Buy The Property Next Door – If You Can

Buying an investment property involves a lot of strategy, even in a city like Augusta, Georgia. One key strategy is to buy multiple properties in the same proximity; even next door to each other if you can. It’s often recommended against owning multiple income properties in the same limited liability company or LLC. However, if the properties are of like kind and adjacent to one another it can make sense.

This article is based on a real investment scenario executed in 2024. 

Investment Strategy

In this example the subject property, an office building, was purchased in 2022. The acquisition was a small group of three investors who utilized a 1031 exchange to purchase the property as “tenants in common” on title.

Tenants in common is not ideal but can provide flexibility for investors to sell their interest in the property without the whole group selling. The property was improved post-closing, new leases signed, and the income increased.  Overall, the strategy worked.

Property Proximity

Once the building next door came up for sale the investment group immediately made an offer to purchase. Unfortunately, a deal couldn’t be reached as the seller was unreasonable on pricing and terms.

During the hurricane two years later, the second building owner experienced a loss resulting in tens of thousands of dollars’ worth of damage.  A purchase agreement was worked out that allowed the seller to retain any insurance proceeds and purchaser to make the needed improvements out of pocket.

Why Did This Work?

The properties proximity next door made it an ideal investment since the property was also an office building of similar age, size and tenant makeup. The property was purchased at a steep discount with the purchase making the needed improvements for much less than what the seller was awarded in insurance proceeds.

Simplification

In this case, the Augusta investment properties also had a shared access easement for parking. The parking lot easement was drafted many years ago and was not well written. For example, the agreement doesn’t specify who is to handle repairs or what the terms of needed repairs will look like. Now, most lawyers include that type of language, but it was not customary prior to the 1990’s. By purchasing the next-door property, the easement language can be fixed in anticipation of a future sale.

Maximize Long Term Benefits

Investors always think about disposition when they purchase. “You make your profit when you purchase” is a common mantra cited by savvy investors. By increasing the size of this investment, the disposition will attract a larger, more sophisticated investor thus increasing the return.

Property management should be easier with the two properties next door with them also sharing services and costs. This economy of scale is ideal for investors.

Insurance Considerations

There are cost savings in this example for putting these investment properties from Augusta in the same LLC. Insurance is a big consideration. The current carrier was able to just add the second property to the existing policy with a minimum premium since the purchasers were the same group. It helped also that the two properties are adjacent.

A strong argument can be made to not put properties in the same LLC. If there were ever a loss, policy limits could be an issue. If there were ever a lawsuit with a judgment, both properties equity could be at risk instead of just one. When putting multiple properties in the same LLC, seek competent legal and accounting advice. Always be sure to read and understand your insurance policy.

Keep it Professional – Don’t Be Lazy

Do not use the same LLC for multiple properties because of laziness. Many investors make this mistake. They will use the same LLC because they don’t want to have to open a new one with the Secretary of State’s office, file the annual registration, or consider different line items on their tax return. Laziness is not a good investment strategy for your property, whether here in Columbia County or anywhere else. These types of issues specifically should not be what determines if you use a new LLC or not.