All Forum Posts by: Bill Henley

I'm too much a noob to wander into a discussion like this one, but my two cents is that I have been following the same St. Louis area where @David Zheng is investing (and no, it's not very hard to figure it out), and imho this market is more than a little crazy. Almost no history of marketplace appreciation, yet most asking prices for two's and four's are guaranteed to be negative cash flow.  The worst of both worlds! This being the case, to find a real deal is not easy. I can understand how someone who's working his rear off to find them might get a little testy about the 50th time someone pm's with a request of something for nothing. That's not me -- not yet -- but I can understand it.

@Robert Sepulveda: There it is, the answer I was seeking. I did not think of the tax increase we would get without the interest deductions. I must remind myself that tax benefits and the availability of borrowed money are the two great advantages of real estate investing.

@Jason Hirko: Oh, yes, this would be central to the money-parking strategy: to eliminate as many monthly payments as possible. Mortgages are like the honey badger, they just don't care how low is the principal balance, they still demand to be fed.

Our LLC owns seven properties in St. Louis: 1 single, 2 duplexes, four 4-plexes. All have mortgages. We are selling our primary residence, located in California. We will be netting a lot of after-tax money from this sale. (1,200 sq ft 2+1s are currently going for $900K or more.) We want to keep the resulting nest egg liquid. One possible parking place that occurs to me is to pay off some of our St. Louis mortgages. I'm thinking, why chase deals in an uncertain -- and presently way overpriced -- marketplace, when we already own seven proven deals. Where I would like some experienced advice from the BP membership is to ballpark how much it would cost to pull that money back out again, using a Line of Credit or a re-fi? Part two is, how do these costs compare with the risks and rewards of other places to park money, like flips, hard money loans or non-performing notes?

It would be great if someone has already tried this formula -- to park money in one's own properties, then pull it out again when needed -- and could share the experience.

I have a thought, but it's not a recommendation. The thought is, first, to read the due on sale clause, to determine if deeding the property from the borrower (you as an individual) to a third party (your LLC) is a triggering event. Second, read the provisions regarding curing a default, to see if the borrower has a safe harbor period to cure a triggering event. That is, in the event the lender gives notice to the borrower that a triggering event has occurred, does the agreement give the lender the right to cure the defect and reinstate the loan? If the answer is no, then you're taking a risk to go forward with this lender. Either accept the risk or find a different lender. I do not recommend the accept the risk option. LLCs are intended to minimize risk, not create it.

@Kit Thomas: I have heard of this device but I have no opinion on it. It is my understanding that anonymity is the benefit of the trust, because the trust instrument can be nothing more than a word processor document on your hard drive. That said, I must now make the lawyer's disclaimer, that my posts to BP are intended to be for general informational purposes only, their origin is my own foggy and imperfect memory, offered without the benefit of any legal research, they do not constitute legal advice, and they do not give rise to an attorney-client relationship. Free legal advice is worth exactly what you pay for it: nothing. 

@David Grabiner: There are at least two issues in play. First, is the LLC or corporate defendant liable to the plaintiff? This depends on the existence of a duty running from the defendant to the plaintiff, a breach of that duty, a resulting injury, and the dollar amount of damages required to relieve that injury. Second, with the entry of judgment in the amount of such damages, what are the assets that the plaintiff can reach, on which to levy and execute in satisfaction of the judgment? With this conceptual framework we can see that the liability and damages side is completely independent of the availability of assets side. An LLC does not create immunity from liability. It creates asset protection. It follows that anyone who chooses to do business with an LLC should know, going in, that the assets available to relieve an injury arising from that transaction will be limited only to those assets owned by the LLC. If the amount of damages potentially flowing from the transaction are likely to exceed the value of such assets, a higher degree of caution and due diligence are indicated, than if your counterpart is a deep pockets individual or general partnership. In short, the risk of loss is exactly where it should be: on the person who chooses to accept whatever risk the transaction presents.

This "smart lawyer" trope seems to be sufficiently broad to negate all rules of law. In the real world there's no such thing. I have been a practicing litigation attorney for 30 years and I have never seen a successful effort to pierce the corporate veil. This includes scores of defendants whose business consists of a pickup truck, a box of tools, and a certificate of incorporation. You don't just stand up in front of a judge and say, "I'm a smart lawyer, Your Honor, and I think you should disregard the laws of this state and hold the owner of this LLC personally liable." If anyone is aware of a case where this actually happened, I'd like to hear more.

First thought: If an LLC adds no asset protection, why do the wealthiest Americans hold so much of their wealth in LLCs? Second thought: Insurance companies will invariably deny coverage whenever they can. They will cover the garden variety premises liability claim, but not reckless or intentional misconduct. Are you as a real estate pro more likely to be hit with a slip and fall case, or a claim of nondisclosure of a defect in a property you just sold? Insurance will not cover the latter. You've got your umbrella policy but no LLC. Now what?

While processing a loan application I was making the bank discovered a $52,000 balance in an IRA, sitting in a brokerage account in my name. The account originated in a job I left in 1991, and after rolling it over a couple times I had simply forgotten about it. Podcasts and BP had made me aware of the self-directed IRA option, and I was also aware of an investment opportunity which promises to pay between 30 and 60 percent. It took about 4 weeks to liquidate the brokerage account, transfer the money to a SDIRA custodian (IRA Services Trust), and get the money wired to the promoter. But as of today it has been done. Now I'm the one sitting on the couch, waiting for that tax-free money to come rolling in. Thank you BP posters!