All Forum Posts by: Josh Prince

@Cody L.  You raise a good point, but I don't think it would have been true for me.  Of course, hindsight is 20/20 and back in 2009-2012 we didn't know that the market would continue to rebound as strongly as it did, BUT, I can say that if I had focused less on cash flow back then, I would have more now, because of the appreciation.  Appreciation is a bit more of a gamble than cash flow in my opinion, and I see your point of changing strategies based on a comfortable position.  What I am saying, and maybe this has strayed far from OP's original question, is that appreciation has the potential to build wealth much more quickly than cash flow, albeit with risk.  

@Trey T. Alpha Structural, Foundation Works and Sinai Construction are some of the more well known ones. I ask all three of them to bid projects and sometimes the results can be drastically different ($40k vs. $200k... not sure if they were actually bidding the same job...).  

@Toby Kahan - 50% of an LLC that holds $10m worth of real estate does not have a fair market value of $5m. Depending on how the LLC operating agreement was drafted, and other factors is could be 25-40% less based on the discounts that Lance described. Also, using an LLC can preserve control. For example, mom and dad can have 1% voting membership interests, and give away 49.5% nonvoting membership interests to son and daughter (total gift of 99%). Mom and dad have used their gift tax exemption efficiently (maybe used $7m to remove ~$10m of value from their estate) and mom and dad still have 100% of the voting (i.e., controlling) interest so they can manage the property and control distributions as they like.

@Linda Weygant - Dee Jantsan is probably referring to the ability of a personal creditor to foreclose on the individual owner's LLC interest (an "outside" creditor) since he mentioned a charging order. This is not really what the OP was asking about. Most people, like the OP, are concerned about "inside " creditors, who have a claim against the LLC, and want to enforce it against the owner's personal assets.

Just to follow up and close the loop, I ended up completing my exchange using a professional intermediary.  Someone recommended by escrow.  There turned out to be some other unrelated problems with the deal (seller decided halfway through that they didn't want to sell to me!), so we had to restructure it, and I was glad that I didn't have to hand hold or otherwise do anything with the exchange funds.  The QI did a good job and was worth the $800 or so that I paid. Was glad I didn't use a friend to act as QI.  Just opening up the bank account alone would have been annoying.

@Bettina F. I also have owned Leigh Robinson's book for a number of years (not 35...) and I think it is great.  Besides him, I like William Nickerson and John T. Reed (although his advice can be dated and anecdotal which makes it less useful.  I do love reading his anecdotes, and his book on Succeeding is as enjoyable as an autobiography as it is a how to book).  A lot of other books out there are pretty gimmicky or derivative, or just wrong in my opinion.

@Jacqua Le Fleur - If you are trying to not rent to a tenant, I would suggest just holding the application and continuing to take others, and then not providing a reason for the rejection. Just saying that you chose anotehr tenant. Landlords get into trouble by saying why they do not rent to a certain applicant, as almost any justification can be twisted to make it actionable. What is really hard, is to evict a tenant under rent control for this reason. As others have said, while the HUD guidelines are typically looked at, it will be difficult for you to establish that you are not discriminating against a protected class (if some of the tenants are children), or otherwise using a pretext to bring the unit back to market rates after eviction.

@Ramon Wilson - It is a hard lesson and a rude way to learn it but I echo what @Chris Lopez and @Account Closed said. There are some dumb buyers and gamblers out there, but a market is not sustained solely by idiots (usually! Although, history has some strong counter-examples).  

There is not much return out there for investments in this market, so even though LA real estate doesn't look good to all the gurus on Bigger Pockets, in the real world, it is better than fixed income or dividend paying stocks. To me, this is an important distinction between BP and the real world.  BP says that deals should only be bought for zero cash down, and at the price backed into with the 2% rule.  As you saw, brokers and sellers don't want to listen to that.  They are going to sell to the buyer willing to pay the highest price.  Why should the listing agent have to justify the price to you?  All he cares about is that someone is willing to pay. 

As a personal anecdote, I got into investing in 2009 (great, although inadvertent timing - it was the first time I had available cash). I was focused exclusively on cash flow and while I never saw a 2% deal in any part of LA I was willing to go to, I saw a lot of 1% deals, which seemed pretty good to me!  I bought in then, and then again in 2011, focused on cash flow.  Looking back, while I did well, I would have probably done 2-3x better if I had foregone the cash flow and bought into nicer areas (Santa Monica, West LA) rather than Koreatown, Hollywood, Mid city, etc.  

Since then, I've moved into slightly nicer neighborhoods, and I am very happy for it. The tenants are better and so is the appreciation so far. I'm starting to move out of those better cash flowing buildings and buying properties with numbers that I would have laughed at six years ago - because the initial cash flow is so bad. But, you invest in the building, buy out a few rent controlled tenants, and suddenly it looks a little better. Plus you have a better class of tenants which means fewer issues in my experience. 

I have had agents ask for a percentage of the deal in lieu of a commission (when the deal started getting tight) or in addition to the commission (when they thought they had something really special off market - usually screwing over the buyer).  I've always said NFW. I would never partner up with a listing agent or wholesaler under those circumstances.  I assume they would be looking for the first opportunity to stick it to me, and I would have to take on a mindset of doing the same to them. Also, partnerships can last a long time, like marriage - heck, at least a marriage ends when you die - your kids might be stuck with this partner for years after your death.

@Account Closed - Tell me more about why a C corporation makes sense. To me it seemed like a lot of hassle - corporate and individual level tax (no capital gains rates on corporate tax either), plus gain on taking any real estate out of the corp if you ever want to distribute to shareholders in kind. LLC is easy to put real estate in and out, plus the advantage of long term capital gains and only a single layer of tax.

What are the CPAs and everyone else missing about the right way to run real estate through a corporation? 

Well, that's why I asked - to see if anyone had an experience using anyone not in the business of being a QI.  It's not like paying someone $1,000 removes the risk of them stealing the exchange funds or making a mistake that disqualifies the transaction.  Thanks for your suggestions and advice. @Russell Brazil