All Forum Posts by: Jeffrey H.

I could see this working under a Seller Financing arrangement.  You would need to speak with a mortgage broker to see if this can be done via traditional loan.

There are a lot of threads here talking about this. The consensus I see is that a Trust combined with LLC offers the protection you're looking for. However...

There are a lot of critics that swing one way or the other - many say a Trust is not needed if it's in an LLC, and vice versa, so form your own opinion based on what you see and reach out to your real estate attorney to come to a decision.

It's the Seller's decision whether to evict prior to close, and only he can do that.  You can ask him to non-renew Tenants (hopefully) month-to-month lease and can extend the closing until that happens.  Or the Seller may tell you he is not going to do it, and that's your problem.

At this point you have to decide if this is something you're comfortable doing - are you okay to non-renew this guy's lease and if he doesn't leave to then evict him?  Are you okay for this to potentially take 3 to 6 months (depending on the friendliness of your landlord laws) of your time at the purchase price you have negotiated, or do you need to ask for the Seller to make a concession to take care of this burden?

A final tip - don't ever provide a reason for non-renewal.  It can bring legal problems along with it.  Just non-renew the lease and provide the state required amount of time to vacate the property.

This is one of the first things I check on all properties that I invest - before I even make an offer.  And many states only require accurate disclosure for residential, not commercial properties (not sure which Alabama is here, but sounds like no disclosure for anything required).

I have had some family members purchase a residential property in Colorado where the Seller's disclosure lied about some material facts (I think they stated the plumbing was in good working order, but they had covered up a known leak that caused a lot of damage).  This eventually went bad and took about 20,000 to address - there was a legal situation and my family members received full compensation for the Seller's coverup.

So irrespective of that story, your options are to:

• Keep the home and see how you can insure the flood risk (which will cost more than something in the 500 year or no flood plain) and then expect that over the years you will have to budget for a remodel due to a flood.  Anyone buying the property from you at a future date will also have to get a Flood Insurance policy from a bank, and this will be uncovered at that time - which may or may not kill the re-sale.
• You may have an option legally to undo the deal due to the Seller's inaccurate disclosure combined with your contract clause - I don't know the strength of your case based on your State's case law and statutes of limitation, so you will need to check with a licensed attorney in your state with this experience.
• Get a topographic survey to confirm the extent of the flood plain on your property. There are times where flood plains are not accurate on the FEMA maps and this survey could uncover that - you can request the FEMA maps be updates using a LOMR or LOMA (I forget which it's called now) and then this become a non-issue. The survey will run about $750 and updating the FEMA maps is usually a couple thousand. This would save you money in the long run as it would reduce your insurance costs and then restore its ability for banks to loan without the flood insurance.
• Raise the home off the ground so that the floor is 12 inches (or more) above the base flood elevation.  If it's a home already on pier and beams this may not be a huge job...but if it's slab on grade probably not an option.
• Do nothing and pray it never floods (don't do this please).

I am developing a property in a floodway, 100 year, and 500 year floodplain and am having to spend a lot more on engineering and site preparation to get plans approved with the City and de-risk the site's flood risk.  I know it's not fun.

I wish you the best of luck getting this resolved.  

Amazon has several books on LLC's and using a "holding company" with subsidiaries for asset protection, such as:

http://www.amazon.com/How-Limited-Liability-Compan...

Also with respect to an LLC's capitalization - I might have a $20,000 mobile home on land in an LLC that I rent. This is not well capitalized, but assume I have a net worth of 5 million an the tenant knows that I own many properties and probably have some money. One day the tenant takes a tumble that they believe is my fault - the tenant could sue me with some lawyer who thinks he/she can pierce the LLC's veil to show that I am mixing personal finances with the LLC's and it's not really a separate entity, and as a result my personal assets are also at risk as part of the suit. This is where a holding company can help clearly establish a bright line between business, semi-business, and personal financial activity.

Management and Holding LLC's are not used much unless you have personal wealth exceeding a million or more - when you choose to start using one is based on your own risk tolerance. There is paperwork overhead using these with taxes, so don't do it until you're ready to either spend more time or more money getting through the IRS hoops.

When you're first starting out you won't have a choice but to personally guarantee a loan otherwise you won't get it. Once you have a portfolio of properties that have established their own credit worthiness (via your Management LLC) you can look for conduit loans that are non-recourse. The only other form of non-recourse loan you can get starting out is via Seller Financing.

In the unlikely even that you're sued beyond the limits of your general liability policy it will not extend to your personal assets with an LLC, unless you have pierced the veil. As you increase your assets several people use a "management LLC" for activities that are semi-personal but investment related (e.g. using a personal car to drive to the investment property for showings) and then have the property itself in a separate LLC where the activities are very strictly related to the rental (e.g. rent deposits, repair bills, taxes, etc). There are books on this strategy and would recommend reading up on it...

The more assets you have the bigger target you will be, so if this is your first rental an LLC may not be fully essential, but I would recommend one to get familiar with how they work and how to protect yourself using one as your wealth grows.

Every property has their own reasons why they might need to be in an LLC, whether it's someone tripping and falling on your front steps because a nail wasn't hammered in completely, and are now permanently disabled for the rest of their lives - to finding out the property you bought used to be a toxic dumping site and the State notifies you that you need to spend millions to remediate it. You get the drift.

I would run a test advertisement to see how much rent the $20,000 condo (or whatever your price point is) would pull per month.  If you're getting 3+ calls per day you would probably have it rented quickly.

Put together your pro forma and if the numbers make sense pull the trigger based on cash flow / cash on cash type metrics.

The only question mark is whether you're planning to cater to a 12 month tenant or rather a seasonal expat tenant - you will need to be very careful with your vacancy rate given the nature of the location.  Hopefully the market is out-of-band right now and the test ad will give you an indication of demand during the "slow season."  If your demand is good then you should be pretty good to go.

This is an individual decision based on risk tolerance.  Consider the likely bad outcomes if you're not able to flip this short term.  With the mortgage you will have debt service and those additional holding costs will eat into your profit.  If you cannot flip the property quickly will you rent it, or just lower the price until you can unload it?

I don't know about Richmond, but the market in Houston is holding its breath with oil around $30 / bbl so I wouldn't do flips right now in this market unless the purchase price is unbelievably low and you're sure you can get rid of it, or are comfortable renting it.

I don't think that any state has a minimum length of time for a lease, but you will see some homeowners and property owners associations have rules for tenant minimums, for example 6 months.  Do you really want to rent to someone for less than 6 months anyway (unless you run an RV Park)?  More turnover has more risk and wear on your property.

On the flip side there are fewer cases where a lease is set for longer than 3 years, but maybe this is different in states with rent controls.