New investor looking for guidance to buy first property.

Clovis, CA · Member since 2024 · 1 post · 0 votes

I would recommend you speak with your tax advisor and set it up correctly from the start, whether an LLC, Trust or something else.

Also consider states different laws, maybe find a state with more friendly landlord protections. Private property has been under attack here in California. Location is sooooo important.

Lastly, speak with an insurance broker to dig into best options for your needs.

Cheers!!

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Koren Lavi

Real Estate Agent · Denver, CO · Member since 2022 · 68 posts · 31 votes

2y

Hey @Clemens Georg, first of all welcome to REI! This is a fantastic place to start.

To answer your specific question about your next purchase, a good places to start would be to reach out to a mortgage broker to see what your options are. Then based on that discussion, you would probably want to research some markets, run some numbers (proformas are great for this), and see what makes the most sense for you.

The CO market can certainly be pricey, but there are definitely good options if you are flexible with location. Investing out of state can also be a solid option, but may pose some different challenges. With out of state investing you do not have the option to move into your next home as a primary residence to get a lower interest rate (it is a significant difference) and put a lower down payment (as low as 3.5-5% on a primary residence vs 10% minimum on a second home or 20% minimum on an investment property). A good mortgage broker can go over all of this with you in greater detail.

For your second question, from my gathering it is very difficult to buy a primary residence as an LLC, but more doable to buy an investment property as an LLC.

Hope this helps a little!

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Evan HoppleBusiness Member

Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2023 · 285 posts · 420 votes

2y

Quote from @Clemens Georg:

Hello All,

I'm excited to be here! I'm currently a Consulting Engineer for a IT company. However, I have been extremely interested in real estate investing over the past month or so. My goal is to create passive income and then eventually turn this into a full time job for myself. I know i have a long road ahead of me to able to achieve this goal, but I'm very motivated to make it happen. I think I'm still 4-5 months out on closing on my first property so I can get all of my ducks in a row.

I'm looking for guidance specific to financing my first property and what market I should do it in. I'm currently located in Morrison, CO. As most of you probably know, real estate is not exactly affordable in Colorado. Due to this I was thinking a market outside of Colorado would be a better approach. I'm not sure how feasible that it is, but that is why I'm on here asking the experts. As far as financing my first property, I would like to tap into the 250000 equity i have built in my current home. I'm not sure what the best route is here. Cash out refi does not make a whole lot of sense since I'm in at the low 3's. has anyone used a HEL or HEI loan to finance a property? what other options are there?

Another obstacle is limiting my personal liability. I have read LLC's are not the best to buy real estate with it being difficult to get loans from banks due the limited liability. should I put these properties under my name, or should create some sort of corporation/llc to put my properties under.

Thank you in advance for any guidance and advice. I'm excited to be here and start my real estate investing journey.

// Clemens Georg

Welcome, Clemens! BP is a great place to start. In these initial stages, focus on building your core4 of agent/deal finder, lender, property manager, and contractor for the market. As for a market to invest in, I put my money in markets that have a growing population and job market with landlord-friendly regulation.

Hope that helps!

[email protected]614-924-8151

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Michael SmytheBusiness Member

Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes

2y

@Clemens Georg

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

The City of Detroit has 183 Neighborhoods we’ve analyzed.

PM us if you’d like to discuss this logical approach in greater detail!

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Jason Allen

Attorney · Columbus, OH · Member since 2023 · 193 posts · 145 votes

2y

Putting properties in an LLC limits your liability. Getting a debt service coverage ratio loan shouldn't be difficult when using an LLC.

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Grant SchroederPro Member

Lender · OR ID AZ CA WA CO NV TN MT · Member since 2018 · 599 posts · 312 votes

2y

@Clemens Georg I would definitely connect with @Dan Guenther if you have not already as you get your search underway!

[email protected]541-231-1256

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Dan GuentherBusiness Member

Real Estate Agent · Longmont, CO · Member since 2019 · 548 posts · 271 votes

2y

Hey @Clemens Georg - welcome to the community! I have a few ideas how you can make some magic happen on the financing side while keeping that low interest rate. Let's connect soon and talk a bit more about your goals on this first one.

[email protected]720-295-1082

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New investor looking for guidance to buy first property.

New investor looking for guidance to buy first property.

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