All Forum Posts by: Stuart Udis

Looking at this solely from the transactions costs, it will be less costly to sell the membership interest. Otherwise you are opening the door to pay transfer taxes and likely originate a new loan. If the partner who is exiting the deal is a guarantor on the loan, this is something that will have to be sorted out with the lender. However this is a fact pattern that really warrants your accountants counseling. There’s tax consequences for the partner who is exiting as well as basis issues the accountant should weigh in on. 

@Anthony Theokary Directly from the Philaelphia L&I website:  

A licensed Philadelphia contractor must perform the work, except for projects on an existing one-or-two-family home that don’t require an electrical or plumbing permit.

The scope of work you are performing goes far beyond the limited exception which falls within the EZ permit standards. A 3rd floor addition will not only have structural modifications, but also require mechanical, electrical and plumbing permits. May I ask what motivates you to pull your own buildong permit? Adding a 3rd floor onto a building is far more complicated than most beleive. Unless you have a strong construction background, I highly recommend you do not undertake this work on your own.

While I do not know the specifics of the purchase or exact location, I understand the Philadelphia market well enough to place this property in a lower tier neighborhood based on the ARV Mario shared. I hope Mario can mitigage his losses by selling the property quickly to stop the bleeding, or re-tenant and refinance to less expensive debt but this serves as a case study on the perils of investing in lower tier neighborhoods.

The amount of people on the internet and social media selling the false narrative of how easy it is to create wealth through investing in real estate, specifically these lower tier neighborhoods is upsetting.  Truth be told, the only easy part is the actual purchase where there are no barriers of entry. I am particulalry concerned for those who spend hard earned money on courses and mentorship where they are taught to use credit card debt to fund the downpayments and/or improvements and the ease of funding deals when in actuality the only funding available is high interest alternative lenders.

I disagree with Glenn. Most banks will lend to borrowers who own properties where the deed holder is an LLC. This will still be recourse debt meaning you will serve as a personal guarantor. Unless your expectations are for non-recourse (which doesn't generally exist in the context of your borrowing needs), lenders are going to be more concerned with you as the signer. Also, the web of entities that Glenn mentions is truthfully pointless. It adds no additional protection and will not shield you in the event of a lawsuit. Any competent plaintiffs attorney will bring in all entites Glenn described and argue an alter ego exists to latch onto whichever entity has the insurance or assets that are easiest to collect upon. I do beleive in owning real estate as an LLC, but more important to operate the LLC correctly above all else.

As for your intiitial question, while I do not have familiarity with banks in Portland, speaking more generally you will most likely find the smaller banks offer the more competitive construction loan terms and the larger banks will generally offer better take out financing once the properties are stabilized. For this reason it's best to build relationships with both categories of lenders. Also, you should be focused on constuction lenders who offer best leverage (usually those who will capitalize interest reserve &  finance a portion of the soft costs), lower floors on the rate since most banks tie their construction debt pricing to the fed rate, perhaps offer lower or no pre-payment penalty if the property reaches the permanent financing phase of the loan product before you are able to refinance and low or no required depository relationship outside of the actual operating ccount. For the takeout lenders lower pre-payment penalties should be at the top of your list with no or lower seasoning periods. Savings rates should honestly be at the bottom of the list with respect to both the construction and take out lenders. 

What is the monthly rent you can expect to collect and do you have the ability to refinance to a lower interest loan rather than rely on the higher interest alternative lender who financed the construction? 

The  projects you’re seeking do not have sizable enough construction scopes where the fees warrant the best contractors. The fees you will have to pay to make the work worthwhile will impact the profitability of the projects. Others may have different opinions but that’s what I’ve found. 

@Yocheved Beer May I ask what dollar value transactions you are pursuing?

I’m frequently contacted by real estate agents and wholesalers who tell me they have large numbers of “off market” properties available each month. I’m then added to a mailing list from wholesalers where I’m fed a bunch of lousy properties. Not to mention how “off market” are these properties if they are being sent to a long list of prospective  buyers? Chances  are you’re not the only investor these properties are sent to. Meanwhile,  the real estate agent pushed “off market” properties are typically off market because they can’t convince the owner to sign an exclusive agency listing agreement and instead convince the seller to allow them to market the property without a formal agreement. Usually because they can’t agree on price meaning they get circulated for more than the true value.  There are exceptions but that’s what I’ve customarily experienced. Meanwhile, these “off market” properties tend to be vetted by the most unsophisticated of buyers as they are the ones who only buy “off market”. That’s certainly not the buyer pool I want to beat out on terms. Again with limited exceptions, if I’m the one who beats out the others who vetted these deals, chances are I’m the sucker.

Unless you know you’re the only person the opportunity is being shared with, the only true off market acquisition is one where you personally contact the seller and enter into a purchase agreement. 

I also agree with Alan, there's plenty of good opportunities on the MLS. You just have to know what you're looking for. From my personal experience I've had most success acquiring MLS properties that have underlying characteristics such as favorable zoning, incorrectly listed square footage or other attributes that are either incorrectly represented or not effectively marketed. I'd much rather sift through the MLS looking for these opportunities than rely on the "off market" lists that are widely circulated. Not to mention, I find it much easier to negotiate contingencies, extended settlements to sort out zoning or other items and even settle with permits in hand with MLS listed properties which is undervalued by most but can greatly reduce your transactional costs and open the door to better financing options.

The requirement was introduced in a phased approach with some zip codes earlier than others (not entirely sure the policy consideration behind that approach), but now is required throughout the city. I believe the results can be used for up to 4 years, then any non-exempt properties must be re-tested. 

I see you pinned Philadelphia in your post. If the property is located in Philadelphia, make sure you obtain a rental license. In the event of any landlord/tenant issues, having an active rental license makes your life much easier. If the property was constructed earlier than 1978 you will be required to complete lead testing and upload the results prior to the rental license being issued.