All Forum Posts by: Jim Klapmust

I am working on a plan to work with my two brothers to collaborate on a property investing portfolio. Here is the scenario and questions I have about how to manage this process successfully.

I own four SFR. One of my brothers has two SFR. The third brother has no rental properties, but can be considered the cash investor in this deal. I bought my SFRs as primary residences over the past decade as I had moved around for jobs and life events (married, kids, etc). My brother who owns two SFRs did the same. Our initial plan is to pool our assets, under a LLC, and then invest in property together. In other words, our business plan would be to consolidate under one company to establish assets in a portfolio for future financing needs and larger deals.

I have read through the forums about the Due On Sale clause, going into business with family members, the need for umbrella insurance, the need to speak with a lawyer, etc. But here are my general questions:

• 1.What is the best strategy for honestly going about moving assets out of my name and into an LLC and avoiding an issue with the lender and the due on sale clause? I see several options: refinance with private/portfolio lenders without the clause, or call my lender and ask nicely (ha ha) to amend the contract, or pressure my lender into putting it in writing because I'll take my business elsewhere (essentially threatening refinance with another institution and strike the clause during negotiations).

• 2.Referring to question 1, the reason for moving the assets is to establish an LLC with something of substance, so that it can be leveraged in future deals. Are there better strategies than this, or is it recommended to pool assets like this?

A few things to note, all properties have perfect payment history and all have traditional financing. All are cash flowing, but not all are what I’d call “investment grade.” Remember, I bought these as primary residences and held on to them for a myriad of reasons, and I think it would be best to continue to retain them.

I’d appreciate your thoughts, and I am happy to go into further detail. Thanks!

Jim

Thanks guys, I'd be interested to know more about the Charlottesville market because at first blush I think its an established base of investors with long time holdings. Again, on the surface it appears that breaking into the MFR market would be expensive and quality deals would be very limited. Kevin, I found the Charlottesville SFH market to be overpriced for the average salary. UVA is a huge industry but the median income doesn't appear to support the housing valuation. I work for UVA now after leaving the large commercial construction industry, and I am lucky to have the pay that I have now given what my colleagues are making (much less). Jim

It all started back in 2004, as a recent graduate working in the construction industry, I took to living in the basement of a SFH in Arlington Va where my older brothers lived as well as another roommate. I had graduated in 2003, moving each year that I was in college, and thought I settled on a long term rental. 2004 came, and the property owner, who was a mom and pop shop, decided they wanted to sell. Home ownership and real estate investment were not in my focus at the time, but my desire to not move again (for the 5th time in 5 years) led me to purchase the house with one of my brothers (who was also still residing there). We continued to live there for three more years, accepting partial rent from our roommates.

2007, wedding bells. Move out of the bachelor pad, and buy a house with my wife in Arlington. My brother does the same, and now we have turned our SFH into a full investment.

2011, baby arrived.  My company offered me a spot in Roanoke Va to manage a construction project, allowing my wife to quit her job and stay at home.  Move out of our 2nd Arlington home, turn it into a rental, buy a house in Roanoke.

2013, another baby, another move, this time to Johnson City TN.  Turn our Roanoke house into a rental, buy a house in Johnson City.

2015, quit my job (too stressful), decide I want to move to Charlottesville Va.  Turn our Johnson City house into a rental, buy a house in Charlottesville.

All the way, I have made improvements and treated these as my own homes when we lived there, but kept an eye for future rental.  I wouldn't say these are cash cows, but today I sit on approximately $400k in equity across all properties, and generate roughly $1100 in positive cash flow monthly (before maintenance).

I found out over the past 12 years that I actually enjoy being a landlord.  I used my construction management experience and handyman skills to improve the homes, and they are really attractive to renters.  I have had mostly positive experiences and I have been extremely hands on with the renters to ensure they have a positive experience.  However, now I am running short on funds, but I am considering investing in more property with my brothers.  All of these properties are traditionally financed, 30 yr term, with no outside investment (except the first house with my brother).

I'd buy again in Tennessee, but I think I need to improve my legal protection and lease.  I'd also be interested in small multi family investments.  Also, I am concerned about the VRLTA which was amended a couple years ago to reduce the qualifying term from 10 properties to 3.  I do not use a property management company primarily because I have been successful in managing myself because I am centrally located to all my properties, and my tenants all understand I am a phone call away.

I became interested in BiggerPockets when I started listening to the podcast, and thought I should start a profile to see what else there was to offer.

Thanks for including me, I look forward to connecting with you all.

Jim