All Forum Posts by: Peter Mckernan

Hello everyone,

I have been searching for the answer to this question through many different sources. I spoke with a lawyer today that gave me some insight, but did not have an exact answer for this question. I have also spoken with a lender that was unsure, so now I turn to the forums since I know there are so many knowledgable people on these subjects that could help me out with this question.

I formed an LLC with two business partners and we are going to move one of the partners to a more passive investor position. Since we are doing this we hit a wall wondering how can we get conventional lending for a buy and hold property. For example, lending for a four-plex with only two of us acquiring the financing and only use our third partner for the downpayment/rehab costs?

We want to use him for a portion of the downpayment/rehab costs and give him a return on his money, but not use him for a third borrower. I know that we can change the operating agreement to anything we want for positions and even vote to have him out of the LLC with the majority vote. Would it be better if we had a majority vote and made it just the two partners within the LLC and use the third guy to fund our needs from a private money investor outside the LLC?

It is just tough to figure out how we can use his money for help with financing, but not make him give all his financials to the lender, and also not use his credit score since it's pretty low compared to the two other investors within the LLC.

Any suggestions or knowledge will help! Thanks! 

Peter 

@Account Closed Thanks, and yes, we are trying to ask for some back nicely. We'll see! It very well might be a pretty expensive learning experience. 

Hello all,

I want to throw this out to the BP community and see if we have a foot to stand on. So, two business partners and I were just in escrow on a listed "duplex." We are 25 days in on a 60 day escrow. The escrow is 60 days due to getting a tenant out of the mother-in-law's quarters. We have removed contingencies as well.

This is where I will shorten the story to get to the point quickly. They listed the property as a duplex. The property had three structures on the lot. One was the front unit, a 2/1; the second unit was a separate mother-in-law's quarters, a 1/1; and the third structure was separate and it was a garage. We got an inspection and appraisal done. The appraiser stated that the unit in back was never permitted for a second unit (so, it was a SFR).

We have been working with the city and sending our GC down to the city planning department to see how we can make the second unit a 2/1 and a portion of the garage a 2/1. We were planning on permitting it all legally to be able to get the cash flow and later down the road sell it as a true triplex. The GC was told just two days ago by the senior city planner that due to how the lot was developed it would never be legally permitted for more than a SFR. This is because the property was developed prior to 1955 and that is when they put some more requirements into the city planning code that this lot does not fit within.

So, with all that information, do we as buyers have backing to get any of the deposit back since it was listed as a duplex and we finally figured out that we will not be able to make it a duplex as listed, or even make it a triplex? I know we have lifted contingencies, and that is where we will have the biggest problems getting any money back.

Thanks,

Peter 

Hey @Connor Bell

I would chat with a lawyer to confirm the decision, since I do not know if it is a good move to place your primary in an LLC. I know many people put their primary within a trust and that is not an issue (I know that this is different than entity perfection that an LLC gives you). I do not see that it is a big issue to having a primary within an LLC. That's just me though and not a lawyer talking. Maybe @Steve Vaughan can explain more on why it would the lawyer stated it is not a good move.

You should also know that you'll need to form the LLC and then before you perform the movement on the deed you'll need to notify the company that holds the loan. If they see this change they can call the loan, which will create a lot more work for you.

Good luck! 

Hello everyone,

I wanted to post about my first residential listing success. I was approached by one of my very good friends and co-worker to help him list his house on the MLS. I of course was very welcoming to the idea since I would enjoy getting the experience for future investment purchases and also the gained capital towards future investments.

My friend owned the house for seven years and while he owned the house he slowly rehabbed everything including the landscape, the interior, and exterior. The house was in an older area of a city that has a high crime rate; however, the area held the value higher than other areas of the city due to the country club it was next, and many other factors. He listed the house by himself as FSBO for over a month and got only a few legitimate responses. These responses fell through and he finally got feed up with the headache of dealing with buyers that were not as serious as they should be, and buyers that did not have their finances in order. So, after dealing with those buyers that fell through he asked me for the listing help.

Once I listed his house I was confident that the house would sell quick due to the fact of how great it looked and also the area of the city it was in compared to other parts of the city. We listed the house for $275,000 and he was firm on that price. The house is a 4/2 with a square footage of 1818. The comps in the area were pulled 0-90 days back of course, and a range of prices from $265,000-$285,000. The properties at $265,000 were 3/2s and a hundred square feet less than my friend's house. The properties higher than $275,000 had the same square footage with more bathrooms. Once again, I was confident in the price we listed it at, we just needed to find a buyer that would be able to qualify.

My confidence on the property increased and decreased throughout the listing. We had the property on the market for 35 days in total. The reason that it stayed on the market for so long is because we went through a lot of people that could not qualify. It was tough to actually find a person that would be able to pass our cross-quailification process. We got someone passed the cross-qualification process and closed escrow yesterday. 

This was a long process of course, but I learned so much from this one experience. I plan to use my license to help reduce the costs of acquisition in any transaction, and also build my property management company; however, I do enjoy learning and building capital by helping people buy and sell homes when they ask.

Hey @Nick Versetto

I am wondering along with Nicole what did happen to the deal. Did you end up getting it after all the persistence. I have tried calling the back on some deals and it seems to be a lengthily process, of course because all the red tape we have to get through for the final action. I hope you got an answer that was good! 

Good luck! 

I'm currently only managing a small amount of rentals; however, once that number jumps up I will discontinue having tenants deposit directly into our bank account.

Thanks for the post @Steve Rozenberg!

@Rasheed Muslimani

Hey man, sounds like you are just getting setup in direct mail marketing. I am sure you have heard this before, but before you go to listsource.com, try getting in touch with a local title rep in your area through maybe a friend that is a realtor. The reps are usually more than happy to help you out with a list because that means when you land a deal you would think of them to use as the title company in escrow. This also would encourage them to help you with updated lists because the lists go bad pretty quickly, and they can help you when you need help searching title on properties that may have liens, or any other title issues.

I say this because direct mail marketing can be pricy and buying lists are just that much more money placed on marketing that you could avoid. I wish you luck!

Great! Thanks for the help!! @Jared McKie

Thanks @George P., I reviewed the link.

@Brittaney Woods I was more so looking for a website with no fees at all. Paypal charges fees. Thanks! 

@Jennifer L. Thanks! Yeah, I think it'll just come down to having the rent cover the fees later down the road when there are a lot more clients to handle. The convenience of the tenant just signing on to the link on the website was what I was looking for, but I'll work through Cozy for the time being.

@Jassem A. Thanks!