What would you do in my position?

[Tim Houzenga]

What would you do in my position to acquire another income producing property of any type. Land? SFR? Commercial? Long Distance? ( I know what I want to do, but would like to see how other people would approach this situation):

I’m in a linear market where appreciation is around 1.5% a year. We do not bake appreciation into our numbers when analyzing deals.

I have one rental fully paid off worth $95K. Cash on cash return is 7%. $95K equity.

Second rental i bought for $70K. Traditional 30 year fixed rate at 5%. I have $17K of my own cash in the deal. Cash on cash return is 8% and 11% if you include principal paydown. House is worth $80K (sweat equity and added a bedroom). 25K in equity.

My primary residence is a zero down 30-yr fixed rate VA loan at 3.875 APR. worth $130K. Only $8K in equity.

I have the ability to save $20k a year from W2 income and rental income. $20K is more than enough to buy one property a year in my area with 15/20/30 yr fixed loan with 20% down and cosmetic rehab prior to renting.

I’m going to assume answers will vary depending on personal investment philosophies and where people conduct real estate activities globally. I’m in Northwest Illinois or as Brandon Turner would say..... ruuuurrwwaaallll United States.

Penny for your thoughts! Best Regards!

[George Skidis]

Disclaimer: I sell Insurance and prepare income tax returns. This is where my perspective comes from. Always hire a qualified attorney before attempting any legal strategy. We also sell access to legal help. 

Assett Protection #1: First I would set up an LLC as a management company. Be careful not to call yourself the property manager unless you are actually a real estate agent qualified to be a property manager. You can be maintenance supervisor or whatever. Write your leases between your ownership entity and the LLC in such a way that the LLC assumes all liability for managing the properties.

A single member LLC is a disregarded entity as far as the IRS is concerned. However, it lets you set up a Self Directed Qualified Retirement Plan which is better than a self directed IRA for several reasons. PM me for details.

Assett Protection #2: Make sure you have $1 million in liability insurance for each property.

Assett Protection #3: Get a COMMERCIAL Liability Umbrella policy for all of the rentals and LLC.

Next I would set up a self directed Health Savings Account (HSA) on my own. It should not be part of your W-2 income.  This is available when allows you have a high deductible medical plan. Put what you save on health insurance into the HSA. It grows tax free for life. This can be used to pay current medical bills or if you are lucky it becomes a second retirement plan. Money here cannot be withdrawn for any reason but medical until retirement age or face a stiff penalty. The right HSA allows investment in the stock market.

You did not mention married or single. That has a huge impact on the next item.

If I were a single guy, my next property would be a four family. Live in 1 unit and rent the rest out.

If you have lived in your current home two out of the last 5 years. sell it after you buy the four plex. you can rent it for a while but SELL the current home before the 5 years runs out. Then claim the owner occupied capital gains exemption to avoid the tax. Use the proceeds to buy another four plex.

Lather Rinse Repeat

Good Luck and Good Investing