All Forum Posts by: Charles Press

@Account Closed You summed it up well, twice!

This subject gets overly complicated all the time. Most times your better off having some form of entity holding the property, trust, corp, LLC, et. al. You always carry insurance on your properties. (Consider a umbrella policy if needed.) And third, don't commit outright fraud. No business entity or insurance company protects you when you engage in a criminal activity.

@Account Closed Who said anything about suing anybody in this thread?  Or is that your tip for the day?  Insurance is always a must no matter how you own the property. 

Look at it from the Bank's point of view. When you come in and seek a loan for FLY BY NIGHT LLC, with no credit history, no track record, etc, you're not going to make that loan. You won't sleep at night. Bankers like to wear belts and suspenders to keep their pants up.

You can still obtain loans from banks with the property in LLC. Your most likely going to have to take a recourse loan. A loan where you make a personal guarantee and are bound along with the LLC. So in the event of default, your personal assets are pledged to repayment of the debt as well as the LLCs.

Now once you do get a track record of being a success in real estate, more financing options (and better terms) will open up to you.  It takes time and relationship building.

Not to throw a curveball into this, but I will. There are several publicly traded companies (along with private ones) that own and operate triple net leases. These are Real Estate Investment Trusts or REITs. Some even make their pay outs monthly. Of course they pay the bills and their salaries before your cut. So are you leaving some money on the table? Perhaps. But you are dealing with a lot less headaches and work if you just want NNN action.

It's something to consider and a very easy to get a piece of NNN action without ever having to get your hands dirty. I'm not a licensed investment advisor so I am not going to name the companies nor offer any advice on buying or selling securities.

Here's the question to pose to all you BP folks.  How do you feel about mixed properties?

A mixed property being a mix of a commercial and residential use in one property.  Hence the mixed term.  Most often you'll find the classic commercial space on the street or ground level and residential on the 2nd, 3rd, etc floors above.

One listing I looked at this type.  Below was a sandwich shop and a bar.  Above it was several apartment units. 

Let's assume it's in your target area and the financials work for you.  Do you purchase it (at the right price) or avoid it and why?

@Jonathan Twombly   Already explained why LLCs are a good idea for legal protection. 

On the borrowing side, I see a lot of people saying banks won't lend to LLCs. The bigger truth is banks (and other creditors) are not likely to lend to LLC (or any other business entity) with no credit history, track record, etc.

You are likely going to have to make a personal guarantee (along with a down payment) to secure financing when you start out. I.e. you will personally be on the hook to pay off the creditors along with the LLC you formed. Creditors like to wear belts and suspenders to keep their pants up.

@Jonathan Twombly  

Thanks for the insight, from your experience as a commercial litigator.  Many people here seem to think that LLCs are dead on arrival vehicles for legal protection in a lawsuit.  When 99.97% of the time they are life saver.

As for lawsuits, their a fact of life.  Believe you pointed out, if you haven't been suited yet, you will be at some point.  It only takes a matter of time before somebody is going to file suit on you being in business.  The more successful you become, the bigger target you are.  A lot of times there is no merit and you'll likely win on summary judgement.  Still a paoin though. 

@Account Closed  You want to protect all your personal property along with your primary residence.  Smart move.

The two things to do are 1) create a legal entity to own your investment property (and follow the rules).  2) Obtain insurance. 

Yes, the corporate veil of Corporations and LLCs can be shredded.  That happens when the owners of those entities are NOT following the proper laws and rules. 

If you create an LLC and use it as your personal piggy bank (i.e. you pay your personal expenses from it). Or you knowingly and intended to commit fraud. (LLCs don't protect you from crime). You're going to lose your LLC protection in court. See the link below for more information.

Every situation is different and you should consult a attorney.  They can help you set up your legal protections.  

Nolo: Personal Liability & Pierciing Corporate Veil

@Michael Evans Thanks for the heads up on the land trust.  I'm not familiar with them.   Looks like I have homework assignment.   Thanks! 

@Vicki K. 

Good question on the holding company.  Several reasons in my situation.

1) @Jonathan Twombly pointed out, it's another layer of legal protection. My property LLC is not owned by me, it's owned by the Holding Co. LLC. It creates another hurdle for when you do get sued.

2) Streamline tax filing.  My property LLCs (like many single member ones) are considered disregarded entities.  They just pass through to the Holding Company for tax purposes.

3) Streamline finances. Holding Co. can charge the property LLCs a "management fee" and then deploy that cash elsewhere. Instead of the property LLC cutting me a check, it pays the Holding Co. Holding Co can then do what it wants to do with the cash. Buy a new property, invest in notes, or even purchase a non related real estate business or assets and still have legal productions built in.

You're very wise to keep your management company separate from your properties.  That's a case where you could form a holding company to keep them all under one roof.  Both management company and property companies. That said, ALWAYS consult your own tax and legal advisors.  Everyone's situation is different.

Hope that answers your questions and is helpful.