All Forum Posts by: Michael S.

@Benjamin Manibog - here's a true story. My business partner and I spent around $70k for our education in real estate investing. We learned about procuring investment capital, acquisitions, REI negotiations, inspections, repairs, dealing with contractors, rental contracts/agreements, being a landlord, finding a good tenant. We learned it all for $70k. It honestly was a great deal, and we are thrilled we spent the money.

And where did we get this outstanding knowledge from?  Oh, that would be our first real estate purchase.  By the way, we still have the 70k in equity in the property.  Oh, wait. . . I was wrong . . .it's now 100k in equity.  

You will learn 20 times more knowledge from your first property than any course/mentor.  What we didn't learn from it, I have learned from the real estate folks I work with, other investors, and bigger pockets.  

What scarier than buying your first REI property? Spending 5 figures on "REI education" and having zero properties to show for it.

For those not familiar with Huntsville, @Melissa Nash is absolutely right.  

The market has become oversaturated with buyers/investors with way too little inventory available.  Quality properties are selling within 24 hours of list with multiple offers routinely.   Right now, there are probably better opportunities for out of state investors elsewhere.  

If you're looking for primarily MFHs, definitely not the right city for you.  They are primarily C/D neighborhoods and going for crazy prices right now.

Agree with what @Peter McDonough said above.  To expand, good luck getting 1% anywhere in Huntsville right now that is an A/B neighborhood with appreciation potential.  More likely it is about 0.7%.  Only C/D neighborhoods or those with minimal chance for appreciation (20 minutes+ outside of Huntsville/Madison) are getting 1%, and that's not a slam dunk either.  

@Mike Lee  You've received quite a bit of interesting advice in this thread.  Let me try to help clarify a bit, as I am familiar with LLCs.

1. You should absolutely set up an LLC prior to buying your first property with your business partner, and you need to spend the money to have a lawyer set it up (rather than downloading forms off the internet). You need clear articles of incorporation and terms of partnership in case things go sideways in the future.

2. The name of the LLC should be simple and non-offensive. Avoid using your last name(s) in the LLC name.

3. The property should be financed through the LLC. The loan/mortgage/note should be in the name of the LLC, not your personal names. We have financed all our properties through the bank in the name of our LLC without issue.

4. Hire an accountant to help make sure you do everything correct in case the state audits your LLC in the future (most states do random audits).

I have not looked specifically at which property you are referring to - but if you are referring to Crestview Dr by Jordan Lane and University Drive...that's a rough area by Huntsville standards that you won't be able to really appreciate simply driving by it.  To be frank, I know several property managers here who wouldn't manage properties there - too little rent income for them for the amount of trouble that can occur.  Make sure you have a strong local team if you take the plunge there.  

@Melissa Nash has posted very good insight into the Alabama market on multiple threads recently.  To put my own spin on it:

Huntsville - the growth of North Alabama (Huntsville and Madison) has really been significant.  However, it is not just anticipated growth driving the hot market;  it is supply and demand right now.  There is virtually zero opportunities for investors right now in most A neighborhoods and in some B neighborhoods for even net zero cash flow.  Interestingly, I have recently seen some extrapolating of what is an "A" neighborhood here in Huntsville, as people are trying to justify higher prices in supposedly "A" neighbors.  Bottom line - very few opportunities here right now, but your appreciation potential here is much higher than anywhere else currently in Alabama IF the growth continues - if the growth does not continue, appreciation plays could be dicey at best.  1% rule does not exist for A neighborhoods here.

Birmingham - you must do your homework in this city and really know your location, or you can get in trouble quick in some areas with problem tenants and D neighborhoods.  I don't know the city well enough, so I have not invested here as such.

Montgomery - solely focus on cash flow with any property here (1% rule is likely very realistic here).  Would not assume any appreciation here - the population may decline over the next decade unlike the more northern parts of Alabama.

Form an LLC. Do not even think of starting to invest with a business partner, especially friend or family, without a real LLC that you both sit down with a lawyer and hammer out the legal terms of. That way, if the friendship goes bad in the future, you and/or your friend are protected from the other one trying to screw you out of your assets (to a significant degree at least).

Also, if they have 800k to invest, they have plenty of money to sue you with later if the business dealings, or friendship, goes bad in the future.  

@Connor Mckelvey - first issue I see here is you are doing a partnership without an LLC formation. Bad idea, regardless of whether it is family or not. While a lot of investors on here do not have LLCs, they also do not have business partners on the deal, or they have one partner on a deal where everything is an absolute 50/50 split. The fact that you are contributing different amounts of capital yet splitting the deed 50/50 is not routine, and would be better with an LLC clearly defining all the terms of the partnership.

Also, if you had an LLC, your brother's $3000 is no longer a gift, but a capital contribution to the LLC, and it would be a non-issue. However, the loan would have to be issued to the LLC only, not to one individual only.

Also, @Jay Hinrichs is spot on. If your reserves are not enough to make up an extra $3000 on the deal, you could be done if the roof needs replacement or the HVAC dies. You really should have a minimum of $10k liquid for your REI at all times (or more depending on the number of properties you own).

@Dave DeMarinis is absolutely right.  1% rule for Huntsville would be typically C/D class only, with a lot of potential for problems along the way with those type of tenants and lower appreciation potential.    

A/B properties here are going to be around 0.75%, but some with high appreciation potential and the majority with a lower degree of tenant risk.   Hence why the majority of our property acquisitions are A/B.    

@Melissa Nash - appreciate your insight.  Very interesting.  Since we typically invest in the 100k to 180k range, we have not had the appraisal issue at all, hence my curiosity. 

@John White - that must have been some snake