All Forum Posts by: Jeff Smith

@Brian Garrett

Funny that I just had this exact conversation with my accountant and attorney!

• I'm setting up two LLCs with one for the flips and one for the rental properties.
• The flips will be an S-Corp exactly as you said to try and make room for some of that income to be taxed at a lower level.
• Having the separate LLCs is necessary not only for legal protection, but to keep the accounting separate. Otherwise, you run the risk of the LLC protections not applicable because of mixing the two together exactly as you said.
• My attorney did suggest one umbrella LLC that would include the other two, but we decided it isn't worth it at this juncture. Maybe down the road once my flip business and rental businesses are built up.

I'd suggest getting your attorney and accountant on a conference call together and explain what you are trying to do. As the three of you talk, you'll have the best understanding of how to proceed and you'll leverage their knowledge and experience to your advantage.

Good luck!

@Rick Pozos  

You are correct, it was a transfer of ownership and not a lease as you said. I was hoping it wouldn't have to go through the foreclosure process and there would be something quicker like a few signed documents from the previous occupants and we'd be off to the races. That would have been too easy!

Thanks for the feedback and guidance. I'm going to give her a call this evening and see what her plan is.

@David Olson, thanks for the compliment! I'm new to REI in that I only that a couple of fourplexes and that flood house (which was my first flip, but I had intended to rent originally), but it took about a year and half to do all that. In the meantime, I've done a lot of walking through houses and submitting offers, so learning just builds over time.

I was planning on one more house that was going to be a rehab to rent, but the deal fell through because the owner wasn't making any movement to actually leaving the house. Bizarre situation.

Like I mentioned, the market in Houston seems to forgive floods if it was only Harvey. If you have multiple floods, the buyers are much more cautious. Personally, I stay away from multiple flooded houses.

If the numbers work, and you've done the due diligence, put in your offer, do the inspection, get the contractor quote, and see if it all lines out. Since you'll have an option period, you can back out if it starts looking ugly. You'll lose money on the inspection price and the option fee, but it's just the price of doing business and learning.

Happy to talk more as you keep going.

• The father owned the property free and clear. He then made an owner financed deal with the previous occupants. So now the title is not in the father's name, but the previous occupants' names.
• Yes, the daughter of the father is now the executor and has gone through the official proceedings to be recognized as such.
• Not sure on the full details of the owner financing agreement, but the father essentially would have been the lender for the property.
• I have not attempted to contact the previous occupants who walked out. I have asked the daughter if she would prefer to handle this or ask for my help to deal with the title.

Hey Keith, I actually did a flood house recently as my first flip that I'll be putting on the market in the next couple of days. You can see a few photos on my profile that I just posted with before/after.

There are several reasons to go with a flood house, and several reasons not to. You have to evaluate on a case-by-case basis. Here are a few of the pointers and things that I learned and now use when I evaluate a flood house:

1. How many times has this house flooded? The market seems to forgive a single flood due to Harvey because it was so extreme, but if it has been hit multiple times, buyers tend to avoid it. 
2. Mold certificates will come from the contractor who actually did the work. The seller should have done this before putting it on the market. If they have not done the mold this many months after Harvey, I would steer clear. I have looked inside a house that had not been remediated and I wanted nothing to do with it.
3. Does the seller have the flood insurance that is transferable to you? The flood insurance gets expensive quickly, and you'll need to have this so you don't get hit with huge expenses. Also, if you intend to sell it, the buyer will want this as well.
4. Get an inspector out there and your contractor ASAP to evaluate the house. They will be able to see things like the foundation issue that someone else posted (though that could be on any house) and also look for mold or other electrical work that you may not have noticed. Be sure to check on the A/C ducts in case mold got in there.
5. By doing a flood house, you should get a low price to buy the house, but a high budget for the full rehab. This can be viewed as a benefit because you will essentially have a brand new house on the inside with new appliances, cabinetry, etc. and you shouldn't have much in the way of maintenance will all that new equipment.
6. Realize that the project will take a long time to complete. The house I worked on (4 bed, 2.5 bath) took about 3 months. You're in it for the long haul.

At the end of the day, you have to do all the due diligence that you can and get the best advice from your agent, contractor, and inspector. If your gut is telling you its too risky, than don't force yourself into buying it. Keep researching until you think you are ready. Feel free to shoot me a message if you want to bounce some ideas around. Hope this all helps!

Recently, I found out about a house in Houston that was flooded and the seller wanted to ditch it. We spoke about the property and I found out there are some nuances that are going to require some time and work before I can actually close on the deal. Here's a brief history of what's happened, and I'm hoping that some other people may have some advice on how to proceed. If you happen to be an attorney with direct experience with this matter, I would particularly like to speak with you.

The seller for this house is the executor of her father's estate, and they had an owner finance agreement with the previous occupants. Once Harvey hit, these occupants left the house, and then did not continue to pay on the owner financing lease. For those not familiar, an owner financing agreement is like getting a loan through the bank in that the title is now in your name. Therefore, this house title is in the name of the previous occupants and NOT in the name of the seller who provided the owner financing.

In a nutshell, I understand that they will need to go through the proper legal avenues of notification of violation of the owner finance agreement and essential foreclose on the house to take ownership back. My question is if others have experienced this, and what is the best and fastest way to make this process happen? Do you know any attorneys with experience in this situation that I could work with to help this seller get all the documentation straightened out?

I am wrapping up my first house flip this week and I have started speaking with the agent who helped me buy the same house in order to sell it. She sent me her listing agreement and the commission shows the standard 6%. I want to negotiate to get the best commission rate and drop it by 1%. In exchange, there is another property in the same neighborhood that I intend to flip and work with this agent again to sell. 

The other question I have is how to negotiate with title companies and others to drop their fees. What fees are easier targets to try and get waived or reduced?

How would others go about negotiating the commissions or the fees? What are your successes? What negotiations did not work?

Hello Chris. I'm not an attorney or CPA, but I recommend you seek out an attorney in your area to draft a purchase agreement if you wanted to keep the property under the name of the LLC. You can also speak to a CPA if you need to transfer funds from the LLC to your name.

Hey Brigitte. I'm here in Houston and had a similar thought process when I got started. While I also heard that multi-family is the way to go, what I found is that my net worth was not high enough to merit purchasing a property of the size that I wanted (~50 units) where I could afford the property manager more effectively.

So I proceeded to purchase a single family house that was flooded, and I'm working on purchasing a few others in similar condition or in strong rental areas. The purpose here is to create enough captured equity that I'll be able to 1031 the houses (defer taxes) and afford the larger loan for a multi-family later on. Other houses that I have that are strongly cash flowing I can use to supplement my income and help with operations costs when starting into the MF property.

I have also invested in a pair of fourplexes, which is not quite the multi-family model (which is 5+ units) but a good starting point with a larger supply of units so a vacancy does not hurt quite as much. Those will cash flow nicely, but there isn't as much on the equity capture, so it's a mixed bag depending on your goals.

An alternative in the meantime is to look into being a passive investor on other larger properties that have lead investors and watch how they run the syndication and their plan to improve the property. You won't have any power to make day-to-day decisions in this model, but nonetheless it is a good learning experience.

Charles, your post does not have a link, address, or any other information that other people can comment on. Try posting the info about your deal again. At minimum, I can see there is a "broken link" icon on your post, but otherwise I can't see anything.