All Forum Posts by: Michael S.

Ok, well if you can't refinance under decent terms at the drop of a hat when the note is accelerated you COULD lose the property. Its conceivable that nothing changed with your tenants, the income stream, or expenses, just one of the 10 members buys out another member for her $50,000 in equity because she is going through a divorce, or some other similar situation. Its a much smaller scale, but it is the same thing as a REIT investor selling shares on the NYSE to someone else.

I have been reading some commercial Deeds of Trust in my spare time (I need to get some more exciting hobbies!) and I was surprised to discover that it is common for the lender to consider basically any change to the LLC or ownership entity as an element of default. For instance:

-"Dissolution of LLC, even if election to continue is made"

-"Any member withdraws from the LLC"

-"Any assignment for the benefit of creditors"

So, am I correct in understanding that anytime someone buys out someone else in an LLC, they are risking the bank accelerating the note? Also, even though the multiple-member entity may have charging order protection, if one member's "dividend" is assigned to a creditor as the result of legal action, again the lender can accelerate the note and take the property? That seems a bit excessive. Is this similar to the due on sale clause for residential mortgages, where the legal contract allows the bank to take the property but rarely actually does?

@Jerry W. and others: the cost argument often comes up regarding holding LLCs.  Here's a couple points:

-WY is one of the cheapest states for an LLC, and still quite reasonable if you pay $150 per year for a registered agent plus the annual fee.

-Lets provide a reference to these costs: vacancy at one of my typical rentals costs $60/day or $420/week.  Sending a handyman over to fix a doorbell (I live out of state) costs $60.  Property insurance costs $1200/year for a typical rental.  My $1M umbrella costs about $200.  Taking the family out to dinner costs $100.

-Say you have a $100k non-retirement brokerage account in addition to some rentals. That brokerage account can go into the WY LLC holding company. Even if the only thing you had in the WY LLC was the $100k brokerage account, then $200/year = 20 basis points for some rock solid WY charging order protection. Sounds like a great deal to me, even with a $40k account.

In the grand scheme of things, an extra $200 per year for a WY holding LLC is peanuts. I don't think you need to own a private jet before you think about a WY LLC.

@Marques J. what bank do you use?

EIN was no issue, and I am familiar with the Registered  Agent industry, hence my frustration with Wells.  

Just out of curiosity, do other Big Pocketers use the registered agent's address for the EIN? It is my understanding that this address is on file with the IRS, but nobody else can get that information without a subpoena or hacking into the IRS. It isn't public in the same way that the address on the state filing is. I'm not looking to hide my identity from the IRS; they are going to get their due. So, I had no problem putting my home address on the EIN. I am going to file a tax return that shows every LLC I own anyways. However, this might create issues with future banks if the EIN address doesn't match the state filing address (my registered agent).

@Blair Poelman it sounds like Wells just can't get out of its own way right now.  

I applied as an existing customer, having 2 other accounts and a mortgage that are 5 years old, all linked through the same beneficiary SSN.  I have no problem providing the underlying beneficiary SSN because the application has a specific entry for the EIN.

I don't even want to begin to imagine how someone would open a bank account with Wells for an LLC wholly owned by another entity. They would probably lose their mind... then hop into the system and open a bunch of bogus accounts for you that you DON'T want, haha.

@James Mc Ree Hmmmm, what address did you file with the state as the registered agent? And has any other LLC used that address? That's what was causing the issue.

I just got off the phone with a very smug account Wells Fargo business checking associate who was very proud of discovering my registered agent's address (used on LLC filing) on the state website listed for other LLCs. The associate wanted to know where I will be doing business and wouldn't accept that registered agent's address. Well, mostly from my rental car and the hotel room, but that probably wouldn't be an acceptable answer. When I gave another address over the phone as a backup, I was told that would only be accepted with some correspondence (utility bill, invoice etc) that had the new address and the LLC's name. This is because this "new" address isn't on the official state filing.

How the heck is someone supposed to start a business, and enter into contracts with a utility company or customers without first having a bank account?  What planet is Wells Fargo on?

I had read many threads about going with a local bank for the LLC, and now I know why. Does anyone have a recommendation for a bank account in Utah that will allow me to use my registered agent's address?

In the future I plan to have an LLC that is wholly owned by another LLC. Have people on bigger pockets been able to get bank accounts for this kind of LLC (wholly owned by another entity)? I had no idea setting up the bank account would be harder than finding the deals.

I will be investing in Utah and South Carolina.

@Michael Plaks that's what I suspected. Thank you for the response.

That's one of the issues with all these great RE strategies out there, and I'm not talking guru scams, but legitimate strategies that come from CPAs and real estate attorneys.  In the real world most folks have a mortgage on their personal residence (and if they don't, I'd love to know why they didn't take one out recently at crazy low interest rates).  It seems like most of these strategies don't pass the real world test.

@Greg Pratt , @Cameron Skinner and @Michael Plaks lets add one more level of difficulty...

How do you sell the property to an S Corp, secure the Section 121 tax exclusion ($250k/ $500k), and protect yourself from the due on sale clause that comes with traditional financing?  If the property is held in a land trust/ revocable trust/ inter vivos trust and the original beneficiary  John Smith sells his interest to Bigger Pockets S Corp (wholly owned by John Smith)  for fair market value, would that work?

@Taylor Ballam is the commercial loan non-recourse?  Any pre-payment penalty?

@Ty Burns same questions.  Are the MACU commercial loans on single family homes or condos non-recourse, and do they include prepayment penalties?