All Forum Posts by: Mike McCarthy

@Maxwell Naruszewicz The cost of having an LLC isn't much in most states (CA I think has a $300 fee each year, most don't). You'll probably need some type of business insurance, but the big insurance costs are on the properties - so no real ‘overhead' there.

Other than that it’s probably mostly keeping your pipeline going. Advertising, viewing properties, etc etc. I can’t imagine the ‘business side’ of flipping is much.

BUT make sure you know what you’re getting into. Flipping is harder today than it was 7-15 years ago. The deals are harder to come by and of course there’s always risk of hitting your numbers. I’ve made a bit of money flipping, but it’s never been ‘early retirement’ money for me.

@Krishnan T. Yes and no. I would include that explanation in your offer. I also like to discuss with the realtor about comps in the area. I find it helps explain what they might see as a ‘lowball’ offer... but it’s really not.

A good seller’s realtor should have already communicated that, but who knows what they think.

A recent purchase of mine was listed at $300K, where the ARV was about that. I don't know if it was the realtor or seller who came up with that number, but I helped explain that my offer of $215K was appropriate. They didn't accept it immediately - but after 2-3 months of no other offers, they saw the err in their ways :)

@Chasing Vega I don’t think they provide protection per se, they provide obscurity.

So if a tenant is looking for a quick payday and goes to a lawyer, the lawyer is going to do a quick search to see if it’s worth his time. If he finds you have 12 properties, 2 cars, etc... it might be worth his time. But if he immediately hits some walls, with trusts and LLCs, with no quick way to untangle, that potentially frivolous suit disappears because no one wants to pay for it.

The LLC layer provides separation so if a suit does get started, in theory, it can only be against the LLC - not against your personal assets.

As investors rack up more and more assets and significant equity in them, a combination of trusts, LLCs and insurance can help reduce risk.

@Danny Sharp I agree with the others. For most beginning investors, an LLC is optional. An umbrella policy with good landlord policies are imperative.

If you have a mortgage, manage the property yourself, do repairs yourself, etc. if someone's going to get sued, your name will be on it. An LLC will really only protect you is you're a fully hands-off landlord who uses a PM, or you grow to the point that it's truly run as a stand-alone business.

@Chasing Vega I’m faaar from an expert in trusts, but one thing I have learned is your protections vary greatly state by state. It might help others to know what state the property is in to provide a better response.

@Isaiah Jones most banks won’t loan any more than 80% total of your house’s value. So if your house appraised at $100K and you have an $80K mortgage, though you have equity, most banks won’t loan on it.

BUT if you do have more wiggle room, a HELOC is a great mechanism for that.

@Jay Hinrichs here in PA we’re still doing it around a socially distanced table. I guess it’s a bit of a ritual, finishing off all this coordination and work. Of course in many cases, the docs can be signed separately, but more for coordination purposes.

I believe the ‘everyone there’ mentality is to help fix last minute issues that someone didn’t catch earlier. Last year (pre-pandemic), there was a water bill that had been estimated for the past 14 months - which came up just before settlement. Yes, I was the one who confirmed the meter reading with the title company, having been burned before. But that was an extra hour or two with seller/buyer/title insurance discussions about escrowing and whether to postpone closing for the 2-3 months it would probably take to resolve. 🙄

@Andrew L. When you take a loan against your 401K, I believe the interest you pay is actually paid back into your own investment. So while it’s an ‘expense’ you’re pretty much just paying it to yourself (minus some fees of course). Double check that as that’s not my area of expertise - but might make it more palatable.

Also, most banks don’t like the idea of you using a loan for the down payment. They want you to have skin in the game, and that sort of removes it. Of course you have more assets than most would who would be taking that loan, so it might offset some of the risk.

@Mandi Martinez remember that the lease that the tenants are in goes with the property. So if one tenant has 6-months remaining in their lease, you can’t increase the rent until it’s up. Month-to-month leases usually need 30 days notice, depending on the state and lease.

So it’s important to understand where the leases are, and include in your offer/contract that seller will not enter into any new/renewed leases without buyers approval.

After that, it really depends on what you want to do. You can always explain to the tenant that they are paying way under market rent, and their rent will increase $$$. But many tenants won’t like that, nor necessarily be able to pay the additional. So you may need to terminate the lease, and find new tenants. Plus do some fixes too, as properties like this usually have deferred maintenance.

@Daniel Rockrohr how old are they? If they are painted wood, you may run into lead paint issues since there isn’t really any good way of encapsulating lead paint on wood windows since the woot runs against itself.

But I agree with the others. If they are broken, don't stay up, or don't lock, you're going to be detracting from an otherwise ‘new' house in therms of rent and ARV.