All Forum Posts by: Will Barnard

Jon,

Thanks for the in-depth analysis fellow number cruncher!
So to summarize, paying UBTI is not necessarily a bad thing as I have said before as the ROI can be higher utilizing debt financing.

That is so funny Jon! I feel the same way. Why can't they just put things in plain and simple English!
No doubt Jon, it was just for a simplistic example. I too would love 50% appreciation in only 2 years! Wouldn't we all?!?!?!

Thanks again for your time.

Question 1: I am refinancing a property held in my LLC as we speak without problems. Again, I must personally guarantee the refi loan, but it is not a problem.

Question 2: That is a guru sales pitch who gets paid commissions by the entity formation companies. You do not need an entity for each property. The key is the equity position and the amount you personally are willing to "put at risk". For example owning 20 properties with a combined equity of $20,000 held in one entity only exposes the $20k. Having two properties with a combined equity of $200k exposes much more with less property. What are you comfortable with is the real question.

Question 3: You may put multiple properties into an LLC then get one commercial loan (blanket loan) to cover all of them. Speak to an experienced lender who does blanket loans and ask the pros and cons. MikeOh does smaller commercail loans for his landlording business all the time, perhaps he can give you some advice. The interest rate will most likely be higher, the LTV will most likely be lower, and the accounting for the interest expense divided amoungst all the properties may be a CPA's headache, but better they need Advil than you.

Thank you Cindy, I will pick that book up as I have not read it.
I have also read John Reed's opinion on the gurus and agree he gets a bit too emotional on some of them. Also, he is very negative and overly critical in some cases, but otherwise makes valid points.

Georgia is a big state! To ask if it is a crap area, we need to know what community in what city of GA.
I hope you are fast at doing your due diligence and included proper contingencies to get out of the contract if necessary without financial loss. I investigate an area first, then look for a property in that area. Doing it the other way seems to be backwards. What if the area is crap. You just did a bunch of investigation into this one property, just to realize the area is not where you want to invest.

The 10% down is great as is the owner financing at that rate. Very tough to beat that! Make sure you get the true and current P&L in order to calculate the cap rate, roi, dscr, and other calculations.
Is this your first RE investment? If so, you are jumping in to a large pond with no swimming experience. Be careful and get good advice from an experienced investor on this deal. Once you have it under contract, have an experienced investor or two look over the deal and give their opnion.

Very interesting points Randy. I need to do more research on the subject and items you mentioned.
As far as Mark's book is concerned, I do not have it in front of me, but remember that he listed 4 states that LT's were "legally recognized" not "legal". Regardless, perhaps it was a typo, perhaps outdated info, or perhaps he is mistaken as you say.

Thank you for your input on the subject. Are you familiar with Bill Gatten who teaches LT's? In a nutshell, how would an investor combine the LT with the entity to create a "dynomite structure"?

Originally posted by "Primo_Coach":

Ned is correct that it is difficult to finance properties in an LLC. That is why you either don't ever deal with financing and do lease options, subject-to, wholesaling........or you get the loan in your own name and then put it into your LLC 60 days later.

Incorrect!
First, not everyone wants to do lease options, subject-to, wholesaling and second, you do not need to wait 60 days to transfer the title into the entity. I have had the title company file the doc on the same day I closed on the property and it was recorded simultaneously.

As far as approval difficulty on loans, you are required to personally guarantee the loan, so there is no more of an issue than if you do not use an entity. (unless of course your entity has credit history/worthiness in which case the loan would be determined on those levels)

Case in point from a person in the lending business:

Randy,

Thank you for the info. There is no problem posting the article for others to read and educate themselves. Please do so. I, along with others are very interested in what you have to say on the topic.

I have heard several "LT experts" say this very same statement and I disagree. It may be true with some, but not all. An attorney & CPA who has studied LT's has written a book on this topic and many other topics that gurus try to pass off to the unsuspecting. His name is Mark J. Kohler and the book is titled "Lawerys are Liars" - How to protect your assets.
Check it out and give us your feedback.

You can prucashe a property in your own name, then have title or your attorney file a document that transfers the title over to your entity. This process does not violate the due on slaes clause from lenders as they see the property did not change ownership, simply how it was held.
If you are holding properties by yourself and not with a partner, a regular LLC is all you need, not a partnership LLC. YOu own the LLC and you can put one or as many into the LLC as you choose. It is recommended that you do not hold too many in one LLC so you do not have all your "eggs" at risk. The key here is equity. If you have twnety properties in one LLC all of which have a combined $10,000 in equity, then that is all that is at risk. If you had two properties with $200,000 combined equity, you may want to consider having to LLC's to divide up your exposure.
If you are talking about holding a property located in any other state other than where you formed the LLC, that is guru nonsense and is simply not the entire story. A great read on this and many other legal topics is "Lawyers are Liars" by Mark J. Kohler.

Plutopia,
I hear what you are saying and we can both agree that getting accurate numbers to arrive at a current and correct NOI is very important and necessary to evaluate a property. I still do not agree that cap rates are usless. I will just agree to disagree there and here is why:

Let's assume you shoot for a ROI of 25%, a DSCR of 1.5, and etc., etc. Now let us assume you find an investment that meets all the numbers you shoot for and you purchase the property based on those numbers. As it turns out, the cap rate on your purchase (using the true NOI form the P&L) gives you 9.5. But that type property in that area has an average going cap rate of 10.5! You just overpayed for a property, regardless of the fact that your other figures hit your target. In other words, if you had based your offer on the 10.5 average cap rate for that property, your other numbers would have been that much better.

The example above is long, but I hope I am making my point clear. Again, I agree that cap rates using crap or false numbers are useless, but cap rates with the right numbers plugged in are an essential part of evaluating income producing properties.

You make some valid points, but obtaining an OO loan, then moving out without notifying the lender is fraud. They would have the right to call the note due, or worse, criminally prosecute you.

Also, not everyone wants to live in one side of their rental property. I would not unless I was young and single and could move around with ease.