What is good for one investor’s objectives and long-term goals may be different for another.
However, there is a common set of questions by those seeking long-term real estate investments:
What real estate do you have available for $50,000 to $60,000?
“Nothing really,” I tell them.
In fact, I advise against properties at that price level. For investors who want long-term, sustainable investments, it is paramount to focus on properties that attract long-term tenants so as to minimize re-leasing expenses. Properties that are too cheap tend to be tired, old buildings that always rotate out tenants and need constant repairs. That, of course, does not lend to predictable and sustainable returns. I believe that to get sustainability, an investor should focus on value over price point.
Where should I invest for long-term hold?
This is probably my favorite question, as it illustrates the investor is looking to the future benefits of his/her portfolio instead of just buying a cheap property. What I tell them is that, “I believe your focus here is to find property in emerging markets – look for properties in an undervalued market with strong economics.”
Today, such markets for equity growth would be areas like Atlanta because of undervalued properties or Dallas because of strong job diversity and job growth. For cash flow markets, I believe places like Indianapolis or Philadelphia, among others, will work.
What types of property will give me the best returns?
If you consider yourself a long-term hold investor who is looking for a combination of equity growth and cash flow as well as passive investments, I would definitely suggest the single-family home with at least three bedrooms, two baths and a two-car garage.
The exit strategy here is to buy the most-sought-after and liquid asset class available. This is a product that the end user will pay top dollar for when you sell, and the tenant today will also pay top dollar to rent. You want to focus on property that is priced in the median price point for that market. If you tell me that you are an active investor looking more for cash flow, I may suggest a multifamily property as a preferred investment. This will give you larger cash flow but with less equity growth. You can obtain stronger equity growth by doing a value play to the property.
Do I need an LLC?
I tell investors that an LLC or perhaps a trust is designed to protect them from liability issues. It is not that you need an entity to make a purchase.
I know people who simply buy property in their own name and expect their insurance policy to protect them. My concern here is insurance companies have so many escape clauses, and they disallow so many claims, it could leave you vulnerable. I always suggest that it is advisable to talk with your real estate attorney about some sort of liability protection. Most investors and attorneys go for the LLC or a trust as an economic way to protect yourself against potential lawsuits that may want to attach to your personal assets.
Do I need a separate LLC for each property I buy?
This will depend on your risk tolerance and your desire to manage multiple LLCs. Remember, you have to do a tax preparation for each LLC you own, and that can get expensive. While an individual LLC for each property gives you maximum liability protection, many believe this is overkill. I believe when you talk with your tax and legal counsel they will give you the best recommendations based on your overall objectives. Personally, I am comfortable adding multiple properties into one LLC. I like to cap it on a dollar value such as $500,000 worth of property in a single LLC.
How do I finance my property within an LLC?
Wow, this is an interesting issue and definitely starts with total transparency.
The best answer I can give here is be totally transparent with your lender and take their advice. Often you buy the property in your name and then quit claim it to your LLC. Let your lender and your insurance company know what you are doing and make sure you follow their requirements. It is paramount to make sure that your insurance company has the correct owner registered, as you do not want to be in the predicament of making an insurance claim only to have your insurance rep inform you that they show a different owner than what the lender does. Transparency is always key with your closing attorney or title company as well. Every county and or state may vary with its rules on transfer taxes. Gaining this clarity up front is important.
What is the benefit of working with you instead of just turnkey property sellers?
This is simple. It is essentially the difference of selling you a property versus building a long-term relationship with an interest in helping you build a long-term investment portfolio.
We market turnkey investment property in a variety of markets which we have painstakingly vetted for optimum performance. Turnkey sellers from these various markets compete for our referral business, which compels them to deliver the best turnkey properties available. Our large buying audience of individual investors positions us to obtain economy of scale buying power.
Every investor has his or her own unique set of circumstances.
I always recommend sharing your investment objectives with your entire real estate power team – attorneys, tax professionals, Realtors and others who do work for you. When they all have your investment criteria and objectives identified, they can collectively help develop the best strategies for your particular wants and needs.