All Forum Posts by: Jerry W.

Sean, Welcome to BP. The advice and inspiration on BP is a great asset, I wish I had found it at your age. Browse through the forums, they are gold mines.

Thanks to all of you for sharing your story. I have been investing very part time in real estate for about 20 years with partners in a small company. Eventually 2 of us bought the others out, and in December I bought the last partner out. I like my job, it is rewarding but I am getting tired of 50 hour weeks, and vacations once every 10 years. I live in a small town with limited real estate opportunities, but with my present holdings I can retire entirely if I choose in 10 years. With the help from BP I now think I can speed this process up. I am strictly buy and hold and take nothing from the properties, profit goes either into upgrades on existing properties or is used to help fund buying a new property. Due to buyouts we have mostly sold properties for the last 5 years, but I finally am buying a new property in a neighboring town in the next 30 days. I am also considering trying my first flip property with a partner, but it is very scary as it needs a lot of work and I still have that full time job. If all goes well I will be posting for advice on flip properties in the next 6 months. The advice and inspiration here is amazing.

Ned, If you have a deed from prior owner and Bank truly does not want the property, then find out what it will take to buy it from the bank. If you just plan to keep the money and not fix the toilet or sink when it breaks it will become the worst kind of slum the person who gave it to you intended to avoid. If you plan to be a good landlord and keep the place up by spending money on it why not try to buy it? What we do defines who we are. At least keep the tenants fully apprised of all the facts, keeping in mind what type of tennants you might get who are willing to be part of this deal. They will not respect the house under these circumstances. They might even run to the bank and short sale it themselves. I do not know the laws on rent skimming but this type of action is what they are aimed at. Read the mortgage contract throughly because it will be recorded at the courthouse and knowledge of it will be imputed to you, so you may be bound by many portions of it even if you did not sign it. Money is important but so are reputation, and self respect. At least try to negotiate with the bank. JerryW

OK first let me state that liability laws and corporation laws vary from state to state so the actual application of the information I am posting may vary from state to state.(disclaimer hehe) Corporations and LLCs do provide you with a LOT of protection from personal liability in MOST situations. The whole point of a Corporation is people pooling their money and forming an entity that is legally seperate in nature. It was originally used in Europe in trading companies. You put money in, if it goes bust you only lose the money you invested nothing more, ie. you buy IBM stock if the company makes money you get paid a return on your investment based upon the number of stocks you own. If they lose money their creditors can never come after you for the debts IBM incurred, it is technically a seperate person. When say IBM makes money it is taxed by the IRS based upon how much money it made. IBM pays that tax BEFORE they send you a dividend check, then the IRS taxes you AGAIN when you report that dividend on your taxes so it is a DOUBLE taxation but your liability from suit is still there as compensation for the double tax. You can never lose your house because an IBM employee made a programming mistake that turned off a child's ventilator and killed him.
Now a subchapter S Corp. gives you the same liability protection as any other corporation but the IRS pretends to ignore the corporation and simply taxes the profit or loss the subchapter S corporation made according to the stock percentage you own. If you own 25% then you get a K1 tax form from the corporation stating what amount of profit or loss is attributed to you. Corporations have many formalities you must follow to keep the limited liability status, like a prohibition on comingling money. That basicly means you treat the corporation money like your money and not like it belongs to someone else. Your property manager does not use the rent money he collects for you to make his car payment, that would be stealing. If you use your corporations money to pay your car payment your protection from liability can be lost by a court action called piercing the veil.(There are many other ways to pierce the veil) General partnerships never have protection from liability, in fact if a general partner makes a very bad deal and signs a mortgage for a million dollars then loses it all gambling all the other partners are equally liable for the mortgage even though they never received a penny of the proceeds. General partnerships are very dangerous as far as liability goes. Your partner can do something to cause you to be liable even if you did nothing wrong. People still like doing partnerships and you only get taxed once. The first LLC was formed in Wyoming I believe in the 1960s or 70s. Two oil companies did a joint venture under the new Wyoming LLC law and when they submitted it to the IRS they were given pass through tax status. (A guy named Bill Bagley did a book about most of this back in the 80s) This was huge. Companies could actually form a partnership that allowed profits to be split differently than percentage of ownership. So if 1 company owned oil drilling rigs and another owned oil leases they could make a deal and be taxed according to a seperate contract not percentage of stock ownership, but they did NOT have partnership liability. Subchapter S corporation stock cannot be owned by a corporation. So if you form 5 layers of corporation to protect from liability in a risky venture you pay taxes 5 times. LLCs allowed the formation of successive companies but still gave pass through tax status. You dont need a company if you only invest in the stock market, or buy CDs, etc. It is generally riskier investments that cause you to form a company. Most subchapter S corporation have shareholders who are actively involved in the day to day operations of the company. This is very important! As an owner of an LLC you are granted immunity from liability if you follow all of the corporate liability rules, BUT you are NOT shielded from liability for your own acts of liability for acts you personally perfom. If an IBM employee gets drunk at an IBM party and drives his IBM owned car home and kills a pedestrian in a crosswalk a shareholder cannot be personally sued for the damages. But even if you own IBM stock, if you were the IBM employee's boss and you poured his drinks and had the authority to stop him from driving the IBM car home you will be sued and you will lose. Having a corporation does not shield you from actions that you PERSONALLY do or do not do that harms another.
That being said the rules to follow to keep corporate protection are not really that tough, and they really do offer HUGE liability protection. Most lawsuits today are based on inaction, not action. Failing to install new concrete steps when the old ones have a 5 degree slope so a guest slips on ice and falls and beaks a hip, failing to turn down the temperature on the coffee pot after 2 customers complained and received 3rd degree burns(the McDonalds case). It is extremely difficult to get a personal judgement from the employee in these cases. If you personally install the furnace that is improperly vented and in violation of code and the family dies of carbon monoxide poisoning get out your personal checkbook. If you buy a home and it has a defective furnace and you dont realize it and someone dies only the company is liable. If you have 10 million in assets in a company or an LLC and get a 5 million dollar judgement against it you just lost 5 million. If you have 10 LLCs or Corporations with 1 million each and one gets a 5 million dollar judgement you just lost a one million dollar LLC but still have 9 worth one million each. (thus the value of multiple companies or LLCs)
The above information is over simplified, talk to an attorney and your tax accountant for more specific advice on what is best for you in your state. ALLWAYS USE A CORPORATION OR LLC AND ALLWAYS BUY INSURANCE. In Wyoming the filing for either is 100$ and the annual fee is usually 50$. Sorry this was so long. JerryW.

Thank you very much for your guide. I have been investing in real estate off and on for over 20 years, and while I am very good at some parts of it I never really looked at the entire picture. I found the parts where I have knowlege to be very accurate, and the parts I had little knowlege in were very informative. I love the links to articles for additional information. I am frankly amazed this was a free article. I realized I never truly ever had an investment plan. While my method did produce some good results I realize I am many years behind the curve of where I should now be in real estate investing.

Victor, first Joel's post is excellent. I do not know Georgia law but let me give you generic advice. First read up on your state's landlord tenant law. It is available online. Spend a few hours reading it. Some Counties and cities pass their own landlord/tenant laws find out and read them. Do a good faith inspection to determine if there is any merit to the claim, not because it is a bona fide excuse for not paying rent, but because it's what good landlords do. As mentioned earlier documant everything. Steve's advice is also on point, Judges hear 2 stories in every court case. Saying you are telling the truth is not enough, give the judge credible evidence. If you are the high anxiety type consider a lawyer, but if you are willing to put up with the headache you can probably do it yourself(Pro se) If you lose then hire a lawyer and do it again, you can usually do that if you lose because of a technicality like proper notice, service etc. If you have your rental in a corporation or trust you might not be able to represent it yourself as many states do not let anyone but lawyers appear in court except when people are representing themselves.

Joe,
I am not an expert but let me share my thoughts. Reading what is posted on this site is the first major step to investing wisely. The posts I see here make me cringe at how uneducated I was when I bought my first house 30 years ago. Every deal since then has taught me something often more from my mistakes than success. Look at the posts and examine what the cash flows are on whatever kind of property you decide is right for you. Each has its own set of problems. Can you fix toilets and clogged sinks, or replace or repair doors, windows etc. ? A single family dwelling is much less work than an apartment complex but much less cash flow. There is a limit on how much you can buy both from money you have for down payments and a limit to how much money banks will lend you based upon your income level and assets. You need to be able to evaluate tenants and show houses etc. unless you hire a property manager. Get educated, ask often for advice, decide what real estate will work best for you and GET STARTED! Do the the cost/cash flow analysis on 10 properties before you make an offer on the first one. You will make mistakes and you will learn from them. If you offer tenants a good property at a fair price you will make money barring some massive financial crisis that will put millions in your same position, and you might make money anyway. Good luck

Hey Daniel. If you legally served the tenant, and he did not appear it is his problem. You did not take advantage of him, and his own conduct is to blame. Even in jail they will let a person make calls or send letters and he could have asked for a continuance until he could attend, he apparently did not. It is possible the tenant could ask the judge to set aside your order basrd upon a hardship but it allmost never happens. You may want to look up the law in your state in how to deal with leftover property though. Laws vary greatly from state to state and it is possible you could be liable for items if you do not follow your states laws. All states have their laws online. Hope this helps. I have done several dozen evictions so I have some experience on these. Jerry W

Jeremy,
I do have quite a bit of experience in this area, but there is no crystal ball as to what may happen. The laws and procedures vary from town to town and state to state, but for what it's worth here is my take. First calling or sending a letter saying a police report was filed on you doesn't make it so. It is very common for folks to try to intimidate someone with that kind of statement, unfortunately it usually only bothers honest people. If a report was actually filed the proper procedure is to assign an officer to followup and ask questions and take a statement from all witnesses. This actually does not happen if it seems flaky, or if the officer is busy with a real case of a more serious nature. If the officer does follow up he should question everyone, and talking with him may or may not help you. there is no dispute you entered the home, and you were alone, I assume you would tell the officer you did not take anything and you set up an appointment to be there. Not talking to the officer may make him suspicious but cannot be used as evidence in a trial, but if the officer believes you it could stop there. It is possible but unlikely a citation could be issued. The reality however is that there is less than a 50% chance that you will even get a call on this, and about 1 in 500 that you would get a citation. The owner was perhaps mad at no notice or over something else. The simple fact that someone says something was missing and you were present as a professional that day is simply not credible evidence. I have prosecuted thousands of cases and would not give this one more than a cursory review before closing it, hehe but if you have 15 prior theft charges things would be different. Anyway no sense in borrowing trouble before it comes, so try to forget about it and go on. Hope this helps.

When it comes to title questions and priority of liens the laws vary greatly from state to state. Without knowing what state you are in I cannot give you any specifics. First some states have laws that give a junior lienholder the right to pay off senior mortgage holders and give them time after the auction to do so, lets say 90 days (probably shorter). If you held the property for a long time that has probably run. Most states also have laws that prohibit and penalize not filing a lien release when you no longer have a valid mortgage. You may want to ask a title agent as many know these laws as well as most attorneys and are much cheaper. If you are not friends with a title agent, and you cannot find the laws yourself online then yes go to an attorney. It is ok to call and ask the hourly rate or initial consultation fee, and shop arround if needed. Find out how long they have been liciensed and their areas of specialty if any. Most real estate attorneys know those laws by memory or can look those up in 5 minutes. Attorneys who do foreclosure work for banks know them also. I think most states also require a written demand to release a mortgage before the penalties may be claimed. Do something tomorrow, if you cannot figure it out youself go see an attorney and have the fee known upfront for a 30 minute visit. The 200$ or whatever it is may save you thousands. Odds are you will not need to sue the bank just send them a (bark and growl) letter to make them put a priority on looking into this, their attorney will know if they have a bonafide claim or if they need to file a lien release. Good luck