All Forum Posts by: Rob Hakes

@Prakash B. 

Sounds good from my angle, but I would talk to an attorney about your specific situation. Did you have an attorney help you set up the LLC?

@Prakash B. - I am not a lawyer, but do have some houses in an LLC. An llc will not protect you from getting sued, nor does it offer any liability protection. All it does, if managed properly, is separate the business assets from your personal assets. So if your LLC gets sued, you hope that the LLC will protect you enough that they cant touch you personal property.

It also may deter a plaintiffs attorney from suing if they know they cant get to your personal assets and if the LLC doesn't have a lot of equity.

It is really only a way to segregate your risks and to not keep all your eggs in one basket.

The most important protection would be an owners insurance policy which the bank will require if you are using a lender.  Some also add an umbrella policy to increase the insurance amounts.

Also important to note: you must treat your LLC as a seperate enitity - keep minutes, seperate bank accounts, seperate accounting, and having the property titled in the name of the entity. If you fail to do this then your registered LLC is worthless.

Thanks @Jason Bott.  I think that makes sense.  So the umbrella policy covers everything the primary policy does/doesn't it just has bigger amount limits.  

So if by an off chance i had a tenant that claimed they had a black mold problem that hopitalized the tenant racking up medical bills and rehab costs, then i imagine the insurance company could deny the claim as it is 'enviornmental' leaving the liability up to whomever owns the property....

If it was in my personal name then all my personal assets could be locked up in litigation. If it was owned by an LLC then in theory only the assets owned by the LLC would be subject to the litigation.

Just because I i know the nature of an insurance company during a claim, i certainly see the value of keeping assets separated into some sort entity other than yourself.  Insurance won't cover everything.

If you can find a cost effective way to put the property in another entity (LLC) then i think it is worth it.

@Larry Fried @Costin I. @AJ Singh @Ali Boone

After reading these posts, and being more on the 'pro-llc' side of things, i was wondering about the items that insurance wont cover.  A typical homeowners policy can exclude things like environmental factors (mold, etc.).  So if you run into a gap in your primary policy, like with mold, then will an umbrella policy cover these items like gap insurance? or is it only covering amount overages for covered items?  

How many holes are in the umbrella policy?

If anybody knows I would be curious to know.

Thanks

@Li Tolentino

I think it has changed a lot in the last year for turnkey companies all over the country.  When i got my first one with Spartan last June, there was basically no waiting list and lots of properties to choose from.  For my second one in December there was about a 1-2 month wait.

Another turnkey operation I was working with put me on a 5 month waiting list last May.  That 5 month wait turned into an 11 month wait and just starting being able to view properties this week.  With the combination of more investors with more cash, and less and less supply, I think it will only get worse.

I have also noticed that prices are going up a bit too.

@Caleb Heimsoth

I am sure lease term has something to do with it as well.  If the leases were a one year lease, then half of a months rent would be too steep.  Its not quite as expensive with the two year lease.  If you can find a PM that is doing long term leases, keeping tenants for long terms, and charging small resigning fees, then that is a great deal.

  I don't think they establish the resigning fee based on the work involved, its just another revenue stream to keep their lights on.  Having a PM that can keep their lights on (or more) long term is vital for a turnkey investor.  

@Cameron Eaton I have dabbled in note investing (one performing note under my belt) but changed my strategy to rentals.  It is a very good concept, and hope to more of it in the future.

@Andrey Y.

I have thought about putting some $ into a syndication.  I have looked at Holdfolio because they don't require the investors to be accredited.  Seems like okay returns.  I think it was around 10-12% but i don't remember how that income is taxed.  

@Andrey Y.

Also to address your question about the high tenanting fees.  If you have found a PM that does not charge them that is awesome.  I would make sure their business model provides them sustainability so they are around long term.  That it not common, so if they are a good stable company i would hold tight to them.  

I don't think the primary incentive of the turnkey companies is to churn through tenants to keep getting fees.  From a primarily monetary point of view they will be better served to keep good investors coming back to buy more properties as they do make good money on the 'flips'.  They do have to provide good returns to keep investors lining up or the real money making arm of the company (rehab and sell) would not last long.

Just my two cents.

@Andrey Y.

Definitely valid questions.  With real estate investing it all boils down to the math so if you're not satisfied with the projected returns then it would definitely be too much of a hassle with all of the headache of purchasing a home.  I asked myself the exact question 6 months before i took the plunge into turnkey.  I like that @Jay Hinrichs pointed out the steady nature of note investing. My person REI journey started with the intent of doing note investing exclusively because of the hassle free nature.

I did find a note that i was able to purchase a fraction of ($17,000) that pays 10% for 12 years. Truly mailbox money, and no downpayment. In fact i don't even have to pay the note servicing fee. The only expense for this investment was the $15 to wire the money to the broker. After this deal, that is still faithfully paying, i remember looking at some turnkey deals and really turning my nose up at them thinking the exact same thing "why would anybody to this for $150 a month" here is why i have changed my strategy to a turnkey that may pay 10% ROI versus a virtually no hassle note investment

Downside of notes:

-Vacancy on Money.  With an amortized note you are getting back some of the principle every month.  This means less and less of your money is deployed capital until after x years it is all gone.  This really hurts if you don't have enough notes in the pot to grow quick enough to re-deploy capital.  With a rental your capital is always deployed, and it won't disappear in x years.

-Taxes.  Again a simple math equation.  interest income is taxed as regular income while a rental property is wildly taxed advantaged.  

-Availability.  I think a good note needs to be on a property that is good enough collateral that you can comfortably foreclose upon if needs be.  This is tough if i only want to put about 20k into each deal as i don't want a note collateral to be a 20k property.  This is solved with buying a fraction of a note, but i have learned that they are not as easy to come by.  @Jay Hinrichs if you have any suggestions on where to get fractional notes for smaller investors my ears are open.

-No Upside potential.  Notes are not going to have the potential to appreciate, or get equity pay down, which are icing on my projected returns.  Notes have limited ability to produce anything other than the interest rate.

So where i don't mean this to be a post on note investing, maybe this helps answer the question of why go through all the hassle of a turnkey property for relatively low cash flow.  I also look at the ROTI, or return on time invested.  With a good turnkey company I am not having to really put too much effort into the investment.  So for something that all i have to do is check my bank account once a month, ill take the $150 all day long.

I think there are some better returns out there if you are willing to not go turnkey, and sacrifice the time that may need to put in.