep in mind if you change ownership of property in a year or 2 it might have tax implications. Do not ever do a partnership. Very bad idea. They usually have unlimited personal liability and partners are liable on a debt even if the other partner signed and they did not. Sorry am getting sleepy and this is best I could do ATM.