All Forum Posts by: Troy Zsofka

@Nate Wilson-

I agree with @Walter Key and @Jay Hinrichs, the 50% rule is good, and the 2% rule, well, not so much. Here's a link to a post I wrote where I explain exactly why the 2% rule should be used with caution, if not stricken entirely from your memory:

https://www.biggerpockets.com/forums/88/topics/254...

As far as the 50% rule, you can justify your own numbers all you want; just remember that 50% OER is tried and true over the years so if you think you'll do significantly better, you better run the numbers or you may be setting yourself up for a surprise. It's a good safe place to start an analysis and make sure you're covered. If you want to delve deeper and be more accurate, here's a breakdown:

Potential Rents: $24,000

Vacancy & Credit Loss (5%): $1,200

Gross Operating Income: $22,800

Repairs & Maintenance (10%): $2,280

Management (10%): $2,280 (Even though you'll likely manage it yourself, you should include this because 1) Your time has an opportunity cost, 2) If you grow your portfolio you may eventually hire out management, and 3) It's simply how the analysis is done, don't reinvent a wheel that's already round)

CapEx / Replacement Reserves (2%): $456 (This is something that you would likely leave out of a pro forma when selling your property, but a bank would include it in the underwriting analysis, and I suggest you include it when analyzing as a potential buyer. Also, many would argue that it is low at 2%. I have full-time employees doing my renovations and repairs, so my costs are less than an investor who hires contractors. You might want to bump this up a bit).

Real Estate Taxes: $3,900 (BTW, the town has this property assessed at $174K. I own property in Weare and I know that the tax rate is $22.41. I do not know the equalization rate though, so I can't say how that assessment jives with the $200K purchase price. I wonder though, has it been reassessed since renovations, or are you facing a higher tax bill after reassessment? Something to consider, because a reassessment at $200K would boost your tax bill $582).

Insurance: $1,000 (This is an estimate based on duplexes that I own, but it may be a little light because I have $10K deductibles, something your lender will not allow).

Total Operating Expenses (43.49%): $9,916 (This does not include vacancy. If you include vacancy to get something comparable to the 50% rule method, your numbers become $11,116 or 46.31%). Also, the OER and 50% Rule DO NOT include debt service. 

Net Operating Income: $12,884

CAP Rate: 6.442% (I don't know if this is a good CAP Rate right now for duplexes in Weare. I focus on single family homes when we're on the way out of a down-market. However, maybe a local Realtor could let you know where current market CAP Rates are ranging for small multi-family properties).

Last thing to determine is cash flow. Backing $3,900 for taxes, and my assumed $1,000 for insurance out of your $1,100 monthly PITI estimate, leaves $8,300 in Debt Service.

CFBT: $4,584

DSCR: 1.55x. (This is not bad, but current DCR's tend to be higher because interest rates are so low).

I don't know your downpayment, but here's one more piece of advice: Calculate your Cash-On-Return based on your downpayment and any other out-of-pockets. Also, project a gameplan into the future, and calculate your IRR for a few different scenarios (sell after 5 years, 10 years, 20 years, whatever scenarios you think are most likely). If you don't know how to do these calculations, buy a book and learn, because you have no business investing in real estate if you can't accurately calculate (and comprehend) financial analyses such as NOI, OER, CAP Rate, ROI, DCF, and IRR. Knowing these will replace the subjective and often emotional decision-making process with an objective and analytical one, and may just save your arse.

Overall on this deal, the numbers look decent. I wouldn't touch it personally because I'm a value-add investor (meaning I would have bought it for $100K in terrible condition and put $40K into it to make it worth the $200K), but that's just my strategy. If your strategy is to purchase turn-key, this deal may be right for you. Whatever you do, at least run similar analyses on other comparable properties so you know you're making the best investment available.

Happy investing,

Troy

@Shawn Connors -

I hate to burst your bubble on this but I'd say your time will likely be better spent looking for another property.

Range of value, from 12% Cap with 50% OER, to 8% Cap with 40% OER, is $300,000 to $540,000. Given the old listing of $1.5M, is the seller really likely to come to terms with a value of 1/3 or 1/5 of that? (Even with @Troy Gravett's $864K, it's only slightly more than 1/2 of the old list price, and I would personally expect much better capitalization than 5% on an out-of-the-box property such as a converted mansion.) 

I suggest starting off with the quickest and easiest step - tell the seller that your initial analysis indicates a value of $300-500K, maybe a bit more or less, and gauge his/her reaction. Even show the numbers if you want, and remind them that as soon as they converted it to a 5-unit they stepped into income-based valuation, regardless of what it may have been worth as a mansion or gentleman's farm (or whatever it was beforehand). You may find from their reaction that you're barking up the wrong tree and it's time to go looking for another deal. It may be that the conversion was the worst idea ever for this property, creating what might be called "forced depreciation".

 And forget about the $1,400/month rents - that's your value-add to create forced appreciation and should not factor into any present value determination. Whatever you do, don't allow yourself to use compensating factors like that to justify overpaying for a deal, regardless of how badly you want it to make sense.

Good luck,

Troy

@Seth Tucker -

@Mike Wood makes a great point. If the seller is super motivated, you should be able to make the seller-financing case; assuming the down-payment covers any existing payoff (if not, you could do sub2, but I have zero experience with that).

As far as question #2 above (N/O/O loan that isn't based on your personal income), I have recently come across @Account Closed who has a 30-year fixed program for buy-and-hold. My understanding is that the underwriting is based on the rental income only from a DSCR perspective, and the terms are pretty decent for private money (assuming you meet certain qualifying parameters such as credit, LTV, etc). I also believe that there are no seasoning requirements; meaning that once it's renovated and rented, you can use your sweat equity to meet the LTV requirements. Don't quote me, I've never done any business with him, but it may be worth reaching out to see if your situation may be a fit for his programs. Who knows, he may even be able to help with the acquisition and renovation portion.

One other thing: Have a septic inspection done before you pull the trigger. You don't need an $8K surprise later on. Let it be the seller's surprise now - you can use it to negotiate a lower purchase price, because if the system fails inspection, the seller either fixes it out-of-pocket or accepts a significant reduction in the saleability of the property; thereby making the proposition of seller financing with you much more attractive. On the same note, if you do intend the convert it to a 2- or 3-bedroom, you'll definitely need to consider the capability of the existing septic system, even if it passes inspection (the town code-enforcement office certainly will).

Good luck,

Troy

“The 2% Rule” seems to be a fast favorite among new investors, and since I’m a tell-it-how-it-is (or at least tell-it-how-I-think-it-is) kind of guy, I figured I’d write a post to call it out.

Before I go into why I think it's so dangerous, first let's understand what it really signifies. Mathematically, it is simply the inverse of the Gross Rent Multiplier (GRM), using monthly rather than annual rents. So, a property that reaches the 2% rule has a GRM of 4.167. (2% X 12months = .24, and 1 / .24 = 4.167). By definition, the "X% Rule" has the very same benefits and drawbacks as GRM. Yes, I said benefits – it is not entirely useless. In fact, these measures can be extremely handy as quick and easy INITIAL evaluations of a SPECIFIC type (SFR, Multi, Office, Retail, Industrial, etc) and class (A, B, C, or D) of property, in a SPECIFIC market, at a SPECIFIC point in time, with a SPECIFIC lease structure. Any attempt to judge a property based on a certain expected GRM (or X% rule) across multiple property types and classes, locations, or time periods, and you will only serve to mislead yourself. This is why I think it is so dangerous to put an actual number to "X", and then to call it a "rule". It leads newbies to believe that they should be seeking it out when analyzing properties.

Here’s, more specifically, why it’s so dangerous:

1) Ambiguity (this is where asset type, location, and lease structure come into play).

Overall, the X% Rule, as well as GRM, leave too much out. They do not take into account operating expenses at all. That is why Cap Rate (or its inverse, Net Income Multiplier – key word being "Net") are far superior means of estimating what you should pay for a given investment property. As an example, let's combine "The 2% Rule" with "The 50% Rule". According to these, you will have a CAP Rate of 12%. This is because the 2% annualized yields 24% for the rents, and then applying the 50% rule leaves an NOI of 12% (these are all percentages of purchase price, or purchase price plus capital outlay to achieve stabilization). That all sounds nice, but what if the 50% rule is drastically off? What if the lease is NNN? In that case the expenses would be close to zero, and a 1% rule property (8.33 GRM) would perform at more-or-less the same Cap Rate of 12%. Also, what if you're comparing 2 properties in different towns with different tax rates? Here in NH, the taxes in one town might be 1.5% of the assessment, and in the town right next door they might be 3% of the assessment, and the rents don't make up the difference. In that situation, one property might meet the 2% rule and still cash flow much less than the other one, even if it doesn't meet the 2% rule. As a final example, what if you're comparing small multifamily properties where one has split utilities, and the other has just one heating and one electrical system where the utilities costs are borne by the landlord? Just because one may have rents that represent a greater percent of acquisition costs (greater X% rule), does NOT necessarily mean that it will cash flow better. There goes your 50% rule, and there goes the utility of the X% rule in that situation as well. On the other hand, if you know the expected GRM or X% Rule for that type of property with that typical Operating Expense Ratio in that specific market location at that specific moment in time, it's fine to use it for a quick peak, but just make sure to run the CAP Rate before you get too excited.

2) Trade-offs (this is where class of property comes into play)

There is more than one way to make money in buy-and-hold. I’ll mention 2 here: Cash Flow and Appreciation (yes, I know that it’s become popular to claim that considering appreciation is “speculating”. I disagree. While I do agree that is (usually) inadvisable to invest in a property with negative cash flow, and to thereby “bet” on the appreciation, I do believe that considering the appreciation potential is an integral part of investing. After all, ever know of any stock investors who choose stocks solely based on dividends? Anyway, this is a whole other topic, but give me the benefit of the doubt that appreciation is one of the ways that we buy-and-hold investors profit from real estate so I can make my point).

Most investors would agree that a C or D class property is going to have greater cash flow, but little to no prospects for appreciation. So, if you're focusing too heavily on meeting or exceeding the 2% rule, there's a good chance that you're going to end up investing in bottom-of-the-barrel markets with little to no equity growth (other than through loan amortization). Another thing to consider in this regard ties right back into #1 above. If you target a 2% property that ends up being C or D class, there is a good chance that you will experience increased credit loss (uncollected rents), vacancy, legal expense (for evictions), and repairs and maintenance. If your 50% rule then turns into a 62.5% Operating Expense Ratio, then your 12% Cap Rate just went down to 9%. Is a 9 CAP bad? Well, on a high-maintenance investment that doesn't appreciate, I would say that yes, yes it is. Using the actual vacancy and credit loss, and the actual expenses to determine NOI and then CAP Rate will avoid this potential pitfall. As an extreme example, if the 2% rule is all you care about, then why not just invest in Detroit where you can probably get a 5% rule property – if, that is, you can actually collect the rent, keep the property occupied as opposed to vandalized, and not get mugged.

To summarize, I don't have a problem with GRM (or even its wet-behind-the-ears little brother, "The X% Rule"), when used responsibly. If you know what it should be (in that type of property, in that class of neighborhood, in that geographical location, at that point in time, with that type of lease structure, and with a predictable OER), then it's a great way to get a quick-and-dirty look before going through the trouble of collecting income/expense info to calculate the CAP Rate (which is also location-, class-, and time-specific, but takes into account any potential variance in OER).

What concerns me is the idea that new investors may be led to believe that "The 2% Rule" is some sort of golden be-all and end-all of real estate investment analysis. It is NOT, and it should only be used when holding all else constant, and even then, only as a quick-and-dirty initial glance. It must be followed with more thorough analyses of actual numbers, using more robust measures such as CAP Rate, PV, and IRR.

All that said, any serious investor really needs to educate him/herself on the more accurate and conclusive measures for investment analysis. If you're new, and you aren't fortunate to have a background in commercial real estate finance, then read a book or study some of the more in-depth blogs on BP. Frank Gallinelli wrote a book on cash flow and other analysis measures that is a great place to start. While most of the stuff in his book is targeted for commercial properties, I believe it to likewise be useful for 1-4 unit residential investment property. After all, you're investing to make money, so any calculations that can analyze financial performance will work for residential properties as well as commercial for your purposes; they just won't hold as much significance from an appraisal or lending perspective, or for the purpose of projecting appreciation. However, I find that doing a commercial-grade financial analysis on your SFR's will show a local portfolio banker that you're a serious investor and know what you're doing.

Happy investing,

Troy

Hi @Cathy T.

After reading this thread and many others that are similar (in that they seek to clarify legal landlord-tenant matters), I am concerned by the willingness of so many BP members to represent their comments as valid advice, even though they live in states other than the one in question. I am also concerned by people who write down their ideas as if they are giving solid advice, even though they clearly don't have the experience; like a gas station attendant giving best-guess directions to a place with which he/she is not adequately familiar. 

I am an experienced landlord from NH, and while I unfortunately do not have enough experience with this situation to give conclusive advice, I will share what I do know:

1) Her income doesn't matter. It is combined income of all applicants that should gross 3.5X the monthly rent. Would you decline the application of a family where there is a stay-at-home mom or dad, if the other spouse made more than enough to qualify? Of course not. On the other hand, I have a rule that I do not allow people to move in if they fail the character portion of my screening process (evictions, L-T filings of any kind, disqualifying issues on their background check, recent credit history that implies extremely poor fiscal responsibility, etc.) It only takes one resident for the tenancy to be a nightmare. (This point is not NH specific.)

2) I have been advised by a NH attorney to add every resident over the age of 18 to the lease. That way, they are individually responsible for the full amount of rent, and they are obligated under all of your lease provisions. That is that attorney's opinion; it doesn't make it gold. Also, you should clarify this with your attorney, but I believe that as long as she can show residency, the eviction process in NH remains the same whether she is on the lease or not, and changing the locks on her outside of the legal system when you darn well know she lives there would be a VERY BAD IDEA. 

3) Not to sound harsh, but you're a real estate investor; get an attorney. We're not talking about putting one on retainer, we're talking about occasional advice that isn't going to cost a whole lot. If it's not in your budget, is getting sued because you locked someone out of your house in your budget? How about losing 3 or more months' rent because you botched the eviction process? Because either of those is much more expensive than an attorney. No one knows the answers automatically. You can either learn the hard way (by screwing up), or you learn from someone who already knows. Even if it costs a few bucks, it's cheaper than learning the hard way.

4) Do not worry about what happens if the boyfriend moves out. As long as he is on the lease (which he is), he remains fully financially responsible for the rent (assuming your lease is adequate). Once the lease goes month-to-month, if he gives a 30-day notice of his intent to vacate, simply explain that the notice must be signed by both of them, because cancelling the lease is cancelling the entire lease, and unless they both move out and relinquish their claim of residency in writing, they both remain fully responsible for the full amount of rent. A 30-day notice is a notice to terminate the lease, not a notice that one party to the lease will be relieving himself of his responsibilities under the lease. It is then your decision whether to enter a new lease with just the girlfriend (at which time her income does become important). 

5) On a similar note, the comment about having to split up the security deposit is null; it is not your responsibility to do so, and in this case I would simply cut the check to the person who made the deposit in the first place. The following doesn't apply here, but if you were to take partial security deposit checks from individual parties to the lease, you would be setting a precedent that each of the residents is a sole party, which would be a very foolish thing to do. In the 6 situations I can think of right now in which I have rented to a group of people (other than a family or a couple), I have required them to appoint one person as the group representative, and it is that person who takes care of the security deposit, rent payments, and most correspondence. I have a rental that consists of 4 girls just out of college, with each of their parents as guarantors to the lease. One of them moved out and wanted her portion of the security deposit back (I wasn't concerned about letting her off the lease because the guarantees from the well-to-do parents of the other tenants are more than adequate and they pay their rent early every month). The remaining girls informed me that she had abandoned some of her belongings so they did not want her to get her security back because they had to clean up after her. I also received a personal letter from the mother of the girl who had moved, informing me of my supposed responsibility to refund her portion of the security deposit. I simply responded in an email to all of them that I do not give partial refunds of security, just like I do not take partial rent from individual lessees. At the time the lease is terminated, the entire security will be refunded to the remaining lessees, and any partial refunds to vacating roommates, as well as any collection of partial deposits from new roommates, is on them to figure out. 

6) Remember that every situation is an opportunity, not just a problem. This situation is a perfect opportunity to explain that you can only allow her to move in if they both sign a new 1-year lease, and you will need an additional $100/month in rent for the added resident. Only you can decide whether the extra rent will drive him out, and that is based on the quality and pricing of your rental as compared to others in your local market. My lease states that I can charge $200 for an added resident, so the $100 I actually charge is a break. Typically, $100/month is nothing when they consider the added contribution of the additional resident, whether financial or otherwise, and I have never had any pushback from tenants on this. It is adding to the wear and tear of my property (many of which have leach fields), so I think it is an extremely fair compromise. That's $1,200 per year, so there's your attorney budget and then some...

Good luck,

Troy

My understanding is that, in NH, you must serve individual demands and evictions to all tenants. However, the option of serving to "all other residents" is viable, but it should be a separate notice (this is what I've been told, but I always serve separate notices for all residents over 18 years old).

Honestly, given the complexity of this one, I would just pay an attorney to handle it and follow along every step of the way. That way it's done right, and you'll also learn the correct steps for when you have to do another more straightforward one later. 

This one is just really complex. For example: if the $7K goes to the previous owner, what gives you the right to serve a 7-day eviction on the day of closing? How did you deem them late on rent if you just bought it and you have no lease? I could walk you through all the steps of a regular eviction - they're not difficult - but this is irregular given the circumstances, and so far no one from NH has replied to this post with any concrete answers on how to proceed. I would use an attorney for this one. Get it right, get them out, get it stabilized and cash-flowing, and get a solid understanding of the process for the future. At the very least, ask an attorney how the circumstances affect your ability to evict and how the typical course of action should be modified to suit.

@Chuck Mace-

I just got off the phone with my agent. In January, when I set up my new LLC to solely manage our properties, it will be added as an additional insured at no extra cost. That is confirmed.

Here is how my commercial policy is structured. Let's forget for a moment that there are 2 policies due to the differing deductibles, and let's just concentrate on the larger policy - the one with the free and clear properties at $10K deductibles:

-Each property has a premium that covers property and liability. The property portion has the $10K deductible, the liability portion has NO deductible. The same is true for the smaller policy; only difference is the $1K deductible vs $10K.

-I pay another $500 for the tools and equipment coverage that is part of this policy

-That's it, there is no other premium for any other coverage.

-My truck insurance (which also has the non-owned vehicle coverage) is a separate policy

-My workers comp policy is through a different carrier and will not be affected by my decision to open a PM only company (other than the fact that the policy will transfer to that new company because that company will become the employer - but there will be no additional cost).

I do not manage other people's properties, and I do not do any work for hire whatsoever. That is why I do not need additional coverage. If my new company were to manage or work on other people's properties, then yes, it would require additional coverage. However, the same would apply if the current company that owns properties AND manages them were to do work on or manage other people's properties. So, the decision to have a separate company for management only has no effect on insurance coverage costs.

My agent does only commercial insurance policies. Our primary residences are handled through another agent in his agency that does personal lines. It is possible that other agents, who are less familiar with commercial policies, set things up differently, perhaps disadvantageously to the investor (because they are trying to use vehicles with which they are familiar as a solution to a need for which those vehicles were not designed). Our previous agency handled mostly personal lines, and when we switched to our current agent, we saved significantly on premium.

I would be happy to give you his name and contact info if you are interested in a second opinion. Send me a private message with your email address if so.

The other option is to "self-insure", meaning get liability-only policies and have no coverage for damage to the property (other than that provided through your tenants' renter's policies). That is something I am strongly considering doing on the properties that don't have mortgages (can't do it on encumbered properties because the mortgagees require that their collateral be insured, understandably so). However, I wouldn't recommend this until you have a sizable portfolio that spreads the risk. Regardless, I don't think that applies to our consideration of whether or not having a separate LLC for management purposes should incur additional insurance costs. After consulting my agent, I can confidently and conclusively say that it should not (unless he is incorrect, which would surprise me given his specialized level of knowledge).

Troy

@Scott Bennett - 

This has a few moving parts. I'll share with you what I do know, and then I'll bring up the things on which I am unsure.

1) For non-payment of rent, the notice is 7 days, not 30. If the current owner screwed that much up, there's probably a good chance that the entire service (Demand for Rent and Eviction Notice) was done incorrectly. In NH, it is EXTREMELY important that the paperwork is done correctly or else the judge is mandated to throw it out (especially for "restricted property", which unless you are planning to O/O, is what this is considered).

2) Judges do not serve notices, Sheriff's do. I serve them myself, bring them to the court, bring that paperwork to the Sheriff, and then the Sheriff serves the 2nd step. Then it continues on through the process until a final service by the Sheriff once you win.

3) I agree with @Joaquin R., do not enter a Statement of Claim. You can only ask for $1,500 anyway, but it will give them something to argue over while still living there. Seek possession only, and then go after the back rent in small claims court (once you have gained possession of your unit) if you think the juice is worth the squeeze (usually, there's no juice, only squeeze, because "you can't get blood from a rock").

Here's what I don't know:

1) Does the previous owner's service even stand through a transfer of title? In other words, let's assume he didn't botch the service. Can you continue with HIS eviction that was started before the sale, or do you need to start your own? BTW, I'm fairly confident he botched it. I mean, he let it get to $7K, really? And then chose a 30-day for nonpayment? Maybe he chose the 30-day to show you he got the ball rolling, but to make sure the next steps and expenses would be your problem after closing, so he wouldn't have to deal with it on Nov 9th...

2) Is the arrearage transferable through sale? In other words, do the tenants owe you the $7K once you buy it? I would imagine so (especially if it is held in an LLC or Corp and you are buying the entity), but I'm not sure.

In hindsight, I would have stipulated possession prior to closing. Meaning that until the current owner gets the tenants out, I don't buy the place. Let him pay the taxes and insurance, and deal with the legal costs of eviction. Especially since the other units are empty so you are not foregoing any cash flow while waiting. Furthermore, that way, any additional damages done by the tenants out of spite while they are being evicted are grounds for last-minute renegotiation (if you so choose). However, I guess if the units need complete rehabs anyway, it would be a bit underhanded to want to go back to the table for some holes in the walls. On the other hand, if they do something significant that screws up major systems, you're going to have a sudden and unexpected increase in your renovation budget.

Good luck,

Troy

@Chuck Mace - 

One more thing: I don't understand the additional insurance cost for the PM LLC. All of our properties are covered under 2 commercial policies. The reason for 2 is because the ones with mortgages need a $1K deductible, and the ones owned F&C have a $10K deductible. (I'm strongly considering self-insuring many of the ones that are owned F&C, and going with a liability-only policy, but that's an entirely different discussion.) The PM LLC is on that policy already because it owns properties. I pay an additional $500 per year to cover my tools and equipment, and another $200 per year to cover a "non-owned vehicle" (so that if my employee is driving to make a repair and is on the clock and gets into an accident, I'm covered if the plaintiff's lawyer goes after my company).

I'll have to double-check with my insurance agent about the cost implications of forming a new PM LLC, but I don't expect it to be thousands of dollars in additional liability coverage. Right now (and again I have to double-check), I foresee it as a policy endorsement adding an "additional insured", at no extra cost. I'll try to remember to post my findings once I speak with him (hopefully today).

@Chuck Mace - 

I am a buy and hold investor in NH. I'll share how we do it, for what it's worth:

Similar to your proposal, I keep the properties in LLCs and then have one LLC for property management. This additional LLC has the PM software (I use Buildium), pays the employees, collects the rent, makes the repairs, and is the company to which utilities and contractors bill. It pays the office expenses, owns the truck (well, it leases it from me because I was able to get a 1.6% interest rate personally rather than a 7% if the business bought the truck), owns the trailers, tools, etc. Currently that PM LLC also owns several rentals. However, starting in 2015 I intend to create a new LLC to take over this role that will not own any properties. It will charge a PM fee to all of the other entities, and I will then take my draws from those proceeds.

All of the properties are owned in LLC's. HOWEVER (and this is big), we do not have individual LLC's for each property. That would cost a TON, due to annual state registration fees, and ESPECIALLY tax prep fees from the accountant, because each LLC partnership would need its own 1065 filed (if it is a single-member LLC it is a direct pass-through to your 1040, but it will still likely increase the accountant's workload and therefore add to the tax prep cost). On a side note, I have been told that single-member LLC's offer no additional protection than just owning the properties in your own name. Not sure if that opinion is NH-specific or not. Anyway, I'm still undecided on that, and therefore plan to stick with LLC's until I vet that opinion more fully and come to a final conclusion (if possible - which when it comes to legal issues, absolute conclusiveness is rarely truly possible).

Okay, back to before the tangent: We used to have the philosophy of having 1 LLC per every 5 properties. However, that is getting cumbersome and expensive, so I plan to make it 10 properties per LLC moving forward. There are specific considerations that go into this decision though: My focus is on single-families (at least right now), and the liability risks are less than in multi-families. Therefore, like your agent said, a $1M liability policy on the property (plus another $1M policy umbrella) is likely going to cover any liability risk exposure you might face. If I were to move into multi-families or commercial properties, I would reassess my strategy and probably go with individual LLC's (or at least fewer properties per LLC).

Happy investing,

Troy