All Forum Posts by: Brian Burke

And they like cash offers, large earnest money deposits, proof of funds to close, short contingency periods (or none at all) and quick escrows to buyers that they are confident can perform.

Investing in real estate is one business. Being an investment sponsor is a completely different business. I don't mean that in a bad way, my business has grown exponentially as a result of investors placing their trust in me. If you are ready to take on this business, get a good attorney and CPA to help you with deal structure, entity type selection, and drafting operating agreements, private placement memorandums, and subscription agreements.

Don't try to assemble this on the cheap or take the do-it-yourself approach. These guys have a lot of money and you can bet your real estate that they have excellent counsel. You need that too or you'll be working for free, or worse.

That said, properly constructed, this could be a good opportunity for you. Just make sure that your compensation is commensurate to your labor, experience and knowledge, and risk. And...that having a "new business" is really something that you want to do.

On the surface, the price seems good relative to the income. The missing element is the amount of work (in dollars) required to bring the building up to your standards and how that might (or might not) distort the numbers.

This is a very old building, so be prepared for higher than normal repair and maintenance expenses. You'll also want to allow for a higher than normal capital expenditure reserve due to the older building components (unless you do major rehab up front).

The final question is the vacancy rate. Are all of the properties surrounding this one 50% occupied? If so, half of your units will be vacant, and the other half won't be paying rent.

I remember looking at $45,000 4-plexes a few years ago that rented for $400/month per unit. Seemed like a deal not to be missed until I went to look at them. There was literally a shooting in the street two blocks away as I was looking at it, and every building around it was boarded up. Needless to say, I passed, but my point is that the numbers only tell half of the story, so do thorough homework.

Good luck!

Welcome to BP David! A lot of people dislike your market in Buffalo, but I have an apartment building in the Elmwood Village downtown and its one of my favorite deals. I guess I'm your neighbor on the west coast!

Dale, the PPM is drafted by the issuers attorney, with the intent of disclosing all of the risks of the investment. Carefully read the RISKS section and the biographies of the principals. If the sponsor, or any of its key individuals is a convicted felon, they are supposed to disclose it. If any of them, or their past or present entities have filed BK or had a foreclosure, they are supposed to disclose it.

Regardless of the above, you still have to consider the source. The documents are still produced by the issuers counsel and even though the rules require the attorney to do due diligence on their client, a dishonest sponsor might continue their dishonesty with their own counsel. No agency "approves" these PPMs or verifies their contents. What is important is getting to know the sponsor, and doing your own due diligence on them.

A little off-topic from the OP...sorry.

To the OP, you don't have to only worry about the SEC. You said you are in CA, and you'd hear from the CA Dept of Corporations long before you'd hear from the SEC.

I think I know the answer to your question (I have an opinion about it, at least), but my securities attorney is currently doing some research on a similar arrangement to one of your scenarios. Some of what you propose definitely falls under the definition of a security. But my opinion is that if you borrow money from one person, and secure that loan to one piece of real estate, it is not a security. Anything aside from that scenario IS a security. At some point in the near future I should have some case law to support that opinion, so take it with a grain of salt, consult with a very good securities attorney, and remember that I'm not an attorney and don't give legal advice so feel free to ignore everything I just said. :)

The above comments are all correct, and I'll add that for me it's about the numbers. Calculate what you will spend on a lipstick rehab, and what rent you will get. Calculate the return on your committed cash.

Next, calculate your cash on cash return on a retail rehab. Which one is higher? That will be the one to choose.

There were groups on BP? Hmmm...who knew?!

James and J Scott are correct. There are lenders that will loan to your LLC. They will underwrite the loan using your personal credit and financials (plus those of your LLC if any).

The place to look is local community banks and smaller regionals. Be aware that you will pay a higher rate than if you we're to borrow in your own name using a conforming loan. Ask for the person or department that does commercial loans (even if your property is residential, it's a commercial loan if title is in an entity).

Interestingly, when doing larger Multifamily deals, your lender will likely REQUIRE that the property be titled in a single-purpose entity (an LLC that only owns the one property). Oddly, I did a loan with one of the largest national banks last year and not only did they require that the property be in a single property entity, they also required that the entity be formed in a specific state. As they say...he who has the gold makes the rules.

Mark, John is exactly correct.

You just need a landlord policy. I also recommend an umbrella policy which is essentially supplemental liability insurance that kicks in if you get a claim that exceeds the policy limits of your primary policy.

You don't need a book, just call a good local insurance broker and ask a lot of questions. They'll educate you. Call a second one if you want to double check what the first one tells you.

If they pay, great. If they move, great. If they do neither, it's probably time to evict.

There are three ways to do this:

1. Approach the tenant, see if you can convince them to leave in 2 days in exchange for you paying them $X. X could be $200, $500, $750 or whatever, but if it works it is the fastest, and probably the cheapest, way to get possession. No one likes the principle of paying a non-paying tenant, but this is a business decision not an emotional one.

2. If #1 fails, hire an attorney to file an unlawful detainer (eviction) or have your property management company do it if you have one, and if yours offers this service.

3. Instead of option #2 you could file the unlawful detainer yourself. There are step-by-step books available if you search for them. I used to use this option years ago, but stopped in favor of the above options. This is a court action, and if you mess anything up, as minor as checking a wrong box, it can get your case thrown out and force you to start over.

Good luck!