My first investment-please help....

[David Robertson]

I'm new to the forum, but would appreciate anyone's help about my first investment.

About Me: I just turned 24 and have owned my residence, a 3 bedroom/2bath since October 2009. I have a background in construction and an interest in investing. Over the past year I have had much of my financial wealth in the stock market, but with the lastest economic downturn I am looking for a new place to invest. I have been interested in buying real estate for the past several years and I feel like right now is a great opportunity to pick up some properties for cheap with low interest rates to rent until the market is right to sell.

Currently, I have been eyeing my first investment property. I found a 3 bed, 1 bath that is near my residence in an okay neighborhood (good schools, low crime, amenities nearby, but neighborhood somewhat rundown), for about $39,000. With interest rates currently at about 4.5% the PITI payment would be approximately $270 per month or approximately $420 per month with $150 per month of maintenance. I reviewed the rental market in the area and I am confident that I could receive around $800 which is +$380 CF per month or +$4560 a year.

I have several questions:

Question 1: Would it be wiser to buy the property in cash or take out a loan with a $5000 down payment?

--My thoughts are that if I paid cash my holding costs/vacancy risk would be lower and cash flow would increase. However, if a get a loan with a small down payment my risk/investment decreases and I can use leverage to maximize return on investment.

For example if I paid cash and invested $39,000 & $3,000 in capital improvements my ROI would be $4560/42000=10.8% return in the first year.

However, if I only put down $5,000 and invest $3,000 in capital improvements my ROI would be $4560/$8000=57% return in the first year.

Taking out a loan would maximize my return on investment and allow me to free up capital for another purchase. Thoughts?

Question 2: Should I create an LLC to hold the property? If so, do I purchase the property as an LLC or do I have to transfer it to the LLC from my personal name after purchase?

Thanks for your time and help!

Dave