All Forum Posts by: John Mireles

Banks like to lend to LLC's. Not a problem there. The fact that you don't have high credit scores will be an issue. Also, they'll want to see plenty of extra cash on hand so that you can pay for six months or so of rent without any tenants. All three of you will be personally guaranteeing the loan so if one of you bails for whatever reason, the others will be forced to keep paying.

My first step if I were you would be to visit a local community bank to see what their lending requirements/guidelines are. Make an appointment with the branch manager. He or she will tell you what they're looking for in a lender and what sort of down payments and backup cash are required.

Given that you have no history with a bank, little credit history and no landlord experience, you'll probably find that the requirements are going to be quite high. Banks are very conservative with their commercial lending so don't be surprised if you get turned down at first. Learn what the banks want and then make sure you can give it to them.

Originally posted by Sandy Blanton:

John Mireles I appreciate your position, but I don't concur. If the landlord drove his car through the house (or anyone for that matter), the tenant would have recourse against the driver/auto insurance policy.

Sandy Blanton - The reason the tenant would have recourse is because the landlord would be liable, not because of the existence of insurance. Liability exists independently of whether or not their exists insurance. It's pretty simple - if the landlord actually caused the loss, he's on the hook to pay for it.

Thinking about my two units burned by the kids playing with matches: by your analysis I should have been able to sue the tenant for my deductible since their child caused the fire?

Absolutely! Mom and pop are responsible for their kids actions. The kids burned down the house so mom and dad are liable for the damages.

I think the burden of proof would be too high for the tenant to recover from the landlord's lacquer issue.

If there was a witness who saw the landlord in the garage prior to the incident or if there was physical evidence of some furniture or fence that he was applying lacquer to, then you have a situation where it's pretty clear he was there and he was engaged in an act that could reasonably believed to have started the fire. Fires don't start on their own so someone or something had to start it. If the landlord was in the garage shortly before the fire, he's going to have an uphill battle arguing that he didn't cause it.

I bring this up because if any landlord thinks that he can get away with letting things slip a little because he or she doesn't think the tenant can sue for damages, he or she's got another thing coming.

Originally posted by Sandy Blanton:

I'm with the guy above, unless it can be proven the landlord had intention, there's no legal claim here. Renter's insurance would have covered the tenant's losses.

Where are you getting this legal theory? If the landlord intended to start the fire, he would be guilty of arson, insurance wouldn't cover the claim and he'd be subject to punitive damages in addition to the property lost in the fire.

As I understand it, and again, I'm not an attorney, the landlord is not obligated to pay for the tenant's property in the event of a loss stemming from the property - so long as the cause of the loss is not as a result of the landlord's actions (or inaction).

If the fire resulted from a faulty electrical plug and the landlord had no prior knowledge that it was faulty nor had any reason to believe that it was faulty, then he would not be liable. However, if the landlord knew that the plug was faulty but did nothing about it, he would be liable. (He would be negligent because a reasonable person would have replaced it because he/she would know that it's likely to cause a fire.)

Let's take this to an extreme: if the landlord accidentally crashed his car into the property and damaged the tenant's property, I think we'd all agree that he'd be responsible. Just because the landlord is the landlord and the tenant is the tenant does not absolve the landlord of any financial responsibility ever.

So what's the difference between the landlord causing a fire through the careless disposal of combustible rags and crashing the car? Nothing. Both are the result of negligence and that being the case, the tenant has an actionable cause against the landlord.

If the landlord was in fact in the garage using lacquer, it's going to be up to him to show that he didn't start the fire. Fires don't just start on their own. (There's even a legal principle that I believe applies here known as res ipso loquitur.) No reasonable person is going to believe that he didn't somehow hand in the fire. As far I see it, he's on the hook.

When I hear "lacquering in the garage," I think of a pile of combustible rags used for staining and cleaning all thrown together in a trashcan. That right there can and has caused many a fire. I'm not a lawyer, but... the failure to take that standard of care necessary to prevent injury or loss to others is the definition of negligence. The landlord's failure to properly dispose of a pile of lacquer soaked rags is a textbook example of negligence.

Negligence is a tort which means that there doesn't need to be any sort of contractual relationship between the two parties. It's my opinion that the tenant has a claim against the landlord if in fact he did cause the fire through his carelessness.

If this fire was caused through no fault of the landlord, then, depending on the rental agreement and the laws of the state, he is not liable. But if he was in fact directly responsible for the fire, he's on the hook.

Windows are one of those necessary items that you expect to be working and not detracting from the value of the property. Unless you're working with a Victorian and restoring some beautiful leaded glass, windows in general aren't going to add much value to a property in the sense that they'll push a buyer to purchase. I've never seen a prospect say, "Oh I love the window casements!" like they might with a kitchen, bath or floor.

If you've got some really bad windows, then you should replace them because they may hold you back. If the windows are serviceable but dated, consider replacing them in the front rooms but leaving them in the back. I wouldn't go spending a ton of money though because the more you invest into the windows, the less return you'll see.

When it comes to windows, I'd say you're better off doing a window treatment like higher-end curtains or custom wood blinds. They not only dress the place up, they hide the windows that the buyer will hardly even look at once they buy.

What I'd like to know is how you plan on getting 6% down on a property where you won't live. Seems like 20% to 30% is more likely. Do you have a source lined up at 6%?

I'd say you'll get little to no ROI when it comes to windows. Spend as little as possible while not putting in anything that will detract from the value. Only replace what's necessary would be my take on it.

My suggestion for someone starting out in the real estate game is buy a house, live in it, fix it up, then sell it when you're ready.

FHA financing that requires only 3% down is available for owner occupants. That's within reach of most folks. Then, because you're calling it your home, you have more time to fix things up, make mistakes that you can learn from and the opportunity to see the plusses and minuses of your decisions. Another benefit of owner-occupancy is that if you live in the house for two years, you get a pretty sizable tax break.

When you're ready to move on, you can either sell or rent the previous one depending on your investment goals. Sometimes it's best to keep things simple and give yourself plenty of opportunity to learn.

I'd talk to an attorney experienced in toxic torts before making a decision. I understand you wanting your rent money, but I also understand being cautious when you might just be poking a wasp's nest of a problem. What I'd want to know is whether this guy has a case that would be worth a plaintiff's attorney's time. Is this a horsemeat of a case or does it have legs? If a plaintiff attorney does pick up the case, it won't cost the tenant a dime to go after you.

I'd also want to know if my insurance covered this type of loss. Let's say you get sued, do you want to be the one paying the settlement and legal bills even if you're not at fault? I can guarantee you that if there's a lawsuit, there will be a settlement even if this case is frivolous.

It's worth making a few calls to see where you stand. You may even have to pay an attorney for their time. If you don't want to spend the little bit of money it will cost to consult an attorney now, then it's probably not worth risking a much bigger legal bill down the line.

Here's my take on having one LLC for all properties verses one LLC per each property. The whole point of having an LLC (or corporation) is to protect one's assets from a potential liability award. Let's say I'm sued, lose and have to pay up a big award that isn't covered by my insurance. If you're like me, most of my net worth is tied up in real estate so... if all of my real estate is under the roof of one LLC, there's very little point to even having the LLC in the first place since most everything I have can be accessed by the plaintiff.

On the other hand, if I have multiple LLC's - one for each property - then the max the plaintiff could get would be whatever equity is available for that property. Yes, that may be an accounting hassle and all that, but what's the point otherwise?

The complicating factor for me is that I'm in California where it's $800 per year for each LLC. Add that to my annual corporation fees and it all adds up to more than I care to pay. If I lived in a state where LLC fees were minimal, I'd have one per property and have my bookkeeper and tax guy deal with it.