All Forum Posts by: Mitchell Brown

@Charlie MacPherson I 100% agree about setting it up right and the same thought came to mind about definitely having to spell out each of our responsibilities so we don’t inadvertently ruin our relationship by assuming the other knows what they should he doing.

Everyone, you will have to excuse my ignorance here. I'm not very well versed on the matter of an LLC. So let me explain what I'm asking.

My father owns a very small operation, him and 1-2 other employees, the company was passed to him from my grandfather when he retired, and would likely pass to me down the road. I won't bore you with all of the details, but essentially I want to take a roll within the business, but I want to essentially start over under a new entity. My thoughts are to form the company under an LLC to protect each of us from liability, but I don't expect (nor want) my dad to cough up ownership of his company to me right away. The business is failing slowly but surely due to not keeping up w/ innovations, and from general small business burnout on his part and just trying to maintain. To try to help him, I want to take over the "business" aspects, and have his role as more of a project manager, essentially overseeing the day to day operations. While I'm not a business expert by any measure, he has agreed to bring me in and allow me to take on this role to help growth. I have the desire to see it flourish as it did years ago and realize that I may not be the perfect one for the job, but I can do my best to be the start of a brighter future and hopefully re-light the fire within him to desire the same results.

Now here is the kicker, I have a W2 job currently, and make enough income from it to be happy with, for the time being. I'm 25 years old now, and my goal is to leave my W2 job by the age of 35 and be able to sustain my living via a combination of income from passive income from rental properties as well as my stake in the business at that time. So what I am hoping for, is to form an LLC with me taking a 0% ownership stake in the company to begin with, and having a "sweat equity agreement" outlining the equity I stand to gain, the vesting period, etc. In the meantime, I would like to not take a salary. I'm doing fine with the income I have and see it as being mutually beneficial if I was to not take a salary for a certain time period. It would allow us to reinvest the money we otherwise would be paying me back into the company for growth, as well as I avoid the tax liability in the mean time. Is this legal, or possible? I want to take a managerial role, and handle things like book keeping, taxes, marketing, and building business systems to increase efficiencies, etc., and focus my efforts on growing the business. My hopes are to eventually "build my dad out of a job" so he can enjoy his golden years, and then to eventually do the same for myself.

That turned out to be a longer explanation than I had planned. Now that I have explained the situation, can anyone tell me if this situation is possible, or how it would have to be structured?

@Joe Splitrock I like that thought process. That’s really why I was telling myself to justify it. I really just wanted to ask on here to be sure I wasn’t being emotional about it and just trying to justify a bad idea. I wouldn’t mind putting my own money into it for repairs, etc especially if I can go into it initially at 100% OPM.

@Pete Harper

Thanks Pete, it seems like we we’re definitely thinking the same! And honestly, I can’t say with certainty on the flooding. I know in 2017 during Harvey, nearly everything flooded, like a solid 50% of the region, so definitely I try to look at that as the exception, not the rule to go by, and for what it’s worth the sellers disclosures did state it hadn’t been flooded.

@Eric James I see. I’m trying to think of how I could go about analyzing these areas to determine that in a streamlined manner so I could potentially narrow my search or at least pay more attention to properties I find in those areas. I’m sure over time I would get a feel for that, but I’m certain with today’s technology there has got to be a way to accurately and efficiently harvest that information and analyze what areas are higher rent producing areas.

So with that, what determines whether it is a 2% area? I thought the 2% rule was just an analysis guide to be able to determine whether or not a property COULD cash flow at a glance. But as far as interest rate I do agree, and did not intend to do the deal at 8-10% interest. For me in my situation I couldn't make it profitable at that rate. The "infinite return" was the factor that drew me to pursuing this deal if I could make it work. Simply a deal that I could do to get my feet wet and not have to put any of my own money in the deal initially. I spoke with a friend of mine that went to that state college, and majority of the people that attend the college are locals, or athletes and from what she told me that most athletes have it in their scholarship that housing is provided for them at an apartment complex across town. She said there was the potential to get students, but I'm not gonna bet the farm on it.

@Bruce Lynn absolutely. And that is the overall intent. I was only considering this method to get myself in the game sooner rather than later, and would work myself up to being in a safer position as soon as possible to minimize the risk of those events occurring. My primary job allows me to at times, “write my own paychecks” so to speak, so putting back a fair amount for safety net money wouldn’t take all that much time to accomplish. I’ve definitely considered all of that, and weighed the risks. I’m trying to keep a risk tolerant mindset to keep myself open to opportunities, but not to the degree of doing something irresponsible just for the sake of doing something.

You’ll have to forgive me, but I’m unsure of how to figure market value unless you’re referring to getting an appraisal or going off of what Zillow, etc estimates. Still in the learning phase for sure. 

Beaumont area. I did a little more digging, it's definitely been flipped. I'm assuming it was a BRRRR that couldn't rent for what is expected and now they're trying to flip it . It was listed for rent for 1050 on the bigger unit in 8/19 but only renting for 800, then listed for sale on 6/20. The original purchase price was 10,000 in 2/19.