All Forum Posts by: William McGowen

I have an LLC, and my bank is offering a line of credit to my LLC.

Problem is I am buying a property and can't buy it inside of an LLC and would prefer to use a line of credit over using my own cash, but I know that this could be a problem, and potentially make it possible to "pierce the corporate veil" in the unlikely event that I might get sued.

But thinking about it I wondered if it's possible for my LLC to borrow the money, loan it to me, I pay back the LLC, and the LLC pays back the money. (This is a single person LLC.) The question is would this be a legal use, as long as I have proper documentation, or would this be seen as intermingling funds?

I use Rental Real Estate

http://www.rentalre.com/

There's also a group that meets in Lincoln, I think Lance had a hand in it's creation. I belong to both groups. Unfortunately the meeting was 2 days ago, but there should be another one next month. I am sure Lance will help.

I will say I have enjoyed the Omaha meetings, so it doesn't hurt to belong to both.

There are 2 real estate groups that meet in Lincoln. One meets at the Valentinos (2701 S 70th st, (on the 4th Thursday of the month, 9 months out of the year, so the next one is tomorrow, May 26. They tend to be about regulations, laws, and taxes.

The other one is fairly new, and currently meets at the Grata Lounge (6891 A st.) on the 2nd Monday of the month. This one deals more with investing, and making deals.

Hey Tera.

I don't live in Texas, so I have only seen the online class. (Recording of a live one.) There is a total of 15½ hours, of which only at the very end was the up sell.

There are 3 levels of membership, and most (80+%) don't ever go above the FFP level. (According to their radio show.) The first level is the education. They teach you what to do, and you go do it. It also has a hotline to call and ask questions. If the information was too generic, ask specifics. You can attend the class anytime they have it as long as your membership is active, which it sounds like 2 years for you. They also have their hotline so you can ask questions, although they won't analyze deals for you. (Write your questions down before calling. It sucks to call them up, forget half your questions, only to have them pop back into your head once you hang up.)

The next level is Challenge. Here they will analyze deals, as long as another member has not tagged that deal. (They don't want members pitted against each other.) They will help you find deals, and do a little more hand holding. There are a few more online classes available, and road trips to see properties before and after.

If your fine doing all the work yourself, there is no reason to move to the Challenge level.

Next level is the P.I.G. (Preferred Investor Group.) I just upgraded to that in February. You get everything in Challenge, plus they deal with Multi Family properties. (MF) They facilitate the meeting of members so they can put deals together (within the confines of the SEC, they make this clear,) and they consult on everything. I feel better knowing that this large of an organization, with their experience is there to help with these million to multi-million dollar projects.

I recently went on a MF road trip (May 15) and it is so beneficial to actually see a property in person, and meet the people who did the deal. No matter how much you read, or hear about these things, actually being there makes it real. 

But this is really for people who have a decent amount of money to invest. They say at least $50K, so you should have at least that after any membership fee.

If you're not going to be doing the Multi-Family deals, there's no reason to do the highest membership. In fact I think it's a good idea to do single family deals, and make enough doing that to pay for the P.I.G. membership.

And I don't think a delayed flip is exactly correct. Flippers are about making money on the rehab, and technically you could use their technique to do this, just sell instead of renting out. They are more about the cash flow. The benefits are income from the rental, tax deductions from depreciation, mortgage deductions, and the equity buildup from the pay down of the mortgage. They don't say to sell in a year, but that you should wait at least a year, preferably 2, then you can use a 1031 exchange to move the equity to another property without having to pay any tax. (If done right.)

But not everybody sells their property after a year or two. It really depends on what your goals are, but many simply keep buying property, and hold them for as long as the tax benefits keep going. Many people are perfectly happy with the profits from 10+ houses, and never move further then that.

I say just keep with it. Go to all any any event they have. Watch the classes online, and call them until you are satisfied with the answers. You have the membership, take advantage of it.

I purchased a duplex, and unfortunately inherited tenants.

I am now evicting one. The Tenant caused a flood, then called the city to complain about the "conditions" then thought that entitled her to not have to pay rent.

If I felt I didn't want to deal with this stuff, I would hire a company to take over the management. At some point I will have all my property managed by somebody else, but for now it is worth it for me to do it.

When I was an Employee, I never won an argument with my Boss, (not because I was wrong, but because I never had any power,) but with Real Estate, suddenly I am the one who makes the rules, and wins the arguments.

Oops, I meant $120.

Cap rate = Net Operating Income / Price.

Cap rates are the way apartment buildings (5 units and up,) are valued, based on the income the property produces. For example in Omaha, which is close to me, I was informed (by an Appraiser) that the cap rate is generally 9%. So people are generally willing to pay an amount that results in a 9% return on their property in Omaha.

Now this is obviously influenced by other factors. An A class property garners a lower cap rate then a D class property, and the cap rate in Omaha will most likely be different then in New York, or Los Angeles areas.

And obviously you can negotiate anything, so the price isn't guaranteed to be based exactly on that cap rate.

But based on a cap rate valuation, if you can (intelligently) cut expenses, and increase rents so income increases $100 a month, that is $1,200 a year in increased income, and based on the 10% cap rate valuation, your property is now worth $12,000 more. 9% cap rate would mean it's worth $13,300 more.

Here's one article that discusses it:

http://www.biggerpockets.com/articles/924-understanding-value-in-multi-family-units

The mortgage limit (Fannie) is 10, but often banks are 4.

But don't let that limit you. There are blanket loans where you can cover multiple properties under one loan, and commercial loans which have no limit.

All these are higher interest rate, but current rates are so low. Commercial loans tend to be easier to get, especially on multi-family. The property being self sufficient becomes a larger part of the equation.

I follow a slightly different path. I did follow the Dave Ramsey plan, and it helped me, but with real estate I am willing to have debt, but the deal must make sense, and I have rules about what kind of property I want, and what kinds of profit.

With 25 properties, and probably a lot of equity, you could try to sell them, (sometimes a package deal to one or more investors,) then use the money (1031 exchange to defer taxes,) to purchase a multi-family, possibly with a management team in place.

One thing you can take advantage of on multi- family is the cap rate valuation. With a 10% cap rate, every dollar a month in increased income, or reduced expense results in $100 in increased value.

What I have been hearing is that these people don't know what they are doing, and this will result in more opportunity in the future, when they finally bail out.