All Forum Posts by: Ki Lee

36 units of 2/1 town-home style apartments in Salem Village. Class C area and building. This was a joint 1031 where my Partener and I took titles as TIC. Originally went under contract for $1,872,000, but we were able to negotiate discount given the COVID-19 and economic uncertainty. The current average rents are $587 but market rents are $750 after renovation. We got $150K in LIP account for exterior and interior renovations. The plan is for 18 month stabilization.

What made you interested in investing in this type of deal?

I had a triplex and a SFR. I was thinking of getting another 3 or 4 units, but people from Bigger pockets, encouraged me that apartment investing is within my reach and is more scalable. I did some research and also came to the conclusion that it was doable. With my partner, we did a lot of reading and research, met and networked with a lot of people, and built a team in Columbus, OH to consummate the deal.

How did you find this deal and how did you negotiate it?

A broker brought the off-market deal. Initially we went in contract for a lot higher, but we were able to negotiate lower prices based on inaccurate financials that we were given, and also because of the covid-19 impacts on the economy.

How did you finance this deal?

We got a local bank to finance it at 3.58% swap(hedge), 10 year term, 25 year amortization, 12 months of interest-only, 3-2-1 prepayment payment, full recourse loan. We also got $150K of LIP account for rehab budget. 75% LTC.

How did you add value to the deal?

We are going to fix the parking lot, paint porch ceilings, improve landscaping with box woods and mulch around the buildings, and improve interiors by replacing old appliances and upgrading bathrooms.

What was the outcome?

We just got it and it's a work in progress.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Paul McHugh has access to a ton of off-market deals, and he was very professional and prompt throughout the whole process. We were happy with how he was able to advocate/negotiate on our behalf, and would highly recommend him. He's a closer and a go-getter. @Dave Foster has been extremely helpful answering all our questions and helped us execute this deal.

8 Votes

Thanks for all the great advices. I actually have a CA C Corp that I can use as a management entity. This sounds like it's the concensus.. The OH LLCs hold title to the property but they are disregarded and flow down to the individual. They won't file separate taxes.

0 Votes

My partner and I bought an apartment complex in Ohio as TIC. We each have our OH LLC that took title as 50/50 TIC.

Now we are trying to figure out how to properly structure banking and money flow. We are 50/50 TIC, but obviously we can't split the mortgage and other expenses down the middle. It seems like we will each need a bank account for our OH LLC, but if all the transactions happen in one account, the other account has no activity going on.

Some have mentioned creating a management entity (LLC or C-corp) to handle all the payments of mortgage and other vendors, and distribute the cash flow to each investor.

Is there a better/easier way?

Thank you in advance

1 Vote

I really enjoyed the BP podcast #374 on March 18 with J Scott and Scott Trench.

I wanted to further ask and also discuss with you guys about macro economics in the current environment.

On the podcast it mentioned that a government tries to stimulate the economy in 4 ways. the central bank lowering interest rates, quantitive easing, printing more money, and direct stimulus(on a personal and business level.)

It’s my understanding that currently the government has executed on all the 4 options above. They are at zero interest rate, I’ve heard that there was quite a bit of treasury purchasing going on, the CB printed a bunch of money, and they are giving trillions in personal and business bail outs.

So my question is- does this mean that the government and the economy are against the ropes? What is the magnitude of actions that are currently taken by the feds to ease the pain here? Has the fed done all 4 of the above before? Are we at a point where we can’t do much else and something has to give?

It’s also my understating that the printing of the dollar and quantitive easing has been rampant in the recent years. Does this mean that the bull market has been artificially inflated by all these methods and people and businesses are now over-leveraged? We could be blowing a huge bubble ripe for popping.

I remember Ray Dalio saying that the short term debt cycle is 5-8 years but the long term debt cycle is 75-100 years. The last one was the Great Depression in 1929. Given the over leveraged situation and that the government is running out of option keep the economy afloat, can the COVID be the straw that breaks the camel’s back where even if the virus is conquered, the fundamentals will catch up and start a vicious downward cycle?

Obviously hard to predict the market, but just wanted your thoughts and opinions.

Thanks

Stay safe and healthy!

@Scott Trench @Brandon Turner

0 Votes

@Bill Exeter thank you. We found a local attorney, and they seem pretty confident in forming a structure where this will work. What they suggested is that the sellers(2) each form SMLLC that is disregarded and hold title to the replacement property as TIC, and each buyer will take ownership of the SMLLC who are TIC for the replacement property. This way, the 1031 remains kosher because each exchanger is only dealing with disregaded SMLLC and not a JVLLC or partnership.

1 Vote

Originally posted by @John Lenhart:

I would first recommend consulting an Ohio based attorney (not just Ohio licensed). I would recommend Steve Robison. He is a 1031 agent and attorney who specializes in real estate and taxation law. He assisted us on a rather complicated 1031 lately that set up similar to your scenario.

Secondly, if you are buying in Columbus, I would move carefully on the drop down LLC. See the case citation I attached below. The school district in Columbus is on the prowl for these types of transactions and are aggressively going after people for these transactions. Columbus and Cleveland are getting tough to do the drop down entity transaction. It is not as bad in Cincinnati still, but that could be changing soon.

Read the case. I almost would recommend that the safer way to go, especially in Columbus, is to do a personal property carve out

Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion No. 2020-

Ohio-353.]

Thank you, John! I will reach out to Steve.

0 Votes

plan was for Ki's OH LLC and Daniel's OH LLC to take title as TIC for

the replacement property, and each of our OH LLC's will be owned by our

respective WY LLC's

NOW....

-We want to do a drop &

swap where the seller puts the title of their asset under a new LLC, and

then we buy the membership interest in the new LLC instead of "buying

the property." This can potentially avoid new tax assessment of the

property that is triggered by a sale, thus saving taxes for the buyer,

and saving the sellers transfer taxes.

- from our understanding,

combining 1031 and Drop & Swap is possible when it's dealing with

single buyer who takes 100% of ownership interest of the newly formed

LLC as single-member and disregarded.

- what we want to explore

is the possibility of doing the drop and swap and 1031 when we are

purchasing the replacement asset as TIC. So when we buy the membership

interest of the new LLC, it will not be single-member LLC, but both of

us will be owners of the newly formed LLC. How can we structure this

properly so that it's Kosher for the IRS and so that the integrity of

the 1031 will not be compromised?

If there are any expert RE lawyers or RE cpa's out there, I'd love to connect.