All Forum Posts by: Stan Butler

@John Warren the cash-out refinance in the LLC name is not a concern. I know I can do that and get money into the company bank account. I am looking for a way to get it out of the LLC so that I can use it for other things. This is where I am not finding any options.

Have been investing for almost 2 decades now and have assembled a nice portfolio of SFR properties. In about a year, the last one will be free and clear and trying to decide what's the best use of these assets. The Return on Equity (ROE) has gone from really great to what I consider normal over the last 10 years as values have skyrocketed, rent hasn't kept up at the same pace, and loans have been paid down. The free-and-clear portfolio ROE will be somewhere around 5.5% when measuring the Cash Flow against the Equity. I don't factor in the appreciation in my calculation because I do not receive it during the year and it would technically affect both side of the ROE.

I could pull the equity back out and use it for living expenses and just let the rent cover the loan. If all the properties were in a personal name, this is an easy thing to do, but when the properties are in nested LLC structures then its not so easy. The money coming out of the corporation has to be accounted for in some way, even though there is no offsetting income, just a liability. I don't think you can just distribute loan proceeds via a K-1 so I have not figured out how to make this work.

Another radically different plan is I could easily construct an equity portfolio using REITs that would produce the same or better ROE with less hassle. This is getting more appealing as we get older and want to travel. I am having a hard time with this one as I see private housing gobbled up by big corporate REITs meaning the scarcity of individual home ownership will increase.  If I put a house on the market it would most likely get bought this way so just not sure I want to do that.

I guess the fundamental question is if ROE is the correct way to measure a SFR portfolio against other investment alternatives? Also, if I can make it work, is pulling all the available equity out (80%) to live on better than living on the monthly portfolio income.

As long as you can get it during the due diligence phase I don't see a problem.  You are correct for wanting to see one since you will have to honor it after closing.  I would just make sure include in your offer all documentation that you expect to review, and be provided by seller, during the DD phase.

Following up on some of the posts regarding Land Trusts and LLCs and how to use them correctly in real estate investing from my own experiences.  Please note that I am not an attorney and I did not stay at a Holiday Inn Express last night.

First, the Land Trust is a title holding strategy, not an asset protection strategy. If you close in your own name, then transfer into a Land Trust, then your name is still in the chain of title. In order to accomplish the real goal of hiding ownership, you need to close in the name of the Land Trust. In my state I am pretty sure that this document is not recorded, but maybe it is in other states. I have never used this strategy to move ownership from personal name to LLC indirectly through a Land Trust. My concern would be if I move the title to a Land Trust and the lender wants to review the trust document and sees the beneficiary is an LLC, how would that play out?

Second, the LLC is where the real asset protection comes into play. There are lots of ways to set these up and different states have different options available. In some states, having an LLC (Partnership) as the holding company and having each property in their own LLC (Single-Member = Holding Company) accomplishes the best result. In other states there are options like Series LLCs that are designed for exactly this type of protection.

@Scott Smith does it differ by state who is the owner in public records when using Land Trust?  Is it the Trustee or is it the Trust name?

@Scott Smith is providing some good guidance here.  How most of the experienced people in my area do things:

• Title Holding Entity setup as LLC (Partnership)
• Property Management Entity setup as LLC (S-Corp)
• Title Holding Entity signs Management Agreement with Property Management Entity
• All property management functions (leases, etc.) done through Property Management Entity
• Property Management Entity charges reasonable management fee (10%)

Even though you may be a party to all the corporations, treat them as if they are unrelated business entities.  That helps keep things on the up-and-up.

My experience has been the same as @J Scott, albeit much smaller numbers.

Used to buy FNMA deals all the time during that window.

Nowadays flipping is about done in my area because margins are razor thin.

I have over a dozen rental properties and every single one was closed and financed in an LLC. Im not sure what kind of banks you guys are talking to, but if its Wells, Chase, BofA, SunTrust or any national lender then you are wasting your time. Go to a small community bank and talk to them about portfolio loans. These are "non-conforming" loans made by the bank where they hold the paper in their own portfolio. They don't even show up on your credit report.

The terms I typically get are 20/25 year amortization with 5, 7 or all years fixed. The interest rate is about .50-.75% higher than conforming products and they generally require about 20% down. With insurance, you just need to find the right agent that understands what you are doing. Initially they all wanted me to use commercial insurance since the owner was a corporation, but finally found some that allow the LLC to be an "additional insured".

This is going to be very local to your market.  I have been buying and holding rentals for over 15 years now and I keep finding new criteria to improve.  Lets separate your question into 3 areas:  Financial, Location and Property

Financial: For me it has to be a 1% deal or I am not going to touch it. I can get higher if I go into more sketchy areas, but I am OK with 1% in specific locations. Also, monthly HOA fees have killed many a potential deal.

Location:  I look for homes in the 2nd tier school districts.  The first tier is too expensive and I cannot meet my Financial target.  The third tier and below attracts a lower quality of tenant.  I am looking for families that want good schools but cannot save enough to buy a home.  I also find the turnover to be a lot less.

Property:  This is where I have really tweaked my criteria over time.  I only purchase homes on a slab with 1 HVAC unit, no basement.  I only look for HardiPlank siding, no stucco or LP. I study the lot now more carefully to assess water flow.  I want to avoid lots with trees near the house.

I have used Landlord Locks for more than 10 years and I love them.  I keep a rotation of 5 lock sets and just swap them after each tenant.  They have improved the door knob assembly since I first started buying them.  I can re-key any of my rentals in about 10 minutes.  The door cylinders are easy to change and the deadbolts take some practice.

I also recommend keeping a "contractor" set to use for in between tenants.  This allows contractors and prospective tenants to access the property, but isn't one of the sets in the rotation, so if its gets duplicated it wont matter.  I also recommend getting this set in a finish that isn't used on your rentals, so its easy to tell apart.

Couple of points:

1) You could make your LLC the property manager, then you could collect rents all in the LLC whether it was owned by you or LLC.

2) If you transfer the title into an LLC you will be violating the DOSC of your loan. While its not likely that they will call the loan due, it is possible and well within their rights.

3) You can get financing for real estate held in your LLC using portfolio lenders. I have many properties with loans in an LLC name and have done it for 15+ years. Your best source are the small community banks. Don't waste your type with conforming lenders.