All Forum Posts by: Andy D.

@Rudy Manna and @Darren Eady I don't quite understand this setup from the lender's/partners point of view. The lender has, in his/her own name, a mortgage on a property where he/she is part-owner together with an LLC, right? Who are the members of the LLC? Why would the individual want to own the place outright (albeit at 50%) if the partners can be "secure" in an LLC? What am I missing?

If you don't like the area you will most likely not like ANY tenants. You will not be happy then being an owner/landlord. I really do not recommend that you start your landlording career with such parameters. Find a better object, maybe a Condo (or two, whatever you can afford) where some things are taken care of. Yes, less cash flow but typically also less hassle.

Re your questions:

#1 Yes and yes. Consult the leases. You can always get rid of tenants under the rules dictated by the lease and/or law. Doesn't mean it's going to be easy. ;-)

#2 Seems a bit high but not totally unreasonable, but then again I never checked the Costa Mesa area for that.

#3 Good question, actually never had to do that as it was either handled by the HOA fees and/or the tenants paying it. Would be curious myself to hear an answer to that.

#4 I would factor in property management, even if you plan on managing yourself. You should also make sure you have sufficient funds at hand. You have 1 building but you have 4 units. That's 4x potential problems (water heater, hvac, appliances...). Budget for it. Imagine you have 2 water heaters going bust (literally) and the HVAC dying in one unit, and a burst pipe in another one and water damage in the unit below. All that within one month. You need serious money to cover these expenses! Doomsday scenario? Maybe. Totally unlikely? Definitely not! Budget for it. You can't leave the place unfixed for x months till you got the money to fix it...

#5 Run with the usual figures but consider the buildling's age and overall condition, of course. I don't really - generally - budget differently for a 4-plex than for say a Condo. Although typically with a Condo the roof, for instance, is usually the HOA's problem. With a 4-plex it's definitely yours.

I agree with you and thanks for pointing this out. I shall say that this topic is of course very complex and should only be handled by an experienced attorney for the individual case at hand. One should never rely for such asset protection/structuring/etc matters on information obtained in a forum! That's what we have specialists for who will analyze the individual situation.

I had two baseline assumptions when I wrote my #2 above:

1) exactly what you describe. Typical situation is that someone buys a property in their own name and then later decides to "wrap" an LLC around it. That would, without a doubt, trigger the DOS clause, allowing banks to call the loan (whether they would do it is a totally different story as we know). If the LLC were held in a trust of which the current owner the the property (private person) is the settlor of the trust then this would - disclaimer: I am not such a lawyer - fall under the mentioned act. At least this is my understanding. Please correct if wrong.

2) Moving properties around within the trust, from one LLC to another, or changing ownership of such LLCs within the trusts,and the likes, where the LLC is of course owned by the trust. However, when I understand you correctly then you are saying that even for such a situation the DOS clause would be triggered because the legal ownership would change from LLC1 to LLC2, even though both LLCs are owned by the same trust (or an overlying LLC owned by the trust)? If that were the case - is it really? -, then at least this should not be triggered if the ownership of the LLC itself is changed, rather than the owner of the property (still remains the same, say, LLC1). This is getting technical now, and probably not what OP was looking for. ;-) Interesting topic, though. I now need to find a good attorney to have a chat about this!

Any trust that is not an irrevocable discretionary trust is entirely useless with respect to asset protection. The reason why people do this with real estate in combination with an LLC is typically:

1) it can facilitate things such as, for instance, title transfers

2) avoids due on sale clause for mortgages being triggered when transferring property ownership

3) anonymity when done right (Disney being a good example)

Using an LLC could help with asset protection but only when done right. Not many people do it right... As has been said many times here, usually a sufficiently high umbrella (liability) insurance policy (obviously in combination with underlying liability insurances for the properties) is usually much more useful if push comes to shove.

Then again, there are many situations where an LLC makes sense or is even required (e.g. commercial lending).

In any case, you need to contact a knowledgeable attorney who will be the only person able to give you proper advice for your individual situation (and especially state).

@Alan Delfiner Yeah, that was a really stupid comment! Could have very easily been worded differently and still would have brought your point across just fine. Not to mention that no one is blaming the owner: it's the owner's property. Guess who is responsible for one's property...? Yeah, the owner. Not the tenant.

One could, however, very easily argue that gas/utilities should not be considered tied to the property and therefore not the owner's responsibility but the user's (which it is, prima facie, anyway). Then again, if you get a ticket for speeding (from an automated system rather than from a cop pulling you over) then the bill is sent to the registered owner of the vehicle. That person will be held responsible if the actual driver can't be bothered. Same principle. Well, almost, they typically don't impound the car...

@Max T. I'm not so sure this is actually going to help for the future, really. Because there is one important sentence in that article: "The legality of the city’s practice of placing liens on properties for unpaid bills is not affected by the decision - only the method by which PGW dunned landlords for tenant bills."

The way I understand this is that it's not actually the fact of placing liens on the properties that is the problem. It's how PGW did it. Now, why the how is the actual problem I don't know (haven't read anything else besides the article). Maybe it's their automated approach. Since PGW will appeal this anyway we need to see the actual outcome. Furthermore, I doubt that this will affect other state with respect to it being a precedent for other courts.

I'm sure some areas are "bubbly". However, I also see regions of very strong, steady growth, even during the time the last bubble burst. Just slower. However, it's all a circle, or at least a wave: up, down, up, down, up... In that regard it's quite similar to the stock market. The majority of those people who really made money on the stock market are buy and hold, with investments into good, solid companies that preferrably give a decent dividend. Some minor adjustments here and there (Kodak, anyone?) and the obligatory bad investment but never trying to time the market. But even then it's best to buy cheap. Obviously.

Transpose that into real estate with the dividend being the rent and the solid stock being a good location with a - literally - solid building. With good selection criteria and a steady hand that doesn't tremble too much when there is some even hefty cross wind, such an investment will remain what it is: a good one. Will the ROR (temporarily) go down a bit? Maybe. But would you sell your preferred stock simply because the dividend is a bit lower in one year? I certainly wouldn't. Neither would I sell my property because of slower rent increase or even a slight rent decrease. Nor would I hold off from buying another property if I believe in the investment. It will still give me a dividend (= rental income). And at this point in time cash simply does not give me anything (at least not after fees). So unless I buy an overpriced object (and this goes for any property, not only MF) I'll have a good chance of making some money. I certainly will not if I don't invest. No risk, no reward. You just need to be smart about what you invest in. It's really that simple. ;-)

Long story short: I don't worry much about a bubble. But I also don't buy in overhyped areas, whichever type of property.

@Don Konipol I'm totally joying reading about you trying to set a president here on how to not allow this garbage about constitutional insideeends!! Let the domestic rule! Well dun, Sir. Truly violand.

P.S. It's "precEdent" ;-) *duckandrun*

(reading this thread so makes me brace for impact in the future...)

@Thomas S. Thanks for explaining. So it does involve putting a lien on an object which of course means it's also somewhat "involved". But this obviously makes sense. With respect to you buying them something: you're basically their "credit card" which they make a payment on, say, every month. The "interest" is the difference between what they are willing to pay and what you saved by buying cheap(er). Hhm. I'm not sure this is something that I'd want to get into but it's certainly interesting! Thanks for putting this idea out there/here.

@Thomas S. Interesting.

For the loans: do you require any kind of collateral for the larger loan amounts? Or how do you "incentivice" them to actually pay you back?

Re purchasing items: not sure I understand. You buy them a TV for $X. They owe you that amount obviously. You now get that back over a certain period of time by (temporarily) increasing their "rent" amount? Or what do you mean by "charge the tenant a higher amount with payments"? Because I would see a bit of an issue with properly separating the source of income in those money streams (specifically with respect to tax returns) to name just one aspect. I'm curious.

It most likely depends on where you are planning on buying.

Also, don't forget that you can't just buy and then everything magically sorts itself out. You will need feet on the ground, i.e. most likely a (good!) property manager, preferably available before you actually own the place.

In any case, during the process of trying to get financing be prepared for a fairly bumpy ride, including your employer(s) having to provide various information, visits to the consulate (time & fees!), lots of paperwork, etc. Good luck!