All Forum Posts by: Stuart Udis

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. 

@Eric Yee There are instances where historic user permits may have existed and even if the base zoning is no longer consistent with the current 3 family use, if the rental license had been maintained L&I would continue to honor the historic use. If that were the fact pattern and the prior owner had maintained a rental license, you would have been required to obtain a rental license upon your purchase but the city would issue the license. Since that fact pattern doesn't exist you would need to obtain a use change variance. You will not be allowed to lease the units out as an STR. Philadelphia severely restricted STR with legislation that was encorfced at the start of 2023.

Interested in building relationships with LP equity sources who have interest in deploying capital in the Philadelphia market. Thus far, my limited quest through BP has led to a recurring pattern: One person who provides introduction to another and then yet another and finally to a lender who asks if there's unencumbered real estate that can be cross collateralized. This is not LP equity, nor the process by which I am seeking. If there are better platforms to formulate these relationships, I am intersted in hearing others suggestions on this subject as well. 

It would have made most sense to purchase the property in the LLC. I expect you will have to pay transfer taxes based on the assessed value of the condo unit in order to transfer the deed at this juncture. I am a strong proponent of owning property in LLC's as long as the member(s) understands the importance of operating business functions of the the LLC correctly.

You will be in violation of your loan if the title is transferred. I have long wondered if transferrring title to an LLC while keeping the loan in the borrower's name personally could open the door to a piercing the corporate veil situation. I have not personally researced this but suspect it will be something an plantiff's attorney may take interest in. Curious if anyone has come across this or conducted any research? Also, the lenders mortgagee clause should be added to the certificate of insurance. When they see the insurance certificate with the LLC as the deed holder won't they become aware of the transfer anyway?

I am also surprised your lender is satisfied with solely the master policy. The master policy of condominum associations will not cover the interior of your unit. For instances if there's a leak that were to occur within your unit while vacant, I do not beleive the master policy will cover this. You should have insurance in place effective the day of purchase but at this juncture as soon as possible. Tenancy and LLC transfer are not relevant or the order as you questioned.