Buying My First Multifamily Investment. Few Questions

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Buying My First Multifamily Investment. Few Questions

Jon Schoeller
Flipper/Rehabber · Charleston, WV · Member since 2016 · 172 posts · 126 votes

Hello everyone. I am looking to close on my first multifamily real estate deal this week. I have actually been in real estate for a while but mostly just flipping. (Over 130 to date) My partners and I picked this property up at auction about a month ago and I decided to buy it as my first personal rental. It a 4 unit that is fully rented. Purchase price of 100k. The rental income is 2200. ARV 150k. I will be buying it for cash upfront with the hopes to refinance it as soon as possible.

1. Should I buy it in my personal name or my LLC? So far I have decided to buy in my personal name as I have read that is the easiest way to get my refinance with the best terms.

2. I have also read that with having just one property, that insurance is more important than the LLC. As 9 times out of 10 that is what they go after in an event. Which type of insurance should I get and for how much coverage?

3. I have decided to manage the property myself at first just to gain the experience. I am not sure how long or short-lived this will be. The building can easily pay for management on its own so I can go that route at any time. Should I even bother? 

Any other advice would be greatly appreciated. Thank you for your time. 

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Bryan Noth
Realtor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes
6y

Hey @Jon Schoeller.  Those first 2 questions are lawyer questions.  And for disclosure, I am not an attorney, please do consult yours before acting on anyone's advice. 

It is generally easier to purchase in your personal name, then transfer to a LLC or series LLC depending on set up. As I understand and have been told, it does violate the due on sale clause, but cases where the lender acts on that are exceedingly rare. Also much harder to secure loans or refi through an LLC to my understanding. I second what you mentioned on insurance, umbrella insurance is far more important than LLC for protection. Coverage is another lawyer question, but I would think $1 or 2 million should be safe. Might depend how many properties it covers?

Lastly question 3, for the property management side, I started by self managing for my properties in Austin and San Antonio, TX.  Do it yourself, learn the game and all that.  Aside from respecting the value of property management, it was not worth it.  I cannot do the labor or tasks better, faster, or cheaper than what my property manager can.  If you are getting started and need to earn the income by working as your own manager I am all for it.  Of if you have fantastic systems in place then more power to you.  Otherwise property management is the second best money I spend every month after coffee.  Free up your time to do what you excel at, enjoy doing, and maximizes return.  

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  • Bryan Noth
    Realtor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    Hey @Jon Schoeller.  Those first 2 questions are lawyer questions.  And for disclosure, I am not an attorney, please do consult yours before acting on anyone's advice. 

    It is generally easier to purchase in your personal name, then transfer to a LLC or series LLC depending on set up. As I understand and have been told, it does violate the due on sale clause, but cases where the lender acts on that are exceedingly rare. Also much harder to secure loans or refi through an LLC to my understanding. I second what you mentioned on insurance, umbrella insurance is far more important than LLC for protection. Coverage is another lawyer question, but I would think $1 or 2 million should be safe. Might depend how many properties it covers?

    Lastly question 3, for the property management side, I started by self managing for my properties in Austin and San Antonio, TX.  Do it yourself, learn the game and all that.  Aside from respecting the value of property management, it was not worth it.  I cannot do the labor or tasks better, faster, or cheaper than what my property manager can.  If you are getting started and need to earn the income by working as your own manager I am all for it.  Of if you have fantastic systems in place then more power to you.  Otherwise property management is the second best money I spend every month after coffee.  Free up your time to do what you excel at, enjoy doing, and maximizes return.  

    2Reply
  • Jon Schoeller
    OP
    Flipper/Rehabber · Charleston, WV · Member since 2016 · 172 posts · 126 votes
    6y

    Thank you for the answer @Bryan Noth. It was very helpful. Appreciate it. 

    1Reply
  • Shahriar Khan
    Investor · Houston, TX · Member since 2010 · 234 posts · 145 votes
    6y

    @Jon Schoeller congrats on this new acquisition .. of us we put all assets go under LLC .. Given the size of the asset, it would be a recourse loan and that LLC owner will be end up guarantee the loan anyways thus terms would be same as personal unless you are buying to live in it. For insurance , typically 2 layers , asset replacement insurance + liability insurance = Total insurance ..

    To add, i would not get into property management business since that isnt the business you are trying to grow at this point i am assuming. Time would be better spend looking for next one and pay out PM.. 

    2Reply
  • Calvin OzanickBusiness Member
    Property Manager · Janesville, WI · Member since 2017 · 707 posts · 297 votes
    6y

    I would say reach out to a lawyer or your lender for your first questions. Do not let a BP "expert" give you rotten advice. Secondly, I always recommend a manager. I am a manager so that would make sense, but be sure to get to know your manager. Learn how they do business, and make sure you speak with a couple before making a decision. 

    Wisconsin Property Managers4.7412 Reviews
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  • Chris Coleman
    Rental Property Investor · Washington, DC · Member since 2015 · 429 posts · 393 votes
    6y

    @Jon Schoeller

    Congratulations on the purchase!

    Since it’s only a 4-unit, it is not considered commercial and therefore you can still get a conventional loan. This will be easier and provide better interest rates when you go to refinance.

    Regarding insurance, an umbrella policy is what you want. For property/hazard insurance, a broker should be able to quote you the minimum replacement coverage. This will be required for the Refi loan.

    As far as managing the property yourself, you need to determine whether your goal is to be a real estate investor or a landlord. If you really want to be an investor, then focus on doing deals and hopefully growing your portfolio, and hire a great property manager to do what they do best.

    1Reply
  • Jon Schoeller
    OP
    Flipper/Rehabber · Charleston, WV · Member since 2016 · 172 posts · 126 votes
    6y
    Originally posted by @Chris Coleman:

    @Jon Schoeller

    Congratulations on the purchase!

    Since it’s only a 4-unit, it is not considered commercial and therefore you can still get a conventional loan. This will be easier and provide better interest rates when you go to refinance.

    Regarding insurance, an umbrella policy is what you want. For property/hazard insurance, a broker should be able to quote you the minimum replacement coverage. This will be required for the Refi loan.

    As far as managing the property yourself, you need to determine whether your goal is to be a real estate investor or a landlord. If you really want to be an investor, then focus on doing deals and hopefully growing your portfolio, and hire a great property manager to do what they do best.

    Thank you Chris. So on that first part, are you saying that I should just put it in my name and not an LLC? Just wanting to clarify.

    Dually noted on everyone's advice about being a property manager. You guys made me realize that if I want to test it out that is fine but that I need to set an exact date to hand it over so that I don't get caught up in it. 

    0Reply
  • Chris Coleman
    Rental Property Investor · Washington, DC · Member since 2015 · 429 posts · 393 votes
    6y

    @Jon Schoeller I'm saying it will be a bit easier to refinance and you'll get better interest rates if it's in your personal name rather than an LLC, because you'll be able to get conventional financing in your name rather than having to get a commercial loan under an LLC.

    0Reply
  • Jerel Ehlert
    Attorney · Austin, TX · Member since 2014 · 888 posts · 759 votes
    6y

    Penny-wise, pound-foolish.  Talk to a lawyer in the state where the property is located.

    0Reply
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