All Forum Posts by: Brad B.

Given the attention being paid by various levels of government to PII or personally identifiable information in recent years, it may be in your best interest to research what specific requirements you have in your state. Some states are more strict than others, which leads to an interesting situation if you have tenant information for a person who moved from your state to someplace like New York or Massachusetts.

You normally can take appropriate measures while storing and using such data that conform with accepted best practices. The problem arises in the event of disclosure. Some states have very specific notification laws that must be followed or you risk civil and criminal sanctions.

Your best bet is to spend some time either giving a call to or perusing your state Attorney General's website and see what they have to say about it.

It's hard to pick just one.

For personal philosophy, I would put Rand's Big 3 way at the top of the list. (Atlas Shrugged, The Fountainhead, and Anthem).

For putting things into practice, probably one of the most influential books I read was The Goal by Dr. Eliyahu M. Goldratt.

Buffalo has traditionally suffered from several problems pertaining to housing, specifically, an overall population decline in the city proper; one of the oldest housing stocks in the country; and a general apathy in terms of the local government and community groups.

In 2007 and 2008, I was working on several anti-fraud task forces dealing with these problems. At that time, and although I've been out of it for a few years I can't imagine it's gotten better, lenders were hesitant about taking many actions in the city proper due to problematic appraisals and many, many houses that were unsellable due to outstanding code violations. There were some very big institutional investors that got bit hard in some very large Buffalo RE frauds, which caused some to be gun shy. These were investors who thought they were getting a great deal on a portfolio purported to be worth $30 - $50 million and had a true value of a few hundred thousand if we were being generous. And this doesn't take into account the small fry stuff that was going on over the internet - like the house purchased from HUD for about $750 which ultimately left some poor dupe holding the bag for about $47k. No rehab, no paint, nothing - just a bombed out shell of a place that kept changing hands.

That's the type of stuff the stats don't show but is well known in many circles.

That being said, Buffalo also has some hidden gems. With as many old houses here, there's a ton of amazing housing at a very low price in some nice neighborhoods. The challenge is where are the houses in question located? Are they in the area near the art gallery or in the Elmwood Village or are they in the fruit belt? It could be the difference between a $750,000 house or a $1500 crack house.

Not that this helps, but I wanted to add in that sometimes the numbers on paper don't always reflect the actual truth on the ground.

Looks like a great resource.

If you have the chain of documents that support your story, you may want to make some noise in the law enforcement direction. Make a call to your state attorney general's office and try to find out which AAG handles financial fraud and talk to them. In this climate, most tend to be very interested in hearing these stories. You may also want to contact your local District Attorney's office and speak to their resident financial fraud prosecutor. At the same time, you can also try to give a call to your local FBI field office and get the name of the SA on the case.

You may meet with varying results, but someone will take notice.

David;

Not to be too technical, but a corporation of any type is usually set up to provide a few advantages. First is the ability to (relatively) easily take on partners or investors. Second, and the big one here, is that a corporation will normally be able to shield investors and owners from liability. The loss of an individual investor is normally limited to their stake within the entity. As with all things, there are exceptions to these rules, so it's important to know how the rules work and set up a structure to mitigate risks. But that's just a good idea overall.

When setting up you overall structure, you have to decide, hopefully with the aid of competent counsel, the proper organization and entity or entities that will provide the maximum benefit to you. As has been already stated, an LLC is quick and easy to set up in most states and is normally pretty cheap if you're on your own. If you have partners, you may find an LLC is still appropriate or you may look into other corporate types such as an s corp or a c corp. These all have distinct tax advantages and disadvantages.

I would suggest doing some research on the comparative differences between the corporate forms to get a general idea of the merits of each as well as the potential problems. In my experience, your accountant and attorney will steer you towards what they are most comfortable with, which isn't always a bad thing as long as you know what's what going in.

Most of this will depend on your current situation, your near term goals, and then your long term goals. Most misjudgements can be negotiated around or fixed, but it can get really expensive if you're not careful. Do your research now and enjoy the money you'll save through proper planning.

Good Luck!

Depending on your tolerance for risk, you could also invest directly into a business or other venture. Being already familiar with RE, you probably have an idea of the ins and outs of the overall ecosystem. Depending on the amount of capital you have to invest, you could probably find a healthy business with growth prospects looking for a cash infusion. Leverage what you know already.

If you don't have a high tolerance for risk, then start to evaluate investments that are more conventional.

What a great topic!

I think this article sums it up best with this paragraph:

"The fact is most Americans don't want to get rich. Sure, they would like the money. But they don't want to make the sacrifices necessary to have a shot at becoming really wealthy: the enormously hard work, missed birthdays, long days and forgone vacations and weekends."

I completely believe there is great wealth out there to be had but only by those who have the ambition, drive, creativity, and endurance to obtain it.

Opportunity exists in many areas. Some have high barriers to entry and others not so much. Potential exists all around us, just not everyone has the creativity or vision to see it. Of those that do, most will do nothing. Of those that start, most will fail. Of those who don't fail, many will not know how to properly exit. Those few who remain will be the ones with the wealth and moving on to bigger and better things.

I listen to the doom and gloom from people talking about the current economy and how things are so bad. I don't believe things are any worse than in many times in the past. It just forces us to view things outside our own personal comfort zone.

To the original questions:

Can one still get rich? Absolutely.

What is the new definition of rich? I like the one that I learned years ago that's simple when I have enough money that it can work for me to provide me my chosen life style. As a number - mine is around $10 mill.

Best way? Whatever gets you there without killing you on the way. Try to reach the goal while having some fun. It helps to have some good people around that you actually like. To each his own.

Is it more difficult that ever before? Nope. It's never been easy. We have the benefit of reading about the successes, so our view is biased. If failures wrote books about it, we'd see how skewed our perceptions are.

Millionaires were created during the major depression of the civil war as well as during the great depression not to mention all the bumps and hiccups in between. Millionaires and billionaires are created even now.

Peter;

A quick funny story I once heard - I don't know if it's true or not, but I thought it was amusing nonetheless. Elvis Presley was, at one time, the biggest individual taxpayer in America paying over 91% of his annual income. It would seem that he never really hired professionals to do his returns and find deductions for him, he just sent his statements off to the IRS and let them tell him what he owed, which had somewhat predictable results.

But, to your situation. Always seek out the advice of experts who you know are working on your behalf. In this case, get a trusted accountant who you can form a good working relationship with that will guide you through the best methods of minimizing your tax exposure. Unfortunately, this often means having someone who knows you very well and is intimately familiar with your situation, assets, goals, and long terms strategy. Knowing this, they can advise you properly on recommended structures for the entity and various operational structures.

You attorney will also come in handy here as well. Your accountant can help you set up things to keep as much money as possible, but your attorney will help you set things up to deflect as much liability as possible. Among other things. These two advisers should talk to each other. The worst thing that happens is that they give you conflicting advice.

And it goes without saying that you should be in the details as well. Ask questions. If you are paying between $250 and $400 per hour for advice from a trusted professional - ask questions. A lot of questions. Be comfortable with the decisions you are making since some are not easily reversed later on.

To try to take a stab at answering some of your questions in a generic way, here's my approach, and of course your mileage may vary.

1) The IRS will not give you entity advice. Too much liability involved for them, and quite honestly, their mandate does not even remotely align with your goals. It's like asking a car salesman if you should buy the undercoating. Saving you money is not their concern. Ask your attorney and your accountant. It will probably be the best money you spend.

2) Generally, it's good to consider an LLC or a corporation just like you would another party to your deal. Go about things like you are dealing with another person. If you want the money they have, how would you do it with another partner? Set up an agreement for it to happen. This could be a regular salary as an officer or partner in the form of a draw or it could be periodic as part of an income distribution. Determine it first before you need it and put the conditions down on paper. Then abide by the paper. In one of my ventures, my partners and I have everything very well defined about how money is distributed, in what order, and when. It prevents problems with the partners and creates a nice audit trail for when the IRS comes knocking (or other auditors).

3) I believe you are thinking of a C corp. A C corp is subject to double taxation in the form of the entity paying tax and then you paying tax on income received on earnings. An S corp (or LLC with that election for tax purposes) is a pass-through taxation. The income is reported on a K-1 statement but not taxed on the entity level. Income tends to be allocated to members relative to their ownership and contributions. There are lots of rules and an accountant can sort them out appropriately. Sometimes, depending on goals and business strategy and circumstances, a C Corp makes sense and sometimes an S Corp makes sense.

My advice to you, is at this stage of the game, go to your accountant and attorney and say, "This is what I'm doing. I'm looking at organizing under an LLC, but is this the best move?" Begin your discussions there. They may have different ideas or strategies for you. Don't box yourself into a corner by trying to have the answers. Have some ideas and work them out with the professionals.

When confronted with lots of information and jargon outside our comfort zones, it's very easy to get intimidated. Always remember that your name is on the documents and that your money is at risk. Watch your own best interest and don't be afraid to push back if you think something doesn't seem right. Many times we get lost in details, but common sense is a good guide.

Good luck!

It's better to have it and not need it, than to need it and not have it.

I am not an attorney; this is not legal advice. Seek appropriate counsel from a competent attorney licensed to practice in your jurisdictions. I am only speaking from personal and professional experience.

An LLC is very adequate in most jurisdictions to protect assets and contain liability. But this depends on a few things. First, treating the LLC properly in its establishment and operation. Have properly setup foundation documents such as operating agreements over and above your basic paperwork. Operate your business like a business. Courts will generally side with good-faith efforts and give the benefit of the doubt if you are trying to do the right thing. If you treat your LLC like a magic wonder-box of liability repellant and do nothing more, then you begin to assume risks inherent with such behavior.

Now, assuming you set everything up correctly and operate your LLC correctly, when can the veil be pierced? Generally you are at risk if you are willfully acting outside reasonable norms (i.e., being willfully negligent) or committing fraud. There is a ton of case law on how this is all determined dating back well over a hundred years. I would strongly advise everyone who is a business owner (LLC or corp) to get familiar with this. You can also have the veil pierced by not following your operating agreements and rules. If you set up an entity to look official, but then don't actually conduct your entity by the rules, courts tend to disregard the entity. If you don't have a clear delineation between your personal funds and your LLC funds, that can be problematic. It goes back to treating an LLC as an official entity rather than as just a shell.

You can also get into trouble by not having any assets actually in the entity. Being an REI and having the property as an asset tends to negate this, but the test is still there and used by the courts - so be aware of it.

In general, as long as you set up the LLC properly, define the rules you will operate it under, actually operate by those rules, fund the LLC commensurate with its operations, and then don't willfully be fraudulent or negligent, you will probably be fine. Again, I can't guarantee anything - I'm not an attorney or other licensed professional to give advice. I just know what's worked for me in other ventures.

All that being said, you will be sued. In the current state of the American mindset, it's a matter of fact. Hopefully it will be just a minor suit, but sometimes it's a big one. Sometimes you can prevent them by being diligent, other times you can't. In either case, you need to have something backing you up.

If you happen to be a multi-millionaire, you have the option of financing your own risk through your available cash and assets. If you don't want to do that or you don't have tens of millions of dollars in liquid assets or cash - then you need insurance.

The catch 22 is that those people in a position to least afford the insurance, need it the most. The beginning investor or business just starting out is very vulnerable to the types of financial hits brought about by law suits. Not even the settlement, but just the defense of a suit can be a killer. Insurance is critical to offer protection.

So how much is enough? As much as your liability exposure. A million sounds like a lot of money to most people but in today's world it's a drop in the bucket. Do some research into verdicts recently in your jurisdiction for negligence or personal injury cases and consider that a low-ball starting point.

But, on the other side of the coin, realize that only about 5% of cases filed actually end up in court. Chances are, your case will settle long before. So what's going to happen in this case?

Let's set up a hypothetical scenario. You have a tenant that falls off a broken stair in your property and cracks their face open. They have scarring that will be visible and will adversely affect their outward appearance. You have insurance in effect for $1 million. You receive a notice from your tenant's attorney that you are being sued for $2 million.

As you get into it and contact your insurance company and your attorney and things start to roll discovery begins, which is where the other side gets your information and you get theirs (basically). They find out that you have a properly set up LLC that holds the investment property valued at say $80k and an account totaling $4,000 in operating captial (wild numbers for example). You also have your $1million insurance policy. Taking all of that information, they know the absolute most they will get in a best case scenario is $1,004,000 plus the property. They offer a settlement number of $1,000,0000, which ironically is the same amount as your insurance policy.

Sometimes the plaintiff will do some probing first, find out about the policy and sue for that amount. Why? It's quick, it's relatively painless for everyone involved, and it's tangible.

If you had no insurance or very little, you run the risk of being held personally liable as it could be construed to be willful negligence that you did not maintain enough insurance to cover your exposure. Or if you had insurance but no LLC then the plaintiff could seize all your assets that were unprotected.

The long and short of my essay is that you have to evaluate the level of risk you want to assume on your own and how much you want to offload to insurance. Then you need to protect your assets in the best way that makes sense.

My day job is in professional services and my partners and I have a very well defined and operated LLC. We weighed it very carefully against what we wanted to do and the pros and cons of the other corporate forms. We spent a ton of cash on setting it up. We also have tens of millions in various liability insurances. Even with all of that, we assume there are some risks. However, we know we've reduced our exposure to all but catastrophic risks.

Just my $.02 on the matter. Above disclaimers are still in effect. I speak only for myself and not for my company, partners, blah, blah, blah.