I would most certainly set up an LLC for investments like this.
By the way - you don't have to buy these properties on your own - there are many companies that do all the work - find the properties - set up the LLC's - do the management - and just send you a check. That's the way I have always done these types of investments. Personally - I don't want to manage an apartment building. I don't want a phone call that the sink is plugged... I just want the investment and the income.
Now - when you think about it - this is far easier than finding and identifying a "good" investment property - securing a mortgage - find tenants - all the legal ramifications etc.
Typically then - the management company sets everything up - offers a "prospectus" describing every detail of the investment - and their plans - and financials etc. Then if you want "in" - they offer "shares" at a set rate. You can choose to buy one share or whatever. The deals I've always done have been anywhere from 50K to 100K per share. They typically will return 6 or 7% and after a while (years) they're typically sold and have a capital return. Most if not all of the income received is offset by the depreciation on your taxes during the income / holding period.
Here's the downside:
You CAN NOT invest 401/IRA/ROTH funds in these. They're considered "passive" investments and as such have different taxable situations.
You have ZERO control of how they're run - when they might be sold - whether or not they're sold or 1031 exchanged etc. You're just along for the ride. They're very illiquid.
Because of the illiquidity - you typically must "qualify" as an accredited investor. Meaning - you must declare that you have "X" net worth - per share - outside the value of your house etc. This is done because they don't want investors that are going to be calling and wanting their money back 6 months or 3 years down the road.
Like any investment - things can go against you. Rental rates may face stiff competition from a new building in the neighborhood. Management might suck. The economy can actually be TOO GOOD and your renters move up or out (I once had this happen to one of mine).
Here's the upside:
You generally get a very nice cash dividend annually (typically paid every 6 months).
The income is "tax differed" in a sense - because of the offsetting depreciation you get in the tax forms.
The returns can exceed 100% over a 10 year period. I once had an investment that returned 117% in 4 years. That was a special - probably never to be duplicated - event.
A 50K investment (typical single share cost) that is far simpler than owning and managing a single family rental.
These are typically LARGE (100 or more units) Class A apartment complexes. Therefore the occupancy rate can fluctuate throughout the year (years) and not have a big effect on your income. If you invest in single family - and the renter doesn't pay - or moves out - or destroys the property... you have a LARGE swing in income!
|