What would be the best way to set up a real estate company?
July 8, 2008 – 8:57 amCharlie B asked:
I am a first time home buyer, but want to accumulate residential properties to rent out and create a residual income. Should I start a REIT, a LLC, or what?
Quinby
I am a first time home buyer, but want to accumulate residential properties to rent out and create a residual income. Should I start a REIT, a LLC, or what?
Quinby
4 Responses to “What would be the best way to set up a real estate company?”
Regarding REIT, if you don’t have much experience, don’t look there. To simplify it, view it as the real estate equivalent of mutual funds.
So, if you are interested in real estate investing, an LLC would be better. Depending on the state, it cost $200 to $800 to maintain it every year and your tax return cost higher (CPA) to do. Keep that in mind. Read books on LLC to know the other details regarding the yearly paperwork involved (annual meetings of members and managers)
Also, for renting out, you should have at least 20% or more of equity, depending on the area where you buy. Don’t do negative cashflow, make sure you account for maintenance cost, vacancies, advertisement, …
Loans for investors have always a higher interest rate, except if you buy an REO home from the VA (Veteran affairs) which gives the same interest rate to investors as homeowners (currently I think around 6.5%). This low interest rate will surely help you for getting the positive cash flow. Remember, although you could buy such VA REO house with VA financing with only 5% down payment, you should put 20% down to make sure you cover the maintenance cost.
By Phil C on Jul 9, 2008
I would also go with an LLC.
-Angela
By Biancoa on Jul 11, 2008
Since you are a first time homebuyer, this purchase can be as an owner occupant. This will give you a good interest rate. Get a local Realtor and explain to that agent what your intentions are. Buy a fixer upper - (if you cannot do fix ups yourself, you’re not getting into real estate investing as a money making proposition). Join a local real estate investor club and learn all you can before buying your second house. I’m a Realtor in Texas, and for right now, I think HUD houses (some) can work ok for this plan. (must plan on living in it for at least 12 months)
Contact me if you want to discuss it any more.
Good luck investing.
By teran_realtor on Jul 15, 2008
Generally speaking (check with your own accountant) an LLC is good for long term real estate investing while an S Corp is great for short term flips.
Regards
By satarnag on Jul 15, 2008