All Forum Posts by: Account Closed

If you have excellent credit, you should have cheaper options than a hard money loan.

If you have equity in your house or a paid-off car, you can get a HELOC or a bank loan secured by the car. In Oklahoma we have lenders that will do HELOC's up to 100% of the appraisal value of your residence. The rates on those are around 8% with no closing costs - much cheaper than a hard money loan. You can also get an unsecured loan from lendingclub.com for up to $30k or so.

These are all short-term options that you can use for rehab expenses, then pay off with a conventional loan after six months.

Bienes and I may just be talking past each other at this point, but I want to be very clear for Delin and Nathan and anyone else reading this thread:

If you manage your own properties, you will not gain any liability protection by performing the property management under an LLC. A tenant who is injured by your negligence will sue you personally - your LLC will not protect you.

I am not a Florida lawyer, but I suspect that your lawyer is wrong. If you have a single-member LLC and you act negligently, the plaintiff can sue you personally and there is no need to pierce the veil. I cannot find, from a google search, anything specific to Florida on this issue, but I believe this rule is universal.

From an Illinois attorney:

[/http://www.limitedliabilitycompanycenter.com/how_limited_is_limited_liability.html]

Every member who actively participates in the business of the LLC runs the risk that his action or inaction will result in personal liability. This is particularly a risk of a service business in which the members provide the key service. If you are an electrician and you leave an exposed wire that electrocutes someone, your LLC is not going to protect you.

Similarly, if you make promises about your product or service that are not true, the first claim may be against the LLC for breach of contract, but if the LLC cannot perform or pay damages, the injured party may come after you for fraud or a similar claim based upon your own action.

From an Arizona law firm:

[url]http://azcorporatelaw.com/entity-formation/tips-for-maximizing-the-protection-of-a-limited-liability-entity/

Negligence, Fraud, Illegal Conduct of a Member: One of the common misconceptions regarding forming an LLC for business purposes is that the LLC shields a member from personal liability arising from certain acts or omissions of the member. This misconception is particularly prevalent among professional service providers such as doctors, lawyers and accountants. For example, a surgeon's patient may suffer a bad outcome and file a malpractice lawsuit naming the surgeon's LLC, and the surgeon personally, as defendants. In this situation, the existence of the LLC will not protect the surgeon from personal liability if he is found to have committed malpractice. Individuals can always be held personally liable for negligent, fraudulent or illegal acts or omissions. Merely operating under the umbrella of an LLC does not change this rule.

In Texas:

[/url]http://www.baylor.edu/content/services/document.php/117969.pdf

"LLC members or managers are liable for their own fraudulent or tortious acts even if the acts are committed in the service of the LLC."

Another source:

[url]http://thellcexpert.com/llcanswers/how-does-a-limited-liability-company-provide-protection/

"Let me give you an example. If you operate a grocery store business as a sole proprietorship and enter into a contract to purchase inventory, you are personally liable to pay for what is owed under that contract. If instead, it is a limited liability company that is the business and enters into the contract, it is the LLC and not you personally who is obligated under that contract.

Another example: If you own that store as a sole proprietorship and someone slips and falls and sues- you and all of your assets will be at risk for that lawsuit. If it is the LLC that owns and runs the store, it it is the LLC and its assets that are at risk for the lawsuit.

So, given this litigious society where plaintiff lawyers are always looking for targets and people sue for almost everything, the benefits of limited liability protection from a limited liability company are so powerful. . . especially given the low costs to form and ease of maintenance.

Now, this protection is NOT ABSOLUTE. If you are otherwise personally negligent or at fault due to some actions you personally did, then the limited liability company will not shield you from those actions even if you were working in your business at the time. For example, if you were delivering groceries to a customer via a company truck and you were at fault in having an accident, you will be held personally responsible for being at fault. So, having a limited liability company is not the substitute for getting business insurance covering your business and its employees."

Also, Florida is a state in which a creditor who gets a judgment against you can take your single-member llc in satisfaction of that judgment:

[url]http://www.keytlaw.com/azllclaw/asset-protection/single-member-llc/

If you are going to perform the property management personally, forming an LLC to be the property manager will not shield you from liability. The tenant can and will sue you personally because you were the person who negligently failed to fix the slippery sidewalk or dangerous electrical issue.

Owning properties in an LLC may protect your from some liabilities, but again, if the plaintiff can show that your personal negligence led to his damages (or if he can pierce the veil of your llc), you will be held personally liable. And in some states, a court can force the liquidation of your other single-member LLCs to pay off judgments against you.

This link has some good information about the limitations of the LLC:

http://www.limitedliabilitycompanycenter.com/how_limited_is_limited_liability.html

Don't rely on your LLCs for liability protection. Get plenty of liability insurance.

Jim, I don't know the law in your state, but I would expect your risk of legal liability would be very low if you move out. If I were you I would write a letter to your landlord giving 30 days notice and explain that you are moving out because the windows are a safety issue. Offer to cooperate in letting him show the condo to prospective tenants. He's not going to give you your security deposit back, but he's probably not going to sue you, either. And if he does, I don't think he'd win. If he can get the condo rented to a new tenant quickly, his damages will be minimal.

This is not a good deal, and you should exit. You will lose money on these properties. You may break even most months, but when you have a vacancy or a big-ticket capital expenditure, you will lose a lot of money.

The advantages of paying with cash and then doing a re-fi are that you can close on the property quickly and (if you wait long enough) you can use your after-repair appraisal value to determine your loan amount. If you can find a good enough deal, you can get most or all of your cash back out. The disadvantage is that you tie up your cash during the seasoning period, and it may be a little tougher to find a cash-out refi lender than it would be to find a lender for a purchase. I use a regional bank that does conventional cash-out loans after 6 months using appraisal value - I suspect you can find one in your market.

Fannie Mae put out new guidelines a few months ago waiving the seasoning period if you bought with cash and your cash-out loan amount does not exceed the purchase price for the property. I don't know if the banks are following this. There's a thread on here about it.

I've bought from Plastic Jungle, but lately someone has been buying up all the Lowe's cards. I'm afraid the discount is going to drop from 7% since they can't seem to keep them in stock at the price anymore.

For a $1,000+ rental, I would include both. You can get a Waste King disposer from Amazon for $60. The reviews are excellent, and I've never had any issues with the 2 or 3 I've installed in my houses.

Steven, I think I follow you but perhaps there is a missing step. You said I need to form an LLC - don't I actually need to convert the existing partnership into an LLC (or form an LLC and then merge the partnership into it)? Then I purchase my brother's share of the entity, which would cause a tax event for him, but not for me?

Dion, we have a partnership agreement, the partnership has a federal tax ID number, and we have filed partnership tax returns for the last 7 years. We did not file formation documents with the state, but I don't think that impacts my federal tax status in this case.

Thank you both for your responses.

-Jon