All Forum Posts by: Lori Verni

If you have a really great Real Estate Agent (as I do), they are worth their weight in gold. For all the reasons @Account Closed stated above, as well as the fact that they may notice things about the property that you don't, often know about listings before they come on the market, may know about other things that are going to be built nearby, etc. Once you've done a few properties with the same agent, they may also lower their fee (especially once they discover that you're easy to work with, etc.), and for me, there is a lot of value in letting them deal with all the other stuff so I can focus on the upcoming renovations/tenant screening/etc, etc, etc.

Instead of setting up automatic payments with the mortgage companies, you could simply set up an automatic monthly payment via your online billpay from your LLC bank account. That's always my preference anyway, this way I'm in charge of it, not leaving it up to the bank. This also allows me to change the amount without it being an ordeal (there are times I choose to "collect" all my cash flow in the account, and other periods of time I choose to pay more toward the mortgage), etc.

Another way to speed this up (and/or require fewer total properties) is to either start taking out 15 year mortgages, and/or use the cash flow money to pay off the mortgages faster...once they're paid, the prior mortgage payment now becomes income as well. Also, when you own properties that have no mortgages, lenders look upon this very favorably for future purchases.

Assuming you are looking to buy and hold: Interest rates are historically low right now. There is a lot of value in keeping your money free for other projects. I would recommend going for a 15 or 30 year fixed rate (depending on whether you need the greater cash flow or are looking to build faster equity), and put the minimum down payment you could without paying PMI (generally 20 or 25% down is required by banks on an investment property). Because rates are so low, you could conceivably just keep this mortgage forever (thus avoiding double closing costs), and simply use your other money to buy the next one and the next one. Depending on cash flow for each, you will be accumulating additional money as well, which can be used for future purchases and/or improvements.

My input on this is, "it depends." There are other factors to take into consideration. Questions I would ask myself before deciding, if I were you, would be:

• What kind of income am I going to make in my job after I graduate in two years? (Will it be enough to buy a place to live in and/or rent out then, AND also save plenty for retirement?)
• Compare how much money you would be likely to make off of the retirement money versus the money saved/income from an investment property in the same time period. (For example, if you had $10K in a retirement savings for 2 years at an average rate of return of 10%, how much would that earn you, versus what would you "earn" in the investment property--don't forget to include equity built by tenants, savings on rent, cash flow if any, and income tax writeoffs, as well as expenses such as taxes, maintenance, insurance, etc.)
• Where do I want to live after I graduate? (Within a reasonable distance to manage this investment property? Keep in mind that there is a LOT of turnover and repair involved with university rental properties, so unless the cash flow is enough to use a management company and still profit, that's something to keep in mind.)
• If buying a condo, don't forget to include the condo fees when figuring out your cash flow.
• How much would it cost you to rent a place versus how much would your mortgage be if you bought?
• Depending on the answers to these issues, you might consider neither buying now nor putting it in a long-term retirement savings, but instead renting cheaply and saving a ton so you can buy an investment property and/or residence after you graduate, in the place where you will be permanently living.
• However, also keep in mind that, while you would not want to cash out a retirement savings (because of the hefty penalties), there are some where you can give yourself a loan from that money. Be sure to check the details of any investment account before you start it so you are intimately familiar with what these guidelines are.
• Lastly, remember that there is some value in "what do I WANT to do?" Doing what your gut tells you will likely propel you forward to do more, so while this may not always figure out firmly on paper, it does have value to be considered as well.

My intention is NOT for you to reply with the answers to these questions, but rather, to provide food for thought. Good luck in making your decision! It sounds like you will be successful no matter what you do!

Hi Shawn, Sounds like a good plan...good for you! Note, I am not an attorney, however, setting up an S Corp is overkill (in my experience). There is a lot of monthly and quarterly paperwork involved with an S Corp, lots of additional taxes and fees to pay, etc. My recommendation would be to go with either an LLC or even a Sole Proprietorship, and buy an umbrella policy to protect your assets over and above what is covered by your normal landlord homeowner's policy. Good luck on your first deal!

Personally, I buy my properties as a combination of B&H (for now), but always with significant future land value potential. For example, one of mine is a small, single family home that is the first lot next to where the new hospital will eventually be built in Holly Springs. Give it 10 years and the property will be valuable in and of itself, as developers will be looking to buy up the land to build medical office buildings next to the hospital. My other one is on the corner of Holly Springs Road and a residential street, just a few blocks from Main St & Holly Springs Rd. Give it a number of years and my .75 acre lot fronting Holly Springs Road will be more valuable as a commercial property. For now, both are nicely cash flow positive and renters are literally clamoring/overlapping one another to get in them. There are literally NO (or so few they can't be found) places to rent in Holly Springs for the rent I'm able to charge for these, yet I'm still cash flowing nicely. Personally, these are the types of properties I look for, and if I were chomping at the bit to buy something quick rather than waiting for something just right to pop up in Holly Springs, I would be looking at Fuquay or Garner, as they are currently and/or next up in the "upscale boom/future land potential/can't get any more of these/everyone wants to live there" market. Knightdale, while still in Wake County (a positive) will not see that situation for a very significant length of time, as there is still way too much available over that way. Also, it may not seem like a far drive when you're cruising around, but it would feel far when you have to run over to fix something or meet with the tenant for some reason. I'm not saying you couldn't buy a property and have a fairly easy time renting it in Knightdale, I'm just saying that I don't think that area has the same investment potential as these other areas (using the formula I just described). 

As an aside...the value of both my rental properties being within 3/4 mile of my home? Priceless! ;-) 

I'm not saying sit and wait forever, but do keep in mind that good opportunities do occasionally pop up...the key is to be ready to pounce (finances in order, already have a relationship with a mortgage person (if one will be needed), paperwork ready to go, etc). An example is, about 3 months ago, two properties came available right in downtown Apex for around $50K each. They were sold within hours. They were (what I consider) perfect investment properties: Small, need renovation, cheap, walk to downtown, tons of future land value potential. When was the last time before that when I saw something like this come up in Apex? Maybe a year ago, possibly longer. My point is, while you might have to wait quite some time for something like this in Holly Springs or Apex (because there's not much left), you could much more easily find something like this in Fuquay or Garner without having to wait as long, yet still offering the positives of convenient location, very desirable rental market, and future land value.

This is only my strategy. I'm sure others have great strategies that work for them too. Just sharing my experience in the hope that my perspective may help in making your decision. Good luck!

My pleasure!

Also, if you don't want to "sit and wait" for an affordable property to come on the market, I'd look at Garner before you go to Fayetteville...it still has Wake County schools, there are more affordable properties than in Holly Springs, it's not as far to drive to, and it is close to downtown Raleigh (desirable location). I anticipate that Garner will be one of the next in line to experience an "upscale boom," which has already come to pass in Holly Springs.

I own two investment properties in Holly Springs. Single family homes that are both very nicely cash flow positive. Yes, Holly Springs is significantly more expensive than Fayetteville, BUT, it is a much more desirable area to live in, and therefore properties bring higher rents and fewer vacancies. In my experience, it is also far better to have your investment properties close to home, so you don't have to drive 45 minutes every time you need to take a look at something. It's also not a bad thing to be able to drive past in your normal daily life and see that things look in order, etc. They don't come along frequently, but you can occasionally find one of the older Holly Springs homes (not in a subdivision, and make sure it is zoned for Wake County schools), that you can buy for under $100K and renovate before renting. (This is what I do, anyway.) Good luck to you, in finding your first investment property!