All Forum Posts by: Jack Victory

@Jason Hirko thanks for your reply. I agree it seems similar to a small scale fund or REIT but with a few key differences that might alleviate the SEC filing requirements and some of the other regulatory complications. Firstly, if members are given voting rights and major decisions such as buying and selling property or taking on debt are decided by vote while the managing member is responsible for the day to day administration of the business my understanding is that the interest in the LLC would not be considered a security. Second, an LLC or Series within a Series LLC in this model would only hold one property versus a portfolio of properties and potentially debt like a traditional REIT. This would tie the cash flow directly to rental income instead of issued dividends.

Let's assume for the moment that interest in the previous fictional example is not considered a security or that the business could meet one of the common exemptions of the SEC's Regulation D (504, 505, 506). Could this be a financially worthwhile endeavor? Or better yet, how would you tweak it to be worthwhile?

With rents at 1000, 1200, or 1500, allowing 50% for expenses and assuming a P&I payment of 400, monthly cash flow for Joe and Mike would be 10, 12, and 15, respectively, or 120, 144, and 180 annually...as @Jay Hinrichs points out, even with capital appreciation, not worth it.

If cashflow is allocated, not by ownership percentage, but equally among the three partners then cash flow increases to 400, 800, 1400 annually. Adding capital appreciation of 3%, Joe and Mike would make 7%, 11%, or 17% of their 10,000 while Bob would make the same plus principal reduction on the mortgage while getting his 20,000 down payment out for use in the next venture.

***I am a rank beginner at all this so please feel free to point out anything I am missing, calculation mistakes, false assumptions, or if I am totally of base.***

Hi Edgar. I am actually moving down to Brownsville (Matamoros) at the beginning of next year. At this point I have just been researching and trying to make some contacts down there. Do you still live in the area? Any insights?

Apologies if this is a topic that has been covered or is more appropriate in a different section but I am looking for information about selling fractional ownership in rental properties. Most of the information I have found pertains to timeshares versus rental properties. Can anyone provide some basic guidance or references pertaining to this subject?

To expand on the question, from a legal and business perspective, what are the considerations and/or limitations in the following scenario:

Bob buys the property at 123 Main Street through a business entity in which he is the sole managing member, ABC LLC. The property is bought for $100,000 (80/20 LTV) with a traditional mortgage and then transferred to ABC, LLC but personally guaranteed by Bob. For $10,000, Bob offers Joe and Mike, respectively, 10% stake in ABC, LLC in return for a proportionate share of the rental income and appreciation.

Joe and Mike have the potential to earn a respectable return on their investment without the headaches of solely owning or managing rental properties and Bob has recouped his initial investment while retaining 80% stake in the property.

This seems like a reasonable model but I have not found much information out there about similar ventures and I am sure there are a number of issues I am overlooking, i.e. securities laws, accounting complexities, etc.

Any help or guidance would be greatly appreciated.

Hello BP Community! I am a relatively new RE investor active in the Dallas/Fort Worth and Brownsville, Texas areas. I am in the Foreign Service so I do most of my research, purchases, maintenance, and property management from overseas. I have a few single family rentals and just finished my first major renovation including extensive foundation and plumbing repairs...it was an eye opening experience! I look forward to being a part of BP!