All Forum Posts by: Rob K.

It is the CA Franchise Tax Board's position that an out of state LLC owning an out of state property run by a California resident would still need to register in California:

https://www.ftb.ca.gov/forms/m...

My experience from 2008-10 as a hard money lender was that loans where I was the only lender and had to foreclose did fine, although it was more work and time then I bargained for.

The real problem loans I had tended to be the loans I was in on as a fractional interest, and it was like herding cats in dealing with fellow lenders, some of which just wanted to stick their head in the sand and not communicate. One of the lessons I learned from that period was to be very cautious in investing in loans on a fractional basis.

 OK, I have done it, made my final mortgage payment on my last property last month. I have struggled with the fact that I have a poor return on equity, but have come to accept it. By always focusing on improving return on equity, it means you are focused on releveraging, expanding, and taking on more risk. I am at a point in my life where I don't want to do that anymore.

It is not so much that I don't want to acquire more properties. But I feel like I am in a position that I don't have to acquire more properties. I still look for deals but only willing to selectively buy on my terms which has not worked now for quite a while. Last property I purchased was in 2010. 

One reason I would buy now if it was the right deal is the tax issues I have. Some of my older properties have been fully depreciated and I no longer have all the write offs I used to to help offset rental income. Another reason I would buy is to use long term fixed rate financing on income property as that is probably the best hedge against inflation you can have right now.

If your plan is to hold long term, meaning for decades, I would suggest forgetting about short term capital gain tax exclusion in making a decision. The rental income, appreciation, and debt paydown over the long run will likely dwarf the tax savings. Ultimately, you may have a problem of a property depreciated down to a zero tax basis with no remaining debt interest to write off, but that is actually a good problem to have.

I would not underestimate banks' willingness to call low interest rate loans due on sale, transfer, or hypothecation going forward in a rising interest rate environment.

Back in the late nineteen seventies it was a major issue, and sufficiently important to banks that they forced through passage of the Garn-St. Germain act which in pertinent part guarantees their right to enforce due on sale clauses with limited exceptions.

"- Indemnify, defend and hold harmless the management company."

From what exactly? It may be a "standard clause" as others have alluded to, but the precise language of what it says can be very important from a risk management perspective. It is generally fine for language that is consistent with an owner's insurance policy covering the management company as well but does the language extend beyond that for claims not covered by insurance? Are you now the effective insurance company that covers the management company's screw ups for non-covered claims? If the management company screws up and makes a claim on their own E & O policy is the language something that the E & O carrier now subrogates to and comes after you for? These are questions worth investigating if you don't understand the language of the hold harmless clause.

Knowledge of business formation is important when utilizing an attorney for asset protection but for true value, I think there are other important considerations:

1) Attorneys who use fear as a way to market their services should probably be avoided.

2) Attorneys who have a substantial business/real estate litigation trial background have specialized knowledge how asset protection related claims actually play out. Attorneys who have never seen the inside of a court room likely don't fully comprehend how the practical effects of their advice play out when a claim arises.

3) Attorneys who recommend an asset protection strategy or structure before taking the time to understand the nature of the risk your personal situation and relationships create, as well as your risk tolerance level, savvy and accounting/book keeping ability are probably doing you a disservice as fundamentally, asset protection planning is a cost/benefit analysis. Once established, it is up to you to maintain over time.

4) Asset protection planning should be an adjunct to a larger financial/tax/estate plan, not a substitute. You want someone who can view your situation from a larger perspective, not just from a single focus of expertise.

It's not easy to find the "perfect" attorney for asset protection planning but understanding and educating yourself on the issues involved before embarking on the search will make things clearer, a more likely fit for your particular situation, cost you less and probably be more effective.

In general, Realtor contract forms are first and foremost written for the benefit and protection of realtors. Some of them may be fine, but one should realize the agenda of the group providing the form.

If you are in this for the long run, I would consider self managing. Yes, there is a learning curve, and you may make mistakes as you go, but having the experience of self managing is a valuable bit of knowledge, especially when you have to later "manage the managers" if your plan is to expand your portfolio.

The conventional wisdom for the last 15 years or so has been that banks rarely enforce due on sale clauses. That they are happy to continue to take payments after a transfer or encumbrance of a property and that there is little risk of the loan being called due.

But with interest rates increasing dramatically it might be a different game going forward. Lenders are going to be much more incentivized to get out of low interest rate loans when they can.