First MF payout coming soon... what to do now?

Question

Hey BP,

My husband and I invested passively in our first ever REI deal. It was a 71-unit apartment complex in the DFW area. We were pleasantly surprised when the asset reached it's goal 3 1/2 years early. The sponsor is looking to sell the property to pay the investors back. Yippee!!

As my husband and I talk about what to do with the capital that will come in, there are different options we've talked about. We both work full time and have a young child. In the next 9-10 years, I want to retire from education and stay home to work the REI business.

*It should be noted that in the next three weeks, we will be closing on our first SFH buy & hold where we will be the landlords/managers but the property is 4 hours away (its a family deal). We aim to have $300-$500 monthly cash flow after finding a tenant.

Here are the strategies we've talked about so far:

- Re-invest 75% of it into another passive MF deal and put 25% of it into a buy & hold rental for monthly cash flow

-Re-invest 90% of it into another passive MF deal and put 10% of it toward educating ourselves in REI (business expense)

-Re-invest 70% of it into another passive MF deal, tithe 10%, spend 10% on ourselves, and save 10%

Big questions:

Do we form an LLC for our REI business?

Do we form a trust (would this be redundant with the LLC)?

Do we just put the savings into our bank or is there a better way?

Should we be more aggressive in purchasing SFH for better tax advantages compared to passive MF investing?

Is there something glaringly obvious that we're missing or don't know about that would be to our benefit?

Thanks for the input!!!

Ashley

Amanda G. · Answer

Hi Ashley,

Google forms are great. You didn't ask about this, but be careful with putting private info like SSN in them, they are not very secure. Mike Butler's book on landlording is very good, and probably has what you need. i haven't read the second edition, yet.

Bo Goebel · Answer

@Ashley WolfeAlso, buy "The book on managing rental properties" by Brandon Turner. It will give you access to forms and walk you through the more active side of managing rentals.

Bo Goebel · Answer

@Ashley WolfeFirst off, the biggest win is that you are looking reinvest the earnings from your last deal. You need to decide where you spend your money based off of your goals, but I would definitely set aside some of the profits to work on education. Invest in yourself early.All of my answers should be vetted by a professional...but I'm trying my best.It is not necessary to form an LLC to do a lot of REI business activities. If you are purchasing another rental, I would establish that rental in an LLC. If you are serious about REI, I would also recommend getting it set up early to start building your "brand" and add credibility. This also depends on how active/passive you are....

A trust is not redundant and you need to discuss with your lawyer, who you need to seek out sooner than later. Most people wait until they exceed a couple of million dollars to establish trusts, but there is pros to doing it sooner.

Money in the bank is important, so are IRAs, college-funds, diversification, paying down debt, etc. (and of course, real estate)

If you have large taxable income, then the tax advantages of actively investing could be much more beneficial. However, for most beginners (or average people), I think tax advantages should be seen as icing on the cake, not the primary reason to invest.

At this stage, Ashley, I would focus on finding trusted partners and building the team out. Networking and educating. Surround yourself with really smart professionals, and you will do well.

Ashley Wolfe · Answer

Thank you @Amanda G.! Yes, we've thought about the struggles with a short term rental for the log cabin and a long-term rental. We figure that it would be less of a consistent pain for a long-term rental since we both work full time. But, for a long term tenant, I want to give them their space/privacy, of course. So, quarterly visits just may be part of the rental agreement. Any suggestions on where to find forms to use? I have a Google Form that I'm using for initial screenings that ask four of our biggest questions (smoking, income, etc.) but I'm not sure where to go from there.

Amanda G. · Answer

Congrats on your deals! I suspect that the option that will work best for you is the one that fits your time limitations. Managing a property 3 hours away is rough. If it were me, I would plan quarterly inspections for a while, just to make sure everything stays ok. My current tenants are great, but even they say "oh, I meant to tell you about this..." when I visit. One "meant to tell you" was a roof leak I want to address ASAP.

Congrats on having great options. Since you know that you want 9-10 years you want to replace your income, think about what will get you there. Good luck!

First MF payout coming soon... what to do now?

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