Investing in Alabama as out of state investor with a partner

[Steven Catudal]

Hi all,

My partner and I are looking to buy investment properties in Alabama, specifically Birmingham. We are both out of state investors. We both own 1 property at this time. I had a few questions and would appreciate any advice in general.

Strategy / Goal: BRRRR but no major rehab at first to lower the risk. Plan is to purchase a couple homes over the next year. We want to get a few rentals up and running and then (if all works well) begin bringing other friends/investors in to invest with us. Current goal is focused on growing a portfolio and reinvesting cash flows. We are not focused on the passive income at this time as both working W2.

Questions:

1. We will be investing 50/50. What is the best way to structure the partnership? Should we start LLC?

2. For financing, would we then want to get a DSCR loan under the LLC or should we start with conventional loans under our name until we hit a certain number and then move them over? I heard that if you move the personal mortgages to an LLC they could get called and we would want to avoid that

3. Generally speaking, have any of you invested in this area and been successful? Did you look into renting to Section 8 tenants?  Would love to learn from your experiences.

4. Any advice for out of state investors that would be beneficial?

5. Any general advice for someone starting out in a partnership and looking to grow a portfolio?

Thank you in advance,

Steven

[Shane Dreffs]

@Steven Catudal

I'm in Birmingham and invest in Birmingham, be careful when choosing properties, the house values can change by street sometimes. 

1. We will be investing 50/50. What is the best way to structure the partnership? Should we start LLC? LLC is the best way to structure your business. You don't necessarily have to structure the LLC as a partnership, you can JV on deals together.

2. For financing, would we then want to get a DSCR loan under the LLC or should we start with conventional loans under our name until we hit a certain number and then move them over? I heard that if you move the personal mortgages to an LLC they could get called and we would want to avoid that. Depends on strategy and your cash situation. For a BRRRR if you are using debt most people will use some sort of hard money to purchase and a construction loan to fund rehab (unless you use cash). Then you could use a DSCR product to cash out refinance into a 30-year mortgage.

3. Generally speaking, have any of you invested in this area and been successful? Did you look into renting to Section 8 tenants? Would love to learn from your experiences. No section 8 but I do invest in Birmingham, see first sentence in this reply about the area. 

4. Any advice for out of state investors that would be beneficial? I currently invest in state; I find it is easier to manage. But make sure to build a strong core 4 if you invest out of state (deal finder, your property manager, your lender, and your contractor).

5. Any general advice for someone starting out in a partnership and looking to grow a portfolio? Partnership is like a marriage, be careful who you choose. 

Let me know if I can help out in anyway!