Investment properties are in no way a new concept, it is in fact one of the oldest ways to generate income, and facilitate profitability. The following outlines a modern day success story that came to fruition by using this age-old method of investing.
Charlie worked for the state for roughly 30 years. He made an annual salary between 40-50,000/ year, and lived a frugal life. In his early thirties, he purchased a two family home with a small savings, and later rented out both units. A few years went by, and the equity that had been paid down, via the collected rents, now afforded him the ability to purchase another rental home. Like the first, he again rented the units out and began paying down the subsequent loan with the collected rents. He was able to successfully repeat this one more time, which brought him to own a total of three rental properties. At the outset of first purchase, he engaged an attorney to draft an operating agreement and assist him in filing the necessary paperwork with the state. Each property was then placed into an LLC (Limited Liability Company)*, mainly to protect himself from personal liability. Although no corporate entity is considered foolproof, the LLC entity, if employed properly, can significantly mitigate the risk that inures to an owner. This process was repeated for all three properties, each going into it's own separate entity, so as to avoid any potential 'domino effect'. Which simply means, if something went awry with one of his properties and all three were being held within that same entity, all could be potentially subject to attachment to suit through that same common ownership.
Charlie is now in the process of retiring, and has virtually no debt on all three of his assets. Having vested for his pension with the state, owning three cash flowing properties and equity which equates to over one million dollars, his entrance into retirement can be an enjoyable one.
Considering all of this, it is important to walk away with the understanding that investment properties are not only for those with deep pockets. With the proper legal protections, and current lending programs being borrower friendly, many people who otherwise wouldn't be able to safely and effectively own rental properties, can.
* The specific type of corporate entity used with any investment property, should be based on the individual's needs, and circumstances.
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About this blogJustin Rollo of RE/Max Realty Plus in South Boston provides an analytical and irreverent look at the Boston real estate market. More »
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