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All Forum Posts by: Paul J.

Paul J. has started 16 posts and replied 76 times.

Post: LLC structure and property management

Paul J.Posted
  • Investor
  • Los Osos, CA
  • Posts 78
  • Votes 25

I bought my first rental property over the summer and have been operating it remotely from out of state.

I have a very old friend of mine who, like me, is new to Landlording and Real Estate investing who is acting as my property manager. She lives local to the property I purchased and it was a good fit for both of us.

Being eager to learn about this and do everything correctly, we have each formed an LLC - mine to hold the property, hers to manage the property. We wrote up a property management agreement and she re-leased the existing tenants under her LLC's name.

Now, we think we may have ran into a snag - mainly, that the state requirements for being a Property Manager are worded as such:


__________________________________________________
""Property Management" is defined in the Occupational Code to be the leasing or renting, or offering to lease or rent, properties belonging to others, under a property management contract. This activity is performed as a third party, for a fee.

If a company or individual is providing leasing or renting services for a property owner pursuant to a property management contract, a real estate broker's license IS required, from the very first leasing activity. Real estate salespersons can also perform these activities but always under the supervision of an employing broker

If the only activities a company is providing are lawn care, snow removal, physical building maintenance, rent collection, condominium association management (with no leasing or renting involved), a real estate license is NOT required.

If it is the property owner, or a direct employee of the owner, performing the renting or leasing activity for the employer in the employer's name, a real estate license is NOT required. "
_________________________________________________________

So - it sounds like we may have painted ourselves into a corner by doing things the way we have. My question is this:

If we write an operating agreement for my holding LLC that makes her property management LLC a member or manager (with 0% ownership stake) - does that not now make her an owner of the property? And therefore, as a member/manager of the LLC, relieve her of the requirement to have a brokers license? Either way, it is looking like we will likely need to re-lease our tenants in the holding companies name...

Any thoughts on this potential work-around? The only other thing I can think of is 'hiring' her which would require workmans comp, etcetera... It seems like a lot of hassle and expense for the purpose of managing my one little duplex. Anyone else managing a property under a similar arrangement amd if so, whats your entity/relationship to your PM look like?

Matt, this one here:

http://www.biggerpockets.com/forums/88/topics/25519-free-property-analysis-worksheet

Thanks for the feedback!

Michele, yes I did account for 5% vacancy in those numbers. You mentioned letting the current tenant stay for a bit - that was my original plan when looking at this house, however the idea of getting into a situation of habitability complaints vs what could be painted as retaliatory eviction spooks me a bit. I'm green at this and am leaning towards putting the cleanup in beforehand and then relying on screening or section 8 to get some more-tidy tenants in this house. If you get a chance, can you explain to me a bit more about the utility credits/landlord payment issue you mentioned?? I guess need to call my local utility and find out how that is handled...

Douglas - I think I can deal with the short term cashflow issue, I have decided that I will set aside startup money and also contribute to the new business monthly with my day job, with the intention of getting this one stabilized and combining its income with my contributions towards building a maintenance reserve that will eventually become a down payment for property number 2.

Post: Newbie from Central Coast, California

Paul J.Posted
  • Investor
  • Los Osos, CA
  • Posts 78
  • Votes 25

Thanks y'all, I've checked both the podcast and the guide out, but haven't yet listened to the podcast you mentioned. Will check it out!

Post: Newbie from Central Coast, California

Paul J.Posted
  • Investor
  • Los Osos, CA
  • Posts 78
  • Votes 25

Hello,

My name is Paul. I purchased my primary residence about a year ago here on the central coast and I have been casually interested in real estate investment for several years. Its something I never thought I could do myself, especially in this area, but with life and work pretty stable it's something that looks like it can be more of a reality as a part-time business, so I'm trying to get educated.

I have a friend in my hometown in the midwest who sold his business and started rehabbing properties there for buy-and-hold purposes and he's been full time now for some years. After riding around with him for a day on a recent visit, I think the fire is finally lit. I am currently annoying my girlfriend (ha!) with incessant internet research and reading about landlording, investing, and trying to put two and two together to make a deal happen. I think my best shot is in my hometown area, where I know many tradespeople and have a greater network of support than I do in my new area, and where home prices are much lower than they are in central California. I already know the neighborhoods and can count many people I could call if a given problem came up.

Anyways, I thought I would introduce myself. This site seems like an incredible resource and I'm glad I stumbled upon it!

Thanks

Hey everybody, this will probably be a long post so bear with me....

I have been lurking here and doing a lot of reading over the past month. I have a deal that has landed in my lap and if I go thru with it, I will be a new landlord for the first time. I have always been interested in the idea of owning a rental property but have not thought about actually jumping in until now...

The deal fell in my lap on a recent trip home. I moved away from my home state about 5 years ago, where I grew up. All of my friends and family, folks who know the building trades and whom I know I can trust, are there. I have already begun building a team and in the event this particular deal is a no go, I have every intention of following thru and getting myself into some type of multifamily property in the next 6 months.

I have a friend that has picked up 30 rental units over the last 4 years in this market. He is investing and rehabbing full time and leaving the landlording to a property manager. He passed this one on to me word-of-mouth as he's full of rehab projects to work on and can't make it happen. The house isn't listed and the deal was found because my friend has purchased other homes from this slowly-retiring landlord.

So here's the deal:

1400ft duplex, currently both units occupied month-to-month. This is on a good street in a low income urban area outside of a major city in the midwest.

One of the sets of tenants have lived there 7 years, keep a neat home and take care of the outside upkeep in return for a small break in the rent. All indications from my inspector and the look of the property are that he keeps up with the lawn and snowcare and seems to take pride in his place.

The other set of tenants have been there two years, and keep a very dirty home. They have roaches and the place is strewn with clothing/garbage. It has recently come to my attention that there is some sort of civil litigation between the existing landlord and the tenant and the tenant had at one point, a year ago, filed a complaint with the city housing department over repairs that had not been completed. Those have since been completed as far as can be known based upon my inspection.. The owner was forthcoming about the fact that they do not reliably pay the rent and that they own him money, however we have not gotten into the finer details of that in this point of the negotiations.

THE NUMBERS--------

Rent is $1025/Month / 12.3k a year

initial negotiations are for $17k purchase price on LC, with terms $2k down and $276/mo for 5 years at 4%

Current owner pays all utilities, which total $4700 a year based on his numbers/some of my due diligence (still doing research there)

Insurance is quoted at $750 a year - these numbers put us right around the 50% rule so OK

We are way under the 2% rule and have a CAP of 24 (!)%

The property analyzer spreadsheet posted here gives numbers of $750/yr cash flow after real property management numbers and $500 a year in maintenance is accounted for.

------------------------------

So far, I am thinking this is a good deal as it is slightly cash-flow positive immediately, plus I have talked to the utility companies and a contractor friend and we have ballparked the cost of splitting the gas utilities to separate meters to ~$600. The gas portion of the owners utilities is $2k a year of the costs.

However

I am getting analysis paralysis over the issues with the downstairs tenants. Ideally, I think the best move would be to ask them to leave within 30 days, offering them some sort of deal to be out by day 29 as a carrot. This would allow me to clean, exterminate, do a little rehab, and have the unit on the market. I made a quick home depot list of about $1100 in supplies and have friends in the area that are able to do the work for probably a bit less than what contractors off the street would charge.

What I am unclear on is weather or not there would be trouble with the eviction of the 'problem' tenants due to past complaints/civil issue with the current landlord. Also, I am obviously beginning at this but the majority of my research has been done regarding to buy and hold (which is my intention for this property), so rehab is not something I feel very knowledgeable about.

I believe the house, if brought up to standard would be worth about $25-$30k. Similar units on craigslist are asking $35-$40 now but based on zillows recently sold units, I think my number is more realistic.

So - I am stuck mulling over this deal now wondering if I'm in a little over my head for a first deal (some rehab/probable problem tenants), or, if this is actually a good opportunity for me to get into investing with minimal outlay and cash flow on day 1 (or 91, if I can get the tenants to go peacefully and get released after in a relatively short time). I have asked the current owner to have the tenants fill out an estoppel agreement form that has them list the current terms of their lease and also, what repairs they feel they need to have done.

I have also contacted an attorney in regards to the tenant situation, who has not gotten back with me yet, however I am interested in hearing what this community has to say. Too much for a newb landlord? Or, do I just need to 'step out of my comfort zone'?

Thanks in advance all!