All Forum Posts by: Jordan H.

 Gotcha!

I like Joe's model a lot. This would be my preferred method, but like many, my issue is the lack of sufficient capital to make all cash purchases. Because of this, I'm looking to use as little of my own cash as possible on my first deal. I feel this would put me closer to the goal of accumulating enough cash to begin implementing Joe's cash in/cash out model.

@Bob E. Your comments about Dave Ramsey and eliminating debt should apply to your personal property as Joe mentioned. From what I'm learning, REI is about cash flow, not accumulating assets free and clear. This was a difficult concept for me to accept, as it contradicts most of what I know about personal finances.

With that said, I believe you are correct to be cautious about being highly leveraged. I don't think that anyone can argue that using leverage isn't the fastest way to grow your business. In my opinion, it comes down to personal risk tolerances. So you have to find a level that allows you to sleep at night. This is something I've yet to determine for myself.

@Chris S. 

I think your conclusion is correct. You can gift the down payment to you family member, but you can still consider a multi unit property. I'm not sure how this works, but you should be able to establish a "joint venture" after the fact. If this is not possible immediately, then surely it's possible after the mandatory one year owner-occupy period.

@Account Closed 

The author's dislike for Nevada LLCs has nothing to do with the entity. He just views Nevada, or Delaware, or any state's LLC as someone selling false hopes. He outlines the following scenario:

You live in Tennessee, and form a Nevada LLC to hold your Tennessee properties. If your Tennessee tenant sues you, he/she will not do so in a Nevada court where judges are familiar with that state's LLC protections. Instead your tenant will sue in a Tennessee court. The author says if a judge sees a suit in his Tennessee court involving a Tennessee tenant and landlord, he/she has no obligation or motive to consider Nevada's LLC rules. The judge's role isn't to identify potential assets of the landlord, but rather decide if you are liable in the lawsuit. If the Tennessee judge rules for your tenant, the tenant now has a legally binding judgement against you. Though I forgot the exact mechanism in which this can occur, the author says the tenant can simply take the Tennessee judgement to Nevada, where it must be honored by reciprocity.

His argument isn't against LLC's of certain states, just that they don't provide the amazing level of asset protection that some suggest. I hope I paraphrased his concerns about out of state LLC well. The explanation made perfect sense, so any flaws in the logic are due to my incorrectly remembering the details.

He speaks highly of series LLC's. But he cautions that there are few legal precedents involving series LLC's so they may not stand up in court as well as they do in theory. One of my conclusions after reading the book was that I would only consider an out of state LLC to obtain a series LLC if it was not available in my state, but not to gain additional asset protection by incorporating in a specific state.

As others have said, the author mentions the choice between an LLC or S corp can depend on your activities (buy and hold vs flipping).

I found this book at my library. I am a long way from setting up an entity to handle REI activities, but I plan to purchase a copy when the time comes.

@Account Closed 

I recently read a great book on the subject. Check out my comments on it in this thread: http://www.biggerpockets.com/forums/12/topics/157283-do-i-need-nevada-based-llc

@Kirsten Mastro 

I recently finished a great book on this subject. Granted it's the only book I've read on the topic, but it answered several of my questions. It's called The real estate investor's guide to corporations, LLCs, and asset protection entities by Richard T. Williamson. It's fairly recent (2008) and covers partnerships, corporations, and various forms of LLCs, and a little bit on trusts. Williamson is an attorney in California, so there's some additional knowledge for investors in his home state. He also says he invests in real estate himself.

He approaches partnership/LLC formation from the standpoint of asset protection, which is the most important reason to setup such a entity. He also warns against paying others to set up your LLC, suggesting that the key to maintaining limited liability if you're sued resolves around a properly formed LLC. He recommends undertaking the process yourself, while consulting an attorney and CPA. While this hands on approach is more involved, you can ensure your new asset protection entity has been created correctly, and it's likely cheaper (including the costs of professional advice).

He also mentions Nevada LLCs as a sales product of the unscrupulous.

I don't understand the terms of your loan. A down payment on an unsecured loan doesn't make sense to me. You're not borrowing $300k at 10%, you're actually borrowing $260k at 11.5%.

Regardless, once you get the cash, you're not tied to making all cash purchases. Assuming the property qualifies for a loan, you could simply use the cash as a down payment on a "short term" mortgage, like an ARM. This leaves you plenty of cash to renovate.

I'm learning that the best way to acquire properties is to sell the current owner on a solution to his/her issue. I would focus on your solution to his needs. If your language is too strong, it will come across as an ultimatum, which makes you appear aggressive. If you can spin the conversation to identify his problem and show your solution (sign here), hopefully he'll feel like you're helping him instead of him helping you.

I vote for a nice shade of blue to complement the bricks in the walkway.

For the record, I have little sense of style...

@David Harris I've been renting in Brookland for over 3 years and watched the area change. With 2 universities in the neighborhood, I expect the rental market to continue to improve. In fact, I'd love to buy the building I rent in. I have no idea how to start that conversation with my landlord though.

I'll do some reading about the NACA program this weekend. I've also added that book to my reading list. Thanks for the info.