Looking for some advice

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Looking for some advice

Kole Kingslien
Investor · Evansille, WI · Member since 2017 · 105 posts · 29 votes
Hello there, I am a beginner at this, and thought someone might be able to help me with a few things. To give you a perspective on where I'm at: I'm 22, my wife is 20, we live, and work, right outside of Madison Wisconsin, and we are hoping to start out by house hacking a 4plex. We have $18,000 saved up to start investing. At this stage I have secured lending for an FHA loan, and have been looking at properties. We eventually want to keep investing in buy and hold properties and eventually maintain enough cash flow to quit my job. I'm looking for any guidance you might be able to offer about strategies to reach these goals. Things that are in my mind are questions about being able to obtain multiple financing, is this possible? Can I have multiple loans, even though I carry an average job? Also I am confused about the legal aspect of it, I hear people throw names around like LLC, CORP., TRUST, but I'm pretty confused on this. Also, creating a lease, rental application, and things of similar nature, am I supposed to/can I do these on my own? What about accounting and finances, can I do these things on my own? I want to make sure I'm doing things wisely, legally, and safely, while remaining profitable and protecting myself legally. Also, even though I plan on doing this where I live for a while, I am still curious how owning out of state rentals works? Thank you for taking the time to read this, any information would be helpful. Respectfully, Kole
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Kyle McCorkel
Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes
9y

Welcome to BP @Kole Kingslien

Love all your questions.  I'll answer the best I can, and others can fill in the gaps.

Yes, you can obtain multiple loans.  10 "conventional" loans per person, so keep each loan in either your name or your wife's name (not both!).  Conventional loans offer the best terms.

You will be able to get multiple loans as long as you continue to meet lenders' criteria, which is a constantly moving target.  But it involves keeping a high credit score, low debt-to-income ratio (below 45%ish I believe), and keeping some cash reserves.

For your first house hack I would recommend keeping things simple. Getting an LLC will complicate things and you also cannot easily get conventional loans with an LLC. For asset protection, get a good homeowners policy AND an umbrella insurance policy with $500K-$1M in liability coverage. When you get more equity and more properties in the future, that might be a better time to begin protecting them with an LLC.

Lease, rental application, etc. - I believe some of these documents are available on BP, not sure though.  

Accounting/finances - I'm assuming you mean someone to do your taxes...I personally would recommend it, but you might want to try doing it yourself while you are starting out.

Keep track of your finances like a hawk...I recommend creating a separate account that you only use for real estate investing purposes.

Out of State Rentals - I started locally and now own a few out of state/long distance as well.  I would highly recommend starting locally.  You learn so much about how the business works and those lessons apply no matter how far away the property is.  I bought out of state because I was getting stalled out locally AND I found a trustworthy turnkey provider and property manager AND this offered a solution that was much less time intensive.  Turnkey basically means that someone else does all the work - they find a distressed property, they (should) do a full rehab, put a tenant in place, put property management in place, and then sell to an investor.  Think of them as a house flipper for buy and hold investors.  The key is absolutely ensuring the rehab and PM teams are excellent.  If it works, then it can offer great diversification and a hands-off alternative.  Keep in mind, you won't find stellar deals this way but the time required makes it worth it for some people.

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  • Kyle McCorkel
    Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes
    9y

    Welcome to BP @Kole Kingslien

    Love all your questions.  I'll answer the best I can, and others can fill in the gaps.

    Yes, you can obtain multiple loans.  10 "conventional" loans per person, so keep each loan in either your name or your wife's name (not both!).  Conventional loans offer the best terms.

    You will be able to get multiple loans as long as you continue to meet lenders' criteria, which is a constantly moving target.  But it involves keeping a high credit score, low debt-to-income ratio (below 45%ish I believe), and keeping some cash reserves.

    For your first house hack I would recommend keeping things simple. Getting an LLC will complicate things and you also cannot easily get conventional loans with an LLC. For asset protection, get a good homeowners policy AND an umbrella insurance policy with $500K-$1M in liability coverage. When you get more equity and more properties in the future, that might be a better time to begin protecting them with an LLC.

    Lease, rental application, etc. - I believe some of these documents are available on BP, not sure though.  

    Accounting/finances - I'm assuming you mean someone to do your taxes...I personally would recommend it, but you might want to try doing it yourself while you are starting out.

    Keep track of your finances like a hawk...I recommend creating a separate account that you only use for real estate investing purposes.

    Out of State Rentals - I started locally and now own a few out of state/long distance as well.  I would highly recommend starting locally.  You learn so much about how the business works and those lessons apply no matter how far away the property is.  I bought out of state because I was getting stalled out locally AND I found a trustworthy turnkey provider and property manager AND this offered a solution that was much less time intensive.  Turnkey basically means that someone else does all the work - they find a distressed property, they (should) do a full rehab, put a tenant in place, put property management in place, and then sell to an investor.  Think of them as a house flipper for buy and hold investors.  The key is absolutely ensuring the rehab and PM teams are excellent.  If it works, then it can offer great diversification and a hands-off alternative.  Keep in mind, you won't find stellar deals this way but the time required makes it worth it for some people.

    2Reply
  • Simon W.Business Member
    Real Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 683 votes
    9y

    Kyle pretty much answered everything, but I honestly do not think you should do your own accounting/financing.

    My previous job, I was hired as a Property Controller for a family-owned real estate acquisition/management firm. For 9 years they never had an accounting in-house while trying to go big. I came in and it was a total mess. My advice is to understand the accounting, but don't try to tackle it yourself if you have bigger visions of your real estate investing.

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    This web site is full of all the information you will need to learn. Take the next 6 months to a year and both you and your wife study it all. 

    Once you have absorbed all the knowledge available you should have a pretty solid handle on investing in income properties.

    The resources are extensive and really the only/best way to get a solid understanding.

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  • Account Closed
    Boston, MA · Member since 2016 · 50 posts · 34 votes
    9y

    If you decide to do the accounting yourself make sure you save all your receipts every time you get one. It will make the end of the year much easier. Be as thorough in your documentation as possible. 

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  • John FranczykPro Member
    Wholesaler · Racine, WI · Member since 2015 · 143 posts · 84 votes
    9y

    Ultimately, you can realize a number of tax and control advantages with an LLC or a corporation. For now, Kyle M. is right - you probably will have to take ownership of a property in your own personal name. Most banks will not lend money to any corporate entities, like LLCs, that have not been in existence for at least two years.

    That said, you can plan for future investments by setting up a corporation right now. A simple Wisconsin corporation is easy to establish, and it only costs $100 to file online. When you get confirmation of the filing, you should then file an "S-election" with the IRS. That allows you to pass income and expenses from the corporation onto your personal tax reports without having to file corporate taxes. You can use the S corporation as the manager of the other rental units in your building. Talk to an attorney or accountant to make sure you're tracking income and expenses properly. The real beauty of the S corporation is that you can set up all sorts of retirement accounts and health savings accounts under it that allow you to accumulate funds with no taxes on the appreciation. Again, talk to an attorney or an accountant for advice on how to do that.

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  • Jack Medford
    Investor · Nipomo, CA · Member since 2014 · 366 posts · 401 votes
    9y

    @Kole Kingslien if you have the time, check out the Madison Real Estate Investors meetup. Happens every other week on Wednesday nights, with the next meetup being Sept 27th. @Chela O'Connor is one of the organizers, so I'm sure she can provide a little more info if you are interested in joining. 

    I'm new to the area myself and have attended the last 2 meetups. Everyone who attends is super friendly and excited to help us newbies. 

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  • Kole Kingslien
    OP
    Investor · Evansille, WI · Member since 2017 · 105 posts · 29 votes
    9y

    @Jack Medford Thanks for the heads up! How can I find a location and meeting times? Also, does it cost anything to attend a meeting/become a member? What goes on in these meetings? I would love to attend! I am very interested in meeting like minded people and getting advice/increasing my knowledge and networking! Thanks for the help!

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  • Jack Medford
    Investor · Nipomo, CA · Member since 2014 · 366 posts · 401 votes
    9y

    @Kole Kingslien The meetings are at 7 pm, but the location changes every week. I have not heard about the location for the next meeting yet, but I will update you when I hear. Also, you can connect with @Hussain Harun if you would like to be added to the email list. He is the one who got me started with the meetup.

    There is no cost to attend the meetups. Generally, there is an info session for the 1st hour. Last week we went to Chela's property which is currently undergoing a flip, and she shared all of the details about the deal. After that we went to Ale Asylum to just hang out and mingle and talk more real estate. The meeting before, we had Megan McCallum from BP podcast #228 join us and talk about her journey through real estate. There was also a CPA who attended and gave advice on all the legal aspects, LLC's and S-Corp's, stuff like that.

    Every meetup is a little different, but the goal is the same. Share info and learn together. 

    2Reply
  • Daniel HymanBusiness Member
    CPA · Milwaukee, WI · Member since 2016 · 2k+ posts · 1k+ votes
    9y
    Originally posted by @John Franczyk:

    When you get confirmation of the filing, you should then file an "S-election" with the IRS. That allows you to pass income and expenses from the corporation onto your personal tax reports without having to file corporate taxes. 

    Election to be taxed as an S-corp would not require the company to pay taxes or allow for a refund. Those would be passed to the individual return. However, a separate tax return would, in fact, be required. 

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  • Jack Medford
    Investor · Nipomo, CA · Member since 2014 · 366 posts · 401 votes
    9y

    @Kole Kingslien here is the link for the next meetup, happening this Wednesday. 

    https://www.biggerpockets.com/forums/521/topics/491997-madison-real-estate-investors-meetup-club

    1Reply
  • Kole Kingslien
    OP
    Investor · Evansille, WI · Member since 2017 · 105 posts · 29 votes
    9y

    @Jack Medford Thanks so much for the link! I will be there this Wednesday, and do my best to make the meetings (I get up at 3 a.m for  work so I go to bed early, thus making it difficult to attend many meetings). Thanks for sharing this info with me!

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  • Kole Kingslien
    OP
    Investor · Evansille, WI · Member since 2017 · 105 posts · 29 votes
    9y
    @Jack Medford I am not getting a reply from the meeting hosts with information about this "Slack" account thing, did you have to do it/can i attend without it?
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