All Forum Posts by: Ian Livaich

Hey everyone,

I am actively searching for my first small multifamily property in South Jersey, primarily duplexes. I am going to self-manage the property. I am admittedly in that "analysis paralysis" stage. When I am analyzing the deals, I am including the cost of local property management to account for my time and to make sure the deal still makes sense if I choose to hire PM later down the road. For those who self-manage, do you make your offers depending on how cash flow, CoCROI, and ROI look WITHOUT accounting for PM but still analyze the deal with PM to make sure it makes sense if you hired PM in the future? Or, do you base all of your offers with PM budgeted for no matter what?

I am considering placing an offer on a duplex, which I will posting about on this forum. With PM as an expense, the monthly cash flow is $417/month, CoCROI is 7%, and total ROI is 10.18%. Without PM accounted for, the monthly cash flow is $664/month, CoCROI is 11.2%, and total ROI is 14.4%.

Am I allowing the non-PM numbers persuade me that this is a better deal than it actually is?  Is it ok to use the non-PM numbers if you are self-managing as long as the deal still makes sense for you if you decide to hire PM later?  

Thanks everyone.  

@Ryan Short Thanks, Ryan.  You hit the nail on the head.  I am trying to be conservative and if the deal makes sense after conservatively estimating income and expenses, it help reduces some of the risk of investing.

@James Masotti Appreciate your insight as always, James.  You raise great points about the expenses being dependent on the property and the location.  While the properties I am targeting are old as well (1920's-1940's), I definitely want to be conservative with repairs and capex, but I also recognize that I will likely be dealing with young professionals and families in my target areas in Camden County.  Also, I am looking for deals that need some work, so after rehabbing the property, I think 7-8% each for repairs and capex is more than fair.  

@Anthony Dooley Thanks for the extra motivation!  I am walking through a property on Wednesday with a contractor and hoping to move forward with it depending on the rehab cost.

Hey Anton,

I am in a similar situation as you.  I recently posted a similar forum post and from that and getting referrals from local investors, I would suggest:

-Leases: Michael Greenblatt (Greenblatt & Lieberman).  Many local investors have told me that they use his lease.  I plan on using it myself once I get started.

-Entity Formation: Scott Good (Subranni Zauber) and Justin Krik (Lipsky and Brandt).

Hope this helps.  Let me know if I can help in any other way.  Best of luck!

Ian

Hey everyone,

I am searching for a small multifamily property (most likely a duplex) in South Jersey.  I am going to look at three properties tomorrow with my agent.  I am crunching the numbers and determining at what price these deals make sense.  While these particular deals do not make sense unless there is a 20-30% discount, I am wondering if you all estimate different expenses for small multifamily properties any different than SFRs.  I understand that this depends on the location and condition of the properties, but I am looking for general advice and insight as to the numbers you all use.

I have seen BP users use anywhere from 5-10% for vacancy, repairs, and capex.  I am using 8% for each to be conservative. What do you all use for small multis?  Because gross income is higher for small multis, that 24% really adds up.  I was thinking that for small multis, some of the major expenses are under one roof and spread out across units (roof, HVAC, water heaters, etc.) compared to SFRs.  So, is it necessary to budget as high as 24% for vacancy, repairs, and capex when each unit does not have its own roof, HVAC, etc.?

Thanks for your input.

@Rick Pozos Thanks for your helpful reply. I plan on being a very diligent and fair landlord. However, I want to be prepared in the event that a tenant does try to sue for whatever reason. If I don't go the LLC route, I am thinking of using a combination of renter's insurance and an umbrella policy to help hedge any potential liability.

@George Despotopoulos Appreciate it.  I am meeting with a local real estate attorney today.

Hello everyone,

I am considering using a family member as a private lender.  He would fully finance the property, including rehab costs.  Most importantly, I am trying to structure the deal in a way that best protects my family member's assets.  I don't have a property yet -- I am trying to understand the mechanics of private lending first.  Please let me know if I am missing something.

Q1: If my name is on the deed and a tenant were to sue me for some reason in regards to the property, I would be liable as my name is on the deed but not my family member as the private lender, correct? 

Q2: Further, if we execute a promissory note and deed of trust to secure his investment and record that lien with the county and a tenant successfully sued me and forced the sale of the property, would my family member, as the first position lien holder, receive what he is owed FIRST, then the tenant receives the remainder (if any)?  

Q3: Would the combination of a promissory note and deed of trust deter an attorney representing a tenant from suing me because I have no equity in the property?  In other words, similar to a conventional loan where I would only have 20% of equity in the property, in this scenario, I would own 0% of equity in the property while the the private lender controls 100% of the property through the "mortgage."

Thanks for your help in advance. 

@Mike Taddy Thanks for your suggestions, Mike. I did comb through the forms and blog posts, which were helpful but did not directly fit with my situation so I decided to make my own forum post. Great tip about connecting with a local RE mentor who can point me in the direction of a lawyer specializing in these fields. I am planning on attending my local REIA meetings this month.

@Eve Mahoney Definitely sounds like forming the LLC in the state that I will be doing business is a better option to save on costs. Appreciate it!

@Steve Vaughan Thanks for your advice, Steve. The asset type would be SFR and possibly small multifamily. The first deal or two would likely be all cash but a conventional loan is always an option.

@Lumi Ispas Great insight, Lumi! To confirm your inclination, I am looking at residential properties exclusively, mainly SFRs and possibly small multis. Have you had any problems with the due-on-sale clause when transferring properties into an LLC? Also, what are the typical terms for commercial loans for LLCs? I have heard to expect a 5% interest rate and a 15 or 20 year amortization period. Also, thanks for the actionable advice on just getting started. I will make it my goal this week to start analyzing X number of properties per day and start making offers soon!

@Omar Khan Thanks for hitting all of the questions! Your answers are extremely helpful. I think your conclusion is spot on: have 1 LLC that holds a few properties to save on costs (Brandon Turner mentioned on the podcasts that this is what he does for each partnership structure) and perhaps change this structure if I have a sizable portfolio in the future.

Taking it one step further, I have a family member that is looking to fully finance my first property (and possibly more after that) while I would do most of the groundwork for the property.  We are looking to split profits 50/50.  However, he has assets that he wants to protect.  Because I have little-to-no assets to protect as a graduate student, what are your thoughts on this alternate structure (hopefully I got the mechanics right):

My name is on the deed of the property and my family member becomes more like a private lender with a promissory note and deed of trust being executed.  That way, if there was an issue with the property, the tenant could only come after me but not my family member.  Also, if the "mortgage" is recorded, any lawyer will realize that I have little to no equity in the property.  

I am trying to eliminate any risk to my family member's assets. Is there a way to structure private lender deals where the lender receives a percentage of the profits rather than interest only payments? Or should I look more into forming a JV or LLC at that point?

I am thinking about making this question its own forum post but wanted to get your take first.  

Hello everyone,

I am searching for my first buy & hold investment. I am starting to think that it is in my best interest to set up an LLC to protect my assets and insulate a property from some degree of liability. So, I wanted to get some of your thoughts on this process, especially on setting up holding and operating LLCs. Please feel free to answer any one of these questions.

-Q1: Do you recommend that a new investor set up an LLC before acquiring their first property? I know this is a contested issue and depends on the individual. While I do not have any personal assets right now (currently a graduate student), I want to avoid having to later assign/transfer/sell the property to a LLC and invoking a due-on-sale clause.

-Q2: While I plan on investing in NJ and PA, do you recommend setting up the LLC in the states where you do business or in Delaware? From my experience in law school, I assume Delaware is standard because of the pro-LLC laws there.

-Q3: Do most investors have one LLC per property or multiple LLCs (operating AND holding)?  

-Q4: If the latter, what is the basic structure of operating and holding LLCs? Is the operating LLC basically a project management company where all business involving the property is conducted from that LLC? And the holding company simply holds the asset? Does the operating or holding LLC acquire and finance the deal? Is there a way to set up a deal where the operating LLC does all of the groundwork, communication, and negotiation with the seller but holding LLC acquires the property as part of the deal?

-Q5: What are the advantages of having both the operating and holding LLCs?  Are there any disadvantages, such as additional cost? Does this structure protect your property from legal disputes with the lease because the operating company entered into the lease but still leave the property at risk for accidents that happen on the property as the holding LLC owns the asset?

Thanks,

Ian

Thanks for the insight @Stephen Kappre and @Calvin Lipscomb.  I am planning on driving my target neighborhoods today.  I am guessing another good place to start is to contact property managers in the area to gauge supply and demand.  Other than all of the above mentioned steps, are there any other indicators to help determine supply and demand for an area (e.g. population, job growth, etc.)?  Based on the description above, do either of you lean one way or the other (low vs. high demand)?