Starting an Investment Company - When to Take Money Out

[Mark Butler]

Hello Everyone

My name is Mark and I am an MBA student at SMU in Dallas. Two friends of mine from the program are interested in investing in rental properties and have a particular strategy in mind, but I want feedback from the BiggerPockets community. The idea is simple: we equally invest in a rental property in year 1, keep all of the cash flow from the asset in our LLC. Then in year 2 we buy another property, again keeping all the cash flow in the LLC. We plan to buy a house every year and keep cash flow in the entity until we have purchased enough houses (rough math shows it'll take about 8 houses or so) to where the cash flow from all our properties is then able to fund the down payment on following purchases. Just like compounding stocks we thing this could help us build a sizable portfolio and ultimately produce enough cash flow to where we could purchase multiple properties a year with the cash flow. The question comes as to when or how we might go about taking distributions. We don't want to fully liquidate the LLC annually because there will be costs that need to be funded, but want to start realizing some of the cash flow benefits as the plan matures.

Can anyone provide guidance or feedback on this? Thanks.

Mark

[Mark Bookhagen]

Solid strategy, and it probably will need injections from you and your partners though to actually grow as quick as you want it. Map out your cash flows and you'll see how long it takes to come up with that second down payment. It does grow exponentially though after your 2nd investment though (which is great). To answer your question, you can start taking money out when you are done growing and have an adequate reserve fund for unexpected and expected capital expenditures/operating funds. One more note: Odds are that at least 1 of the 3 of you will want to start pulling out money earlier than others so you'll need to agree on buyouts, etc. before you get started.