All Forum Posts by: Jeremiah B.

I'm not a lawyer nor an expert.  So take this for what it's worth.

Check out Sutton's book on Legal Loopholes.  I think he did some work on this topic.  

http://www.amazon.com/Loopholes-Real-Estate-Rich-A...

If memory serves, moving the deed from you to your LLC has not historically triggered the due on sale clause. So, the plan of moving the deed back and forth to facilitate a mortgage, and/or security is a viable option.

With that said, I wouldn't do it. The spirit of the law and contracts, insofar as I understand them, is that you need a divide between you and the LLC. What you're describing feels like commingling personal and LLC assets, and may threaten the ability of your LLC to act as a legal barrier. This feels like a minor, but intentional misleading of both the LLC and mortgage - so even if can be done, I'm a conservative investor and wouldn't do it.

If you wanted to do something like this, I would suggest finding a RE attorney and getting their guidance.  With that said, I've asked similar questions of a RE attorney who didn't know the answer...

Shavers,

Advice is a bit of an iterative process - starting broad and then getting more and more focused.  Without knowing what your business is, I can't really tell you what specifically you should be working on.

Commercial and private options (such as blanket or portfolio loans) are starting to mature. Non-conventional (non fannie/freddie) options are getting better and better.  Longer terms, fewer balloons, lower rates, higher leverage, etc.  I'm still a small fish with only 7 mortgages, so I haven't used any of these yet, but there are options out there...

There is also delayed financing - though is very limited.  This is a conventional mortgage offered through Fannie. You can only do delayed financing when you buy in cash, and do the refi within 6 months of the purchase.  Also, very few mortgage providers will do delayed financing (I do know of one who does this - PM me if interested).

Happy hunting!

The cash vs finance question is a tricky one.  Here are some high points that I personally consider:

NEVER BE CASH POOR!  If you can't pay in cash and keep a solid cash reserve, don't pay in cash.

You should get better terms on the sale with a cash offer than with a financed offer.  If your offer is a cash one, low ball the offer.

Once purchased, your returns, as a percent, will be higher if you finance the deal.   

Rates are very favorable for us right now.  I would lock in as many 30 year fixed mortgages as I can.

One option is to buy in cash to get the better terms and then do a cash-out refi.  You always run the risk of not being able to refi, but when this works, you can get most of your cash out within a few months.  If you go this route, get a detailed plan in place with a lender BEFORE you buy in cash.

Happy hunting.

She doesn't have to agree with, or even like everything that you do.  But she always get veto rights.

Fun topic.

The short answer to the original question:  No.  I do not believe that all non-income producing debt is bad.  I also don't think that all income producing debt is good, but that's not quite the question you asked.

The longer answer:  Ben's comment above about balance, and income/debt being chicken-egg resonates with me.  There really must be a balance between these two - though the specific balance for individual is unique.  What might be good debt for you, might put my ratio out-of-balance.

The topic is a complicate one, and there are great points mentioned above.  But I think we can all agree that the savvy investor realizes that there are nuances to the topic that exceed the relevance of blanket statements.

Hey Jaime,

I'm an out of state investor who lives in Portland and buys in Charlotte.  We own 6 out of state properties, all purchased in the last 24 hours.

First - I want to highlight that your team will be your single most valuable asset!  Even moreso than time or capital!

To answer your question:  Obviously you need boots on the ground for most things like RE agents, PM, Rehab, etc.  Although less intuitive, I would add your attorney to this list as well.  It's unlikely that you will need the attorney real often, but when you do, you want someone who can actually practice law in that state :).

Having your lender in the market will also make your life easier. Though in my experience, this is far more of a convenience than a necessity, and working with a lender outside of the market is just fine.  My lender in Charlotte (where I buy) works great with the rest of my team, and that translates into a very efficient process.  However, she is limited in what loans she can make, and I've done several loans through a bank in KC.  This has been fine, but is simply less convenient.  And if you already have a relationship with a lender who can meet your needs, using them is probably the path of least resistance.

I've actually found that having a local closing agent is a big help.  This surprised me a bit, as I had historically thought of this role as commodity.  But having a single closing agent who is local to the area, knowledgeable, and can work with different lenders has saved me a lot of gray hairs.  In fact, whenever I've used another closing agent, I've been burned to varying degrees.

Your CPA or tax person who is already doing you personal taxes should be able to do the tax filings for these investments.  As such, these should probably be local to where you live - but be sure that they are familiar with rental properties and can file in the state where you're investing.

Happy hunting!

Great - glad to hear that.  To clarify, the model you described is expensive, but feasible.  It's just risky as well.. :)

No. Barring additional info, my personal take is that the strategy you outlines isn't very good to start with.

It's hard to give you a full answer without a better understanding of your full situation, but I'm assuming that the 20K home loan is the bulk of your liquid reserves.  If I'm wrong, and you have 50K sitting in cash for a rainy day - good on ya.  And ignore this post.

But, assuming that you don't have another 50K sitting around, this is the type of deal that can bankrupt you as there is simply zero margin for error.  

@David T. 's 17% is pretty accurate.  When you combine this with things like rehab overages (which are common practice), the money left over for you, from a normal deal, is minimal.  But that's not why I'm worried.

I'm worried because of how stretched you sound to be financially.  If my read between the lines is correct, this one deal has a good chance to lead to bankruptcy.  If you double your rehab timeline, your rehab budget, or your comps are off by 10%, or the market takes a turn, this can wipe you out financially - and without a job.  

I know that you want to be your own boss.  And I know that you want to get into RE.  I just think that you need to find another avenue to do so...  Maybe up your reserves.  Maybe find a partner.  Maybe work for an experienced flipper.   

Happy hunting.

Listen to your CPA.

I think that there are two very import things that new investors need to understand:

1 - The decision is yours!  You're your own CEO.  You're the one who needs to own your decisions, because you're the one who will own your consequences.  So, when Bigger Pockets says "invest" - take it with a grain of salt.  When your CPA tells you to run like hell - hear that advice, but know that they don't get to make that call.   No one can tell you what to do.

2 - Understand the advice!  The advice that everyone gives, myself included, is crap.  The value of the advice is in WHY they are giving that advice. A CPA saying "don't invest" is worthless.  But, a CPA who says "you don't have the cashflow to support the volatility of a rental property" is great advice.  When you ask a community like Bigger Pockets about investing, you will hear themes of encouragement and success stories.  It's probably because the real estate failures can no longer afford computers.  A financial planner's advice will have a different take.  As will a mortgage agent.  Or your attorney.  Or your family...  The logic behind each of these perspectives have value, and should be considered.

My point is simply this:  You should understand and guidance of those you work with and trust, and you should take that guidance under serious consideration - but none of them or us should tell you to invest or not.  So, take a step back, look at your financial situation, your personality, your goals, etc. and then make an informed decision.

Happy hunting.