All Forum Posts by: Chad Abbey

I've been presented with the opportunity to do cost seg several times and as a real estate professional I can use it.  However, my existing interest and straight line depreciation wipe out most of my small 1099 income and even much of my wife's much larger w-2 income.  She will be retiring in less than two years and as a buy and hold forever guy, I don't want to eat my whole depreciation pizza today then get stuck in a higher bracket down the road.  

Great post.  

Thank you Trevor Ewen,

I am considering buying these units all cash (50% / 50% with my partner) including the rehab then once the property is leased we will finance it with a bank. At which point I will take the appraised value less our total out of pocket to determine the amount of equity we captured. From there I want our new company to stroke me a check for 50% of this value but i'm not sure if I should charge an additional fee for operating the company. I will not be managing the properties myself but there is always some hassle in being the managing member of an LLC. Any idea of how to compensate myself for this ongoing effort?

I have a good friend of many years, former client, and partner in two syndicated deals who wants me to locate property, negotiate deals, and oversee the operation of a proposed joint venture but I need to make it worth my time while providing solid value to him as well.  I don't want to charge commissions on the purchase price of the 5 - 10 single family homes he wants to purchase with me in partnership as I will be 50% owner in this new company.  I don't want to take what would be  capital gains and turn them into ordinary income but I would like to profit from the value I expect to find in these deals.  I don't need his money at this time but I want to increase our business relationship and as I grow I believe he will be an important piece of my real estate career.  I have an idea of how to equitably compensate myself but would like to hear from others who have already crossed this bridge?  

In 2011 I purchased a 65k house for 45k all cash after the seller had two contracts fall through due to financing issues.  Soon after closing I financed it with my local bank and received 5k in my pocket on a cash flowing property.  

Partnerships:  single family, multifamily, commercial, agriculture, and mineral both working interests and royalty.

Emmanuel,

You should be able to check his real estate license with the state to make sure he is who he says he is.  I've been jerked around by as may licensed folks as non license folks over the past 15 years but if he is licensed by the state then you have a mechanism for seeking redress outside of court should things go south.  

I hope he is using some type of legal entity to purchase these properties such as an LLC rather than a general partnership. This is not a necessity for some but it is something i would require before joining the group. Assuming so, you should be able to confirm with the state that this entity is in good graces with the state but that will not tell you if it is a good deal just that he is current with the paperwork.

You should be able to check county records (maybe even online) to make sure the properties he claims to own are actually owned by the entity(ies) he claims owns them in.  

Make sure you read and understand the operating agreement and how he is compensated from the get go.  If you don't understand something, especially if it sounds fishy or shady to you, seek council or walk away.  If he is bringing the knowledge, the experience, the labor, and the property then he needs to be compensated but make sure it is reasonable to you and clearly defined in the agreement.  Good fences make good neighbors.  

I've been involved in several partnerships of this sort since 2002 and thus far all have worked out well. Most of them I have been the managing member of but others I have been a passive investor only.  In all three instances where I was not the managing member, I had a great deal of trust in the managing members in advance of the deal.  It's always good to network with others who have achieved the success you are looking for well in advance of a deal.

My advice is to start small, learn as much as you possibly can about the process, and if I were you I wouldn't cosign the note but that's just how I like to operate when i'm a minority owner in any partnership that I don't control.  

Please note that I am not an attorney or CPA.  I'm just a gold old boy from Guymon Oklahoma and do not provide tax or legal advice.  

Final thought, unless you need to flip to make money to fund the next deal why sell at all?  I have found a market that I believe in and don't plan to sell anything else if i can keep from it.  I did sell one place a couple years back where I made really good money but I often regret having turned loose of that property when I could have found other ways to continue growing without that big hit of capital.  

I wish you great success in all your endeavors and look forward to learning what you choose to do?

Congrats on your great success.  It sounds like you and I have quite a bit in common. Although at 37 it has taken me a few more years to get here.  I too have 30 units mostly single family but also some duplexes.  I have partners in some and own others myself.  I own a small farm, have direct investments in commercial real estate, and have even started a couple very small oil companies to operate working interests in stripper wells. 

I constantly find myself asking the same questions about levering up further or paying off debt to decrease risk.  For the past ~ 7 years i have used a local bank for all my borrowing and can't tell you how much I appreciate the relationship with these guys.  Sure you don't get the ultra low federal reserve manipulated rates or terms of fannie mae paper but what you get in return from a good local banking relationship is well worth it.  FYI I'm not a banker.  

As for my one tidbit of advice, name your empire if you haven't already.  I've been building The Abbey Empire International ever since I purchased my first home at 22.  When I first used these words, my friends laughed and thought I was crazy but those that know me well no longer laugh at my dreams.  I wish you continued success in all your endeavors.