All Forum Posts by: Ryland Taniguchi

No you don't need it. Get a Texas LLC. if you're just starting out, this is a waste of lot of money and bad information. I have gone down these paths and you can have great asset protection without Nevada. Most of these "guru" actually tell you to get a Nevada c-corp. Then you get killed on taxes. You can even hire nominees in Nevada and hire them to use their social security number to erase your name from the record.

Lawyers have pierced the veil in Nevada particularly on single member managed LLCs. Nevada courts tend to pro-business in general. Also, the major law firms I found don't have offices in Nevada.

But all this amounts to a lot of wasted money. Make at least million first and then hire an asset protection to help protect your assets.

There are much less expensive asset protection strategies like investing out of a self-directed IRA or self-directed solo 401(k). Asset protection attorneys are biased because they would be happy to take your money.

Read the book "Lawyers Are Liars" by asset protection attorney Mark Kohler.

I break land development deals down in 12-month increments. As a rule of thumb, I structure deals so I never have my money tied up in the deal more than 12-months. As a second rule of thumb, I try to lock in my return on capital at least 200% IRR. Finally, I look to reduce my risk exposure in a deal as much as possible.

1) The 12-month to 20-month Seller JV. I like to offer sellers a very low cash now offer let's say $400,000 and then a much higher 12-month to 20-month short term JV at let's say $500,000. Whether the JV is for 12-months or 20-months depends on how long it will take me to get entitlements done and get permits issued.

I like urban 3-story townhouse development in Seattle because it only takes 16-months from acquisition to sale. The permit review period is 10 weeks (although right now with delays it is taking 18-weeks). So here is how I structure these deals ideally. I offer the seller a 12-month JV at the higher price where I put down $10,000 EM and will cash them out for $500,000 in 12-months.

Why do I structure it this way? I will come in with the hedge fund and pay for $50,000 in soft costs including survey, architecture, engineering, geotech if needed, land design and permit intake fees. I am looking for a deal where I can cash out $150,000 (roughly a 200% IRR) in 12-months from the original $50,000 investment. What I will do is get a partner on the deal right before permits are issued. They come in with $300,000 ($140,000 for 25% downpayment to cash out the seller and $150,000 to cash me out plus closing costs) in exchange for 70% equity in the project.

By structuring this way, I locked down a 200% IRR and the new partner takes all the risk. I am sure to do it in exactly 12-months and one day so these profits are taxed as capital gains versus ordinary income. The new partner now takes all the risk of the project and loan guarantees the construction loan. I have eliminated my risk. I to structure these deals so they will make $600,000 on their $300,000 investment in 9-months (pretty good return over 90% IRR). I then will make an additional $150,000 cherry on top profit with my 30% equity and make another $150,000 as the builder/GC and $60,000 as the listing agent.

2) Luxury Development. I like to structure luxury development projects where I will subdivided 5 acres with a view on a seller JV. My strategy would be to sell two lots for $750,000 each and then use the $1.5 million proceeds to pay cash (no construction loan) on a 7500 sq ft luxury home at $165 per sq ft. The reason why I do this is because if the market crashes, I don't want to pay 1% interest per month on a $1.3 million construction loan. $13,000 per month times 4 years to wait out the market would kill me. Plus, extension fees every 90-days. Even if I rented out the 7500 sq ft house at $5000/month, I would still lose $750,000 in a market crash. That's what most builders don't. I would only build luxury if I can subdivide, sell the lots and get the first build for free. Then wait to sell the first house at $2.5 million and then build house #2.

If I were to start real estate all over again with no credit and no money, I would start by getting awesome at finding deals. 

I systematically find deals by systematically driving for dollars. I have detailed my approach to marketing in other sections. We have direct mailers, door-knockers, secret niche strategies that few know about, etc. 

If you can find a great deal for a flip or BRRRR, you can borrow Gap funding from a private lender. If I were starting all over, I would do a HML first and get a 2nd gap fund at 20% and 5 pts.

But here is the challenge. On a 12% HML first, you maybe paying let's say 3 pts. Then if the project sells in 10-months which is not uncommon in my market where permits can take way too long, you pay an addition 4 pts in extension fees. You pay 1% per month in interest on the first mortgage. It costs 8% of ARV for every six months that you sit on hard money. Very little room for error. If you take out Gap funding at 20% and 5 pts, you room for error shrinks even further.

This is why I prefer BRRRR over flips. On a flip, the room for error is tiny. Speed and velocity are paramount. Very hard in my market where construction is in such high demand. On a BRRRR, I have 10-15 years for my returns and a couple of delays won't kill me.

Anyway, with a HML first and a 20% 2nd Gap funding the holding costs may eat up your profit if you don't turn that property fast. Your looking at a blended cost of capital around 24%.

When I run my hedge fund, we get a blended cost of capital of less than 5% using a credit facility/warehouse line based on Libor at 3.25% currently blended with the targe returns of the fund at 8% (10% to 11% if interest is compounded). From experience, it is hard to make money if your blended cost of capital is 24%.

I would have to say that I am very very lucky because I have partnerships now that work amazingly well like marriages made in heaven. One of my current partnerships is with someone who I could literally chat with for hours on end on the phone. I have another partnership where are so in sync that it's like we can independently make 10 moves and compare notes and we'd make 9 out of the 10 same moves. I would say that many of my partners are the most creative, go-getter type, intelligent and most contribution minded people that I have ever met in my life.

But for every one partnership that has worked out amazing, there have been about 4 that did not work. Here are the horror stories over the years.

1) I had a partner that died in a drowning accident and he was only 32. That is quite the saddest thing one could go through. I had loaned him $50,000 so he could buy shares in a Hollywood media company that he introduced me to. He had 12-months to pay off the loan or lose his shares as the underlying collateral. About two weeks prior to the loan coming due, I get a call from him all excited that he had the money and was ready to pay-off the loan. Then he died in a freak accident. If that wasn't traumatizing enough, imagine the look on my face when his parents initiated litigation against me. It never went into litigation but they thought I was trying to take his shares in this media company. After many rounds of lawyer conversations, it all eventually got sorted out. Amazingly, in my life I have never sued or been sued. Well, except some brand names that I owned that Warren Buffett's company said infringed on their brand. That doesn't count (and I had to sign something that I would never reveal how much money I walked away with).

2) I use to be the king of the short sales in 2009 until they passed some laws that basically made going after pre-foreclosures very risky. In this partnership, I went away on vacation and when I got back found that the partners decided not to pay me about $60,000 in distributions.

3) I have been in partnerships where I basically did 95% of everything. That situation sucks. Have been in partnerships where we are supposed to split the cost overruns and holding costs 50/50 but ended up having to pay it. Often in partnerships you may have different agendas like one wanting a quick profit and the other wanting the tax advantages of a long term buy and hold. And of course there has many partnerships where we just see the world differently and have different values. There was one partnership where the partner was amazing at finding deals but horribly organized and terrible with money.

4) I invested in a company (not exactly a partnership) that did really well making $80,000/month in revenue in year 2. The CEO never had much money before and starting partying with girls and then started taking heroin. You can imagine the rest. He ended up taking money from clients and I spent about $250,000 out of pocket cleaning up the mess.

I have the fortune to have made millions of dollars and have always been action oriented and willing to test out new partnerships. Ultimately, I believe partners are a reflection on yourself. Are your partners contribution minded or hustlers? The answer is probably a reflection on who you are. I have seen amazing personal growth in myself over the last sixteen years and now believe I enjoy high quality partners because I have evolved as a contribution minded person.

You're not going to succeed in real estate unless you go through massive failure. Failure makes you a better person and as a real estate entrepreneur you learn on the go.

 If it look at my other BP posts, I got into a ton of detail about the 18-year cycle theory. Notes don't protect you from hyperinflation.... Free and free cash flow rentals are a hedge against hyperinflation.

Definitely finding the deals are key. Other keys are getting your capital as cheap as possible and managing risk.

Dion, congrats on doing some successful flips

The underlying reason for the 2008 crash was not simply the subprime market. The real reason was long-term low interest rates. The government by manipulating markets to keep interest rates are creating artificial market bubbles.

Subprime was just the instrument for money to circulate into the real estate

Hedge funds are the new instrument that replaces the subprime. The money doesn't come in through subprime now but we have now replaced the instrument with hedge funds.

@Russell Brazil 2008 was not a once in a lifetime anomaly. With long term interest rates now the new norm, asset bubbles will continue to get worse about every 18-years. The next huge crash between 2022 and 2028 will be much worse than the 2008 crash. 

How do I know interest rates will remain low indefinitely? It's simple math. Unlike the Reagon/Volcker years, we now have an $18 trillion deficit and our country can no longer afford to pay 20% interest payments on $18 trillion as the $3.6 trillion would exceed our tax revenues. 

Expect triple taxes in the future (which is my concern with making money in traditional IRA versus Roth) and expect perpetual low interest rates and thus perpetual asset bubble crashes.

I have seen the trend and that's why I only to be investing in real estate as a hedge fund manager. I see an opportunity to continue to get credit facilities from investment banks at 3.25% based on libor to get a blended cost of capital under 5%. With such cheap capital, it's is much easier to arbitrage investment opportunities than paying a blended cost of capital of 20% to hard money lenders. In today's hot market, you need to get capital cheaper to reduce one's holding costs.

 I will check into it. 

The more you do real estate, the more you realize Notes are the way to go. I like underwriting 50% LTV non-recourse notes for investor's IRAs and flipping the paper every 60-90 days.

I personally (not through a hedge fund) buy 10 cash flow rental properties a year but I use the cash flow to pay down the debt. Also, I don't hold forever. I base my exit on the 18-year cycle theory and watch closely every year. Currently, my exit is planned on all 80 rentals around 2021 from rental properties purchased between 2009 to 2016.

I love paper way more but I think free and clear cash flow rentals structured properly for asset protection are a nice hedge against deflation/hyperinflation and also I use the depreciation as write-offs to offset my ordinary income as an agent/real estate professional.