Investor Tips & Advice (FAQ)
Should I create an LLC?
In short, the answer is probably "yes." No matter how big or small your current real estate holdings or your investing goals, it is usually a good idea to talk with an experienced real estate attorney who has done some investing themselves. The attorney who I trust with real estate investing advice had suggested that I create not only an LLC but some form of an LP or Partnership whereas the LLC is the managing member of the partnership. I always strongly recommend that our clients talk with a trusted attorney and their CPA before purchasing real estate or starting an LLC. Some attorneys will even recommend a new corporate entity for every property purchased. Need an attorney? Contact Nulf Real Estate for a free consultation and we'll line you up with some great referrals.
What type of properties should I invest in?
To this question, I usually ask a question; What is your investment plan? What do you want to achieve with your real estate investments? Do you have a short term plan or a longer-term plan? Do you want cash flow or equity gains? Or maybe an even mixture of both? Are you a speculative buyer and willing to take long term losses for the risky chance of huge returns?
In most cases, you cannot have it all. It is best to sit down with a Real Estate Investment Specialist and discuss your goals. Then come up with one solid strategy and stick with it. Remember the saying "slow and steady wins the race?" Well, consistency in your real estate investments will help you win the race and achieve your goals.
What's the best Pittsburgh neighborhood to buy investment property in?
This depends on your strategy. If you have no strategy then I could say "any neighborhood." Real Estate markets are hyper-local and they change very quickly. For the most up-to-date advice, contact Nulf Real Estate and schedule an appointment to talk strategy.
Should I hire a property manager?
Yes, if you want nearly completely passive income from your investment properties. Keep in mind that, if you didn't calculate for management fees, hiring a professional property manager adds an expense and reduces your bottom line however, it should free up your time and provide the peace of mind that you may not otherwise be able to find by managing your own properties. If you're interested in learning more about our property management fees, visit our Pittsburgh Property Manager Information page.
If you are a beginning or newer investor, and you don't mind the grunt work or the extra time dedicated to property upkeep, then managing your own investments can be very rewarding. There is no type of learning better than hands-on learning.
How much money should I escrow for repairs annually?
Every investor has a different idea about maintenance escrows. I personally will start with at least $5000 in an account for a single family home or duplex. This will allow me to replace a furnace if need be. I then put $50 per unit per month away and build the account. A savvy investor can do a personal evaluation of the property each year and decide the remaining life of many items and parts of the property and then plan ahead. If you have $10,000 saved in a maintenance escrow and you conclude that you will only need roughly $2,500 the following year, you may then decide to spend $5,000 on a new investment. Thus pushing you more toward your investing goals.
Should I have an umbrella policy for my rental properties and/or personal property?
Many investors and advisers would recommend this although it is not 100% necessary. Creating the proper ownership entities may allow you to limit some of your personal liability in the case of a lawsuit. You should of course have every asset protected through a business and hazard insurance policy. Talk with an experienced Real Estate Attorney for advice on this matter. Reaching out to a solid commercial insurance broker wouildn't be a bad idea either.
What is a 1031 exchange?
1031 exchanges are great! A 1031 exchange allows you to "trade up" an existing property for one that is similar or better than the one you are selling and, through that exchange, you are able to defer capital gains taxes for later... sometimes indefinitely. Talk to your accountant or favorite real estate attorney for advice in this matter. One thing I can tell you for sure is that a 1031 exchange allows an investor to make money at a much quicker pace if used properly however there are pros and cons that need to be weighed thoroughly.
What is Cash on Cash Return?
Cash on Cash Return is my favorite evaluation of an income-producing property. Many investors do not even know the term. To calculate the cash-on-cash return of a property, you take the annual cash flow and divide it by the actual money you invested out of your pocket. This will give you a "real" evaluation of the return on investment.
Many investors only look at the NOI (net operating income) and the purchase price when calculating ROI (return on investment). In my opinion, this is one of the weakest ways to evaluate the investment since the investor is essentially getting "free money" from the bank and tenants to pay down most of the purchase price over time.
If you want to get serious about cash-on-cash return, try calculating the equity gain through appreciation and tenant pay-down so you can find the Internal Rate of Return!
Should I get title insurance when I buy a property with cash?
My answer is always "yes." I've seen so many cases of fraud and downright laziness when it comes to title companies actually delivering a property free and clear of liens. Having title insurance and making sure you actually receive a title insurance binder within a couple weeks of settlement can prevent headaches when it comes time for you to refinance or sell the property. If you would like any suggestions on quality Title Insurance providers, please give us a call or check out our vendor page.
In short, the answer is probably "yes." No matter how big or small your current real estate holdings or your investing goals, it is usually a good idea to talk with an experienced real estate attorney who has done some investing themselves. The attorney who I trust with real estate investing advice had suggested that I create not only an LLC but some form of an LP or Partnership whereas the LLC is the managing member of the partnership. I always strongly recommend that our clients talk with a trusted attorney and their CPA before purchasing real estate or starting an LLC. Some attorneys will even recommend a new corporate entity for every property purchased. Need an attorney? Contact Nulf Real Estate for a free consultation and we'll line you up with some great referrals.
What type of properties should I invest in?
To this question, I usually ask a question; What is your investment plan? What do you want to achieve with your real estate investments? Do you have a short term plan or a longer-term plan? Do you want cash flow or equity gains? Or maybe an even mixture of both? Are you a speculative buyer and willing to take long term losses for the risky chance of huge returns?
In most cases, you cannot have it all. It is best to sit down with a Real Estate Investment Specialist and discuss your goals. Then come up with one solid strategy and stick with it. Remember the saying "slow and steady wins the race?" Well, consistency in your real estate investments will help you win the race and achieve your goals.
What's the best Pittsburgh neighborhood to buy investment property in?
This depends on your strategy. If you have no strategy then I could say "any neighborhood." Real Estate markets are hyper-local and they change very quickly. For the most up-to-date advice, contact Nulf Real Estate and schedule an appointment to talk strategy.
Should I hire a property manager?
Yes, if you want nearly completely passive income from your investment properties. Keep in mind that, if you didn't calculate for management fees, hiring a professional property manager adds an expense and reduces your bottom line however, it should free up your time and provide the peace of mind that you may not otherwise be able to find by managing your own properties. If you're interested in learning more about our property management fees, visit our Pittsburgh Property Manager Information page.
If you are a beginning or newer investor, and you don't mind the grunt work or the extra time dedicated to property upkeep, then managing your own investments can be very rewarding. There is no type of learning better than hands-on learning.
How much money should I escrow for repairs annually?
Every investor has a different idea about maintenance escrows. I personally will start with at least $5000 in an account for a single family home or duplex. This will allow me to replace a furnace if need be. I then put $50 per unit per month away and build the account. A savvy investor can do a personal evaluation of the property each year and decide the remaining life of many items and parts of the property and then plan ahead. If you have $10,000 saved in a maintenance escrow and you conclude that you will only need roughly $2,500 the following year, you may then decide to spend $5,000 on a new investment. Thus pushing you more toward your investing goals.
Should I have an umbrella policy for my rental properties and/or personal property?
Many investors and advisers would recommend this although it is not 100% necessary. Creating the proper ownership entities may allow you to limit some of your personal liability in the case of a lawsuit. You should of course have every asset protected through a business and hazard insurance policy. Talk with an experienced Real Estate Attorney for advice on this matter. Reaching out to a solid commercial insurance broker wouildn't be a bad idea either.
What is a 1031 exchange?
1031 exchanges are great! A 1031 exchange allows you to "trade up" an existing property for one that is similar or better than the one you are selling and, through that exchange, you are able to defer capital gains taxes for later... sometimes indefinitely. Talk to your accountant or favorite real estate attorney for advice in this matter. One thing I can tell you for sure is that a 1031 exchange allows an investor to make money at a much quicker pace if used properly however there are pros and cons that need to be weighed thoroughly.
What is Cash on Cash Return?
Cash on Cash Return is my favorite evaluation of an income-producing property. Many investors do not even know the term. To calculate the cash-on-cash return of a property, you take the annual cash flow and divide it by the actual money you invested out of your pocket. This will give you a "real" evaluation of the return on investment.
Many investors only look at the NOI (net operating income) and the purchase price when calculating ROI (return on investment). In my opinion, this is one of the weakest ways to evaluate the investment since the investor is essentially getting "free money" from the bank and tenants to pay down most of the purchase price over time.
If you want to get serious about cash-on-cash return, try calculating the equity gain through appreciation and tenant pay-down so you can find the Internal Rate of Return!
Should I get title insurance when I buy a property with cash?
My answer is always "yes." I've seen so many cases of fraud and downright laziness when it comes to title companies actually delivering a property free and clear of liens. Having title insurance and making sure you actually receive a title insurance binder within a couple weeks of settlement can prevent headaches when it comes time for you to refinance or sell the property. If you would like any suggestions on quality Title Insurance providers, please give us a call or check out our vendor page.
