What Would You Do?
Hi everyone! I'm new here and know nothing about REI and need a little advice.
Here's my situation. A friend of mine just got approved for a $550,000 loan. It's an 80/20....so there will be no money down. What he's looking to do is get three other people together to form an LLC. We were looking at 2-4 unit apartments to rent out. I'm not sure how all this works. After we find a place he is going to purchase it then transfer the house to the llc.
Will the members of the llc be responsible for the loan or is the llc responsible? Would we be free from liability? Or are we just protected from lawsuits and stuff like that?
Since we don't know much about REI we figured a long term investment in some apartments would be the best way to go for now. Does this sound like a smart thing to do? Any help or advise would be greatly appreciated!
Quite the loaded question.....
First, get a partnership/ LLC agreement which spells out what each person brings to the table, what portion of ownership they will have, and what they get from the deal.
If your friend is able to get the loan himself that does NOT mean he can get it in the name of an LLC. LLC=Commercial which plays by a totally different set of rules. But your friend could get the loan, then lend the money to the LLC, just make sure you use a loan agreement, and he should get interest on his loan.
As to the rest of it, it really depends on what your goals are. Do you want long term growth? Do you want cash flow, if so how much? Or are you trying to roll the snowball as big as you can? Bit more infomation before we can give you some suggestions.
From what you've said, It sounds like he would be responsible for the loan personally. Make sure to read (and have your attorney) anything that you sign.
Make sure it cash flows! Your tenants better be paying a lot of rent for that price. It sounds like a good deal for you. No risk, no money down, no liability (short of negative cash flows).
You may consider getting your own attorney (apart from the partnership) to look out YOU.
I can't emphasize this enough, Run the numbers!!! Verify the numbers that you're plugging in. Verify them against the sellers Schedule E from his tax return.
Thanks telemon! We were planning on forming an llc with the four of us having equal interest. The plan is to find a 2-4 unit place to rent out to build up equity and then purchase more property. I guess the goal would be long term growth. We want to take it as far as we can with as little out of pocket expense as possible.
Hi hippie76. The tenants would be paying quite a bit for rent. Were looking in the San Diego area near the water....so it's a bit expensive out here.
It does sound like a great deal and I don't want to kick myself later on for passing it up.