A year of research and ready to invest

[James Lucero]

A while back I posted my ideas about partnering up with my fathers company to create some equity by renting out units to the employees. Fast forward almost a year later and I took people advice and I'm not doing it. I am however purchasing my first multi-family 3 or 4 unit after a lot of research, listening to the podcasts, and reading what has worked and what hasn't for most people. I have decided that my area for now is going to be Newark, New Jersey. I grew up in the suburbs in northern NJ (Montclair, Essex fells area) but I was hesitant to invest in Newark knowing very little about it except for the negative misconceptions it had attached to it. To see how bad it actually was I decided to go and rent in Newark first in a 'not so great' area I was there for about 5 months. Place was actually fine it was more of the noise that made me want to move. Now I live in the downtown area in a great 34 fl high rise close to Rutgers University and Essex county community college. I feel like this helped me see the rents in different places ( I think I viewed around 10 apartments) in the general downtown area before I moved. I recently just quit my job so it's a sink or swim kind of situation right now. I went to school for finance but did not find myself working in that field so bear with me please on some of the questions :) Questions: 1. I will be living in a unit I know the other rents will cover the mortgage of the place but if need be how would I take money to pay myself let's say for groceries or something like that do I put myself in payroll? ( hopefully it won't get to that point I have enough savings that I should be fine for now) 2. When you get security deposits from tenants do you just leave those in the general operating account for your properties or do you put it in a separate account? 3. I know the 50/50 rule is a conservative way to look at the situation but let's say I have the property for a year and nothing went wrong and I have money sitting in my LLC/S corp whatever it may be. Can I/ should I reinvest that money for other properties or should I use it to pay down more of the mortgage? 4. I read a lot about people using private investors for an 8-12% profit, does this work for rental properties as well or only flips? Specially if I'm planning to buy and hold, how would an investor see that kind of return on his money. 5. I keep reading about the meet up in summit and I don't know if I'm using the search feature wrong but I can't seem to find any information on it. Would someone please let me know how or what thread I can find this information on? I have learned an invaluable amount of information in this forum and I hope to keep learning more from all of you and hope to get to meet some of you in the future. Best of luck with all your endeavors!

[Michael Henry]

1. If there is $100.00 leftover after paying all your expenses keep the $100.00. Talk to your account about what are the pros and cons of setting up payroll for yourself. 

2. In many States security deposits are supposed to be kept in a separate interest bearing account. It really should show up on your taxes as a liability. (many investors don’t do this)

3. I like to take the conservative route, but it depends and there are many variables. One of them is how you will be buying property long term; with cash or financing? Many financial institutions like to see some form of reserve for each property you own. If cash, what happens when you run out of cash? I would keep a rainy day fund no matter what and use whatever excess cash from that point on to continue to purchase property. 

4. What you pay investors will be based on your experience. Starting off you are just trying to build a track record of getting deals done.