All Forum Posts by: Greg Scott

If the government wants to send you a notice or you get sued, it will likely go to your address of record for the LLC. I definitely would want the mail to go to the correct place.

If someone wanted to sue you, the fact that you ignored changing your address would be a good argument that you are not maintaining corporate formalities, potentially having the protections of your LLC ignored.

Most states have annual filing requirements for the LLCs so that would be a good time to update it.  Meanwhile, you can have USPS forward any mail that might come.

Math is the best resource.

If you have PtR, then RtP = 1/PtR

I'll share my thoughts. I've done a lot of residential real estate deals including dozens of passive investments and have syndicated four apartment complexes.

REITS - These are more akin to stocks than real estate investing and do not come with the tax benefits.  I do not invest in REITS

Passive Investing - I do lots of this.  To date my annualized return has been north of 30%, so you can do quite well.  However, you have to be very, very selective.  You need to learn to read the PPMs and dissect what is in them.  Without a hours-long conversation, here are things I consider.

1) I have never invested with anyone that charges an acquisition fee, and most syndicators charge an acquisition fee.  If they get paid up-front, how hard will they work to make the deal profitable?  I've seen as high as 4% acquisition fee, and anything 2% or over is too much.

2) I have never invested in a waterfall return. (Example 8% pref return, then 80/20 split until achieve 15% IRR, then 50/50) The main reason most syndicators offer a preferred return is because people that invest in mutual funds feel like they are guaranteed as high a return as they would get in the mutual fund. Typically waterfall returns will also come with a lot of fees to the syndicator because they are not going to work for free. (So, do you really have a PREFERRED return?) Also, this creates misalignment of interests as the deal unfolds.

3) Check the details of the operating agreement.  Can the syndicator be removed if they are not performing?  Are they required to publish financials or do they simple "intend" to publish financials?  (There are passive investors in deals that haven't seen financials in years)  Do the passive investors get to vote on anything or are they simply along for the ride.

4) Understand the business plan.  How will they achieve the promised returns?  Is that realistic?  (I've seen deals where they say they are going to achieve $X in rent, but NOBODY in the submarket gets those kinds of rents.) How long is the hold time?  What is the financing?  Who is the property manager?  Who is the asset manager?

I could go on, but that is a decent short list.

Let's say someone was bungee jumping off a balcony railing and the railing broke and they fell, injuring themselves.

They could sue the property (ownership LLC) because the railing was "not secure".

They could sue the manager (management LLC) for not ensuring the railing was secure.

They probably will sue both and let the court sort it out.

I don't see how 1% ownership of one LLC to another prevents any of the above from happening. It feels like a gimmick.

I stated exactly how we set up our syndications, Ownership LLC and Manager LLC. None of them use this "1% ownership" arrangement.

I seriously question what this attorney has told you.  There is no free lunch.  Anyone that says you can perfectly protect 99% of your wealth is giving you a sales pitch and reality is going to be different.  This is a huge red flag.  Dig deeper!

I think the first question should be "Do I need an LLC at all?" If you are just getting started, good insurance may be the better play.

Assuming you have a large portfolio, you know how to manage an LLC properly, are willing to take on the added paperwork and expense, and are not piercing the corporate veil by having mortgages in your name, here are my reactions to your proposals. (It is worth noting, I am not a lawyer so cannot advise you.)

1) This option would minimize paperwork and provide good protection.  Umbrellas are pretty cheap, so I would not try to avoid them.

2) This is also a decent option, but I've seen people do 1 house per LLC which seems ridiculous.

3) This 1% thing is unlikely to have the benefit you hoped. We have some pretty experienced attorneys help us set up your syndications. In those, we have an ownership LLC and a manager LLC. That protects us personally from liability because we are not personally making any decisions. However, someone could sue the ownership LLC or the manager LLC or both. If I found out the LLC I was suing had almost no (1%) assets, I would go after the LLC with the deed.

An ESA is not considered a pet. You cannot deny them because you don't want an animal on the property. You would be violating the law for doing that.

Be comforted that most prospective residents don't provide proper ESA documentation.  They will pay $50 to get something off the internet because they do not want to pay pet rent.

Ask them for proof of an ESA. According to HUD guidelines, they should provide you a letter from a healthcare professional, licensed in your state, indicating the need for an ESA, and mentioning an ongoing relationship. (one-time telehealth diagnoses do not count)

If they cannot provide that, give them a letter saying their ESA documentation is insufficient and the animal is not allowed on your property.  Do not educate them on why it is insufficient or they will go get what you tell them they need.

Hard Money Loan

I'm very skeptical of the above sentence. I've never seen anyone that can accurately tell you if a house, stock, precious metal is going to go up or down. Who decided it was 30% overpriced?  What criteria did they use to decide that?

I'm never a fan of over-paying, but some markets have remained "overpriced" for decades.  Just look at California as an example.

When I look at an investment, the question I ask is will it deliver the returns I want based on what is known, ignoring speculation.  Since you are looking at a house hack, the "knowns" are usually much more favorable.  After all, you have to live somewhere.  Are you better off paying rent or buing a triplex and renting out two units.  Almost certainly the latter.  What if it is true that the market is 30% overpriced?  Does it matter if you essentially pay nothing for housing for a year, or 3 years or 10 years?

Don't let fear stop you from making a decision that can improve your life.

This hit my LinkedIn feed and I thought it was worth re-posting here for your amusement...