All Forum Posts by: Stuart Udis

@Cory St. Esprit You first have to review the local zoning code. It sounds like a mix-use building based on your description, but you should verify the allowable ground level uses. Normally there are permitted and unpermitted uses even when commercially zoned. Beyond that, to answer your question on viability it's important to first understand who your tenant base is? Is this property in a location that serves lower income housing? A more affluent tenant base? I raise this point because depending on your tenant expectations in unit laundry may be required to meet the market demand. A tenant lounge with work stations may be more marketable to the affluent tenant base who expects in-unit laundry whereas coin operated laundry may be more marketable the lower income tenant base.

Nevertheless, you are approaching this correctly. There are locations where even commercial space on "main streets" as you describe are difficult to lease or costly to fit out for tenants. If you can drive rent growth in your residential building component through the use of the commercial space, it can be a good way to make back income that is hard to generate otherwise. Sometimes it's also a bridge use as markets develop. 

@Noelle Johnson If you are just getting started and plan on purchasing investment property in Philadelphia perhaps a single member PA LLC which will be treated as a disregarded entity would be helpful, but more for business planning. You do NOT have to worry about trusts or any more complexed entity structures at this time. If anyone tries selling you services to set up a trust, an LLC in WY or NV citing anonymity, take time to educate yourself first. Specifically ask them to explain the precise fact pattern that will arise as an owner of a property in Philadelphia where the asset protection strategy will provide benefits to you. Also anonymity is a farce. Don't get tricked into spending money trying to achieve anonymity. As someone just getting started don't get distracted, focus your time and resources on buying the best property available. 

I suspect you believe your investments are low risk because they are lower cost properties. Unfortunately, properties like the ones you own are disproportionately impacted by cap ex. What happens when you have to replace a roof, have to replace a curb trap, etc,? Depending on how you're leveraged you can theoretically be under water as a result of a single cap ex item that you weren't expecting. You are also obligated to be extremely hands on otherwise there's no cash flow margin whatsoever. Hence, the comment about running a business. This is why your strategy is neither safe or easy.

@Henry Le There's nothing wrong with what you propose but I equate this to running a business, not investing in real estate unless there's meaningful appreciation taking place in the background. If there isn't there's nothing "easy" or "low risk" about what you're doing.

The 1% rule was never more than a back of envelope exercise at best. The analysis doesn't take into account expenses which disproportionately impact the lower cost markets.  Ironically, its these markets that frequently draw in investors seeking their 1% properties believing they will cash flow XYZ per door allowing them to retire form their W2. I don't hear many of these "success stories".

@Ethan A. I will begin by reiterating a Wyoming LLC provides absolutely no benefit in your situation. Furthermore, there are certain transaction participants who you must disclose your identity. Namely, your lender and title company. The anonymity (which is a farce to begin with), is not intended for the person you are looking to borrow money from or the company you hope to insure your properties title.

As the owner of a $100K property in PA if there is a conflict or liability event it will relate to a landlord/tenant issue, be a premises liability claim or involve a payment or performance dispute. I challenge you (or anyone on BP) to articulate the scenario where the Wyoming LLC will provide any benefit whatsoever to a $100K property owner in PA.

Most in your shoes wrongly believe the WY LLC allows them to hide in the cloaks of secrecy and in the event something bad were to arise the perceived anonymity will discourage the aggrieved party from pursuing a claim.....tell that to the Plaintiff's attorney who gets a call from a prospective client who busts their ankle on your icy sidewalk, the tenant who is living in conditions that fail to meet the implied warranty of habitability standards, or the contractor you stiff who files a mechanics lien against your property.

My blood is boiling. Who suggested this structure or the need for a Wyoming LLC? How do you expect to obtain title insurance or a loan unless you provide org docs identifying your role in the LLC? As Chris mentioned once your mortgage is recorded anyone can obtain a copy of this recorded document and view your name on the signature line or the mortgage. Hate to say it but you wasted time and money forming this Wyoming LLC. The Wyoming LLC provides no added asset protection to someone purchasing a $100K property in PA. NONE. Choice of law does not apply; venue will most certainly not apply. Purchase the property in the PA LLC if a LLC is utilized.

@Brad Neihardt Go ahead and create an LLC, nothing wrong with that but don't expect the LLC to eliminate your need to guarantee debt. Lenders will look to you to personally guarantee real estate loans irrespective of whether the property is purchased as an LLC. Utilize a business credit card and fail to make payments? Expect to see this on your personal credit report (normally after 3 months of non payment).

Insurance and LLC's provide different benefits. I tend to favor LLC's when purchasing investment real estate but more for business planning and the fact the LLC is more likely to keep your name out of the docket. At the same time utilizing appropriate insurance (and using it correctly) is necessary. It's not a one or the other proposition.

There are so many misconceptions when it comes to asset protection, specifically involving LLC's and insurance. Investors really should take the time to educate themselves. Just the question of LLC or Insurance points to this. There's an acceptance amongst most real estate investors that liability events will occur and so much focus is placed on preparing for that liability event whether it's the belief an LLC or Insurance will provide the necessary protection. I challenge more investors to ask the question: How can I operate my business in a way where I can deter liability events from occurring in the first place through sound operations. Ironically most who spend on LLC's and overkill Insurance are negligent in their operations, are susceptible to carriers excluding coverage, spend an unnecessary amount of time defending claims, experience insurance premium increases etc.

Not saying LLC's and Insurnace are bad, but start with being a good operator. You will save a lot of time and money in the long run and your properties will perform far better. This should be done by all investors irrespective of their strategy in addition LLC's, if deemed necessary and appropriate insurance which should always be carried.

@Brendan Blood Have you spoken with local realtors and gotten assurance building a 3,200 SF home is the correct development plan? That's a large home. There's normally a sweet spot SF and bedroom count depending on the location and building too big of a home can really harm ROI because values plateau at a certain point. Hitting the SF and bedroom count just right is really critical in new development.