All Forum Posts by: Steve Perkins

@Curt Davis 

I have mixed feelings.  The warranty and repair guarantees don't mean a whole lot to me other than making me want to know more about exactly what they will be doing with the rehab.  If the rehab is good, they probably aren't losing much, if anything on fixing warrantied or guaranteed items because these things aren't likely to need repair in the first 2 years.  So, I guess for me, the warranty or guarantee on repairs is just a red flag to really dig into the SOW on the rehab to see what is and is not being done.

Rental guarantee is a little scary.  On the one hand, it's nice to know you'll have no fees for 12-24 months as you're starting out, but it really raises the question as to whether this provider can/will be able to provide you quality tenants past the guarantee date.

Hi, @Jay Hinrichs 

Great concept.  One question.  What kind of QC do you have?  A lot of the "reviews" appear to be posted by the providers.  How do I know which are truly investor reviews and which are marketing fluff?

As @Jeremy Tillotson says, the LLC is not likely going to give you any kind of tax break. I'm not a corporate entities lawyer or an accountant, but my understanding is that taxes for LLCs are pass-through (i.e., profits and losses "pass through" and are reported on the owners' 1040).

The LLC exists to insulate you from liability in the event there is a claim against you or your business arising from the property. Short answer is that theoretically, your personal assets are separate from the LLC's assets and cannot be used to satisfy a judgment against the company. In other words, you only risk the company's assets. I say "theoretical" because there ARE things you can do (without knowing you're doing them) that will legally allow the court to disregard your corporate status and go after personal assets. So, if you're going the orporate entity route, DO talk to lawyers and accountants to make sure you set up a process that avoids these pitfalls.

Good luck!

@Account Closed 

I assume that you purchased through conventional financing. If so, be aware that your mortgage probably has a due on sale clause, which means the bank could call the note due if you transfer the property to an LLC.

I'm not sure your situation is one that favors the creation of a LLC at this time. You won't likely see much, if any tax benefit since LLCs are pass through tax entities (i.e., you file an information tax return, but all profits and losses pass through to your personal tax liability). The primary purpose of the LLC is to limit your company's liability to the company and prevent a judgment creditor from attaching your personal assets to satisfy a judgment against your company.

Many people think an umbrella insurance policy is enough. It really depends on your risk tolerance. Since you currently live in your only property and merely rent out a room, I personally think that a LLC is premature. You're on site. You (hopefully) have insurance with liability protection for your residence, and you don't yet own another rental. What's the purpose of the LLC?

@Jeff Rabinowitz 

Perhaps it's just the lawyer in me, but when there are THAT many complaints (written? oral?) I tend to get a little wary that someone is trying to build a record and screw me in the end.  It happens in my day job all the time.

I'm with the others.  Get them out.  Maybe it's nothing.  But what if it isn't?

@Michael S. 

Sorry, Michael.  Large multifamily is out of my area.  I suggest you get on the phone with your insurance company (and others) and start seeing what's available.  Post you options on BP, and I'll bet you'd get a ton of suggestions.  Great question.

Just realized I didn't really apply my answer to your particular situation.

If I understand correctly, you're not buying and holding.  You plan to flip vacant land?  I've never done it, so I'm not sure what the liabilities might be.  I would guess that you will be holding the land for some period of time before selling?  How long?  Could there be hazards on the land?  Is it likely there will be people moving around on the land (with or without your permission)?

These are some things to be thinking about. What is the real risk that I could face a lawsuit? If you think its low, the LLC may be overkill. Also, keep in mind that it may depend on the individual land. Finally, if you have any personal assets you absolutely MUST protect, I think an LLC can't hurt.

@Ross Benedict 

An LLC is not NEEDED in order to start your REI business, but it's a good idea to consider it. It really comes down to your level of comfort regarding potential liability and the extent of assets that are at risk,

An LLC is intended to encapsulate your property within a separate legal entity for liability purposes. In other words, you keep your personal and business assets separate so that if your business incurs a liability (for example, a judgment against you in a personal injury lawsuit arising from a claim that an unsafe condition at your property caused the injury), your personal assets are insulated from being liquidated to satisfy this judgment.

Many RE investors keep each house in a separate LLC. The reason for that is the same. The idea is that assets (houses) in separate LLCs cannot be reached to satisfy a judgment attached to a particular LLC.

The concept is great. In reality, you need to be aware that you can certainly conduct business in a way that could negate the advantages of the LLC (e.g., comingling (mixing) personal and business funds). This is called "piercing the corporate veil" and allows a plaintiff in a lawsuit to go after you personally for liabilities incurred against your business. So, it's imperative that you properly follow the rules relating to operating your business.

Also, it can be a headache to manage several different LLCs covering several different properties. Similarly, the costs for LLCs in certain jurisdictions can really eat into the bottom line. The tax laws of a particular jurisdiction can do the same. So you really need to have the proper guidance to get the most from the LLC structure. Like anything in business, it can be complicated, but you CAN learn and understand it.

Another (not exclusive, but potentially supplemental) way you can limit the risk is to get an umbrella insurance policy on your properties that will protect you by paying out for covered liabilities in the event your property incurs them.  I highly recommend an umbrella policy on any property.  They typically aren't that expensive for basic coverage, and will probably be sufficient for the most typical claims you might encounter.  That said, there are exclusions, and you need to read the policy to understand what is covered, to what extent, and what isn't.

For ME, at a minimum, I have a separate LLC that runs and manages my business and separates business assets from personal assets. For multiple properties, I'm of the opinion that there is a threshold dollar amount of assets I will risk in each LLC. So, each LLC may hold e.g., ~$250,000K in property (could be one property, could be multiple properties) and each property therein will have an umbrella insurance policy.

Long story short, it depends on how and whether you want to distribute the risk and then how that plays against the complexity of managing multiple LLCs.  There are a lot of variables, but you can ultimately figure out the best way to go for you with help from a good attorney and accountant.

For those starting out in buy and hold, I recommend that you at least have a separate LLC for your business, even if you don't have more than a single property. It MAY be overkill, but I know I don't want to be that guy posting on here about how I relied on only an umbrella policy and ended up losing all of my personal and business assets because of a freak accident or savvy plaintiff.

I think that depends on the approach you decide to take.  What are your plans?  Find, fix and flip/rent on your own? Use a partner?  Turnkey?  Each has difficulties and risks.  Give us a little more information on what you want to do?

A simple Google search on zip code will give you a number of sites to look at the demographics of a neighborhood, including the renter/owner make-up, crime statistics, schools, etc.