All Forum Posts by: Shawn Clark

Thanks all for the advice. Met with our attorney tonight. It was concluded that a deal addendum with a single LLC was the best route to go. For comparison purposes for those in MA, our attorney is charging us $750 to do the Operating Agreement, LLC filing, and EIN. That later two items are simple, and can be done on our own, but he is not charging extra and I am told it's better to have the attorney file the LLC so his name and address will be on the document. That way, any frivolous lawsuits will have to go through him before we ever even hear about them.

@Ann Bellamy  - Thanks! Very helpful information.

@Erik Hitzelberger - Thanks. I understand what you are saying. We have been informally reviewing and documenting a  lot of the questions you brought up and building a mock Operating Agreement. We are taking it very seriously as we are all good friends and don't want to screw that up. Tomorrow we will formalize/finalize these points with our attorney. 

We all would like to do multiple flips at a time in the future, but realize that is a ways off as we are all currently full-time employees. When the time arises that we start having a single LLC portfolio with too much equity, we will re-evaluate and consider creating multiple LLC's to reduce risk. In the short term, I think the solution will be to go the addendum route for each property, assuming our attorney agrees.

@Walt Payne - Thanks for the reply! Yes, that's what I was hoping to hear. I will bring it up with the attorney tomorrow. Up until I mentioned the varying splits he was all for a single LLC, once I mentioned that he leaned toward separate LLC's for each deal. Not sure why though, will need to follow up with him.

In addition to the added costs, I feel it just adds a lot of unnecessary complexity since we will only be doing 1 property at a time to start.

I will be investing with two other partners. We have already decided how we will handle the first deal. Partner #1 will provide all funds and be a silent investor for 50% profit/loss. Partner # 2 & 3 will handle everything else. Finding, Analyzing, Closing & Rehab. For their efforts each will receive 25%. 

We would like to do many deals together in the future, so our plan is to setup a primary LLC, which we each own 33.33% in. However, my question is how best to handle varying splits for each property? I mentioned how the first project will be handled above, but let's say for future deals all 3 partners wanted to contribute both financing and efforts evenly. How can we best change the allocation.

Does it make the most sense to create separate LLC's for each deal to handling the changing profit sharing, or would it be better to mention a profit split addendum for which we could modify easily(?) for each deal and only work under our core LLC? For the foreseeable future we will only be doing 1 flip at a time, so the LLC per property just to handle profit sharing seems like overkill to me. I would rather just either create a formula in the operating agreement where you could plug in Cash & Effort to get % profit per deal or somehow add an addendum to the operating agreement to cover changing profit sharing.

Can anyone provide insight into the best way to approach this? We will be meeting with our attorney tomorrow and just want to make sure I understand the pro's/con's. 

Thanks, 

Shawn

Sandy S Harris - I agree about MLS. I just contacted my broker to see if they are willing to pull that info for me. In the meantime I was trying to cut corners and just individually lookup addresses in the registry of deeds that I know are investment properties. If there was a deed and no mortgage I would assume it was paid for wish cash, but I know there are pitfalls to this approach. I will wait for the MLS data, rather than waiting time trying to find a needle in a haystack.

Thanks for all the helpful info.
Minh L. - Good Point. I figured that they must be getting their money back out somehow.
Mike Jakobczak - Yes, I would defiantly keep all buyers on the list, but with wholesaling it seems like All Cash is key to promising fast turn times. I know how long things get dragged out when their is financing involved.
Ann Bellamy - Thanks for the clarification. I was always a big confused about that. Ann, do you happen to know of a good REI group in MA. It seems like most of the ones on the BP list are outdated, down websites, or no longer meet regularly.

Quick Question... Based on my research it would seem that most investors that are buying property with a long term hold and rent strategy would be very unlikely to be all cash buyers. In my experience most people buying investment properties want to use the least amount of their own cash as possible, so that it's not locked up and they can go and buy more property.

With that said, when building a buyers list is it a useless strategy to contact landlords or are there some that actually do all cash deals. My thinking is that maybe I should be more focused on flippers.

Thanks for the quick responses.

Rob, my objective is to purchase 2-3 Family investment properties that cash flow at least 100 p/door or more. The COC is close to 15%. What exactly is missing from the deal, other than having to put 20% down? Also, other than homepath and owner financing how can I put less than 20%? The price seems high, but in MA these are bottom of the barrel prices, often REO.

Nathan, Yes, I think 5% or less shouldn't be a problem. I agree about just * 50%, but for my first analysis I wanted to get as close to actual numbers as I could and see how they aligned with the 50% and it worked out pretty close.

First, I want to thank all the contributors on this forum. I have spent the last year lurking and reading all of the books recommended here on the forums. I have not yet put an offer in on this property, but I am using it to create a hypothetical scenario to see if my numbers are correct.

Asking Price: $154,000
Purchase Price: $115,000
Down Payment: $23,000
Improvements: $5,000
Closing Costs: $2,300 (2%)
Total Cost: $122,300
Cash Outlay: $30,300
Interest Rate: 5.8 (built in buffer, not sure how much higher rates are for investment property)
Mort Type: 30 yr Fixed
Mort Payment: $540
Type: Duplex
Revenues
Rental Income: $1,900 ($950 x 2) Monthly, $22,800 Annual
Vacancy: -$133 Monthly, -$1596 Annual
Net Rental Income: $1,767 Monthly, $21,204 Annual

Expenses: $10,400 (46%) close to 50% rule with deduction for no property manager
Property Taxes: $2,300 (based on zillow?)
Insurance: $1000
Property Mgmt: $0 (DIY)
Maintenance & Repairs: $6,000
Advertising: $200
Utilities: $800

NOI: $10,804
Cash Flow: $4,326 Annual ($361 p/Month)
Cap Rate: 8.83
COC: 14.28%

If my math looks ok, then I have a couple of follow up questions:
1. Is it a good deal?
2. How come it doesn’t meet the 2% Rule, yet still cash flows > $100 p/Door. What assumptions does the 2% rule make that I am overlooking?
3. On REO Properties, is there any way to get Actual numbers for expenses or does it have to be estimated?

Thanks,
Shawn