All Forum Posts by: Thomas Franklin

@Joshua McIntire

In any Joint Venture, the ultimate goal should be to create a Win-Win Situation. It is important to know and understand the needs, of your Joint Venture Partner. All Vested Parties should feel comfortable and happy, when everyone leaves the Closing Table. Be sure to “Paper Up” meaning everything is in writing, with Ironclad Agreements. If you and your Joint Venture Partner will be forming a Corporate Entity together, you will need to have an Operating Agreement crafted. All documents should be created, by a Real Estate Attorney.

Create a Joint Venture Agreement that specifies the following: Recitals; Rights, Duties, and Responsibilities of each person/ entity entering into the agreement (Who will pay for what to include, but not limited to any down payment, holding costs such as Property Insurance Premiums, Utilities, HOA Fees if any, Rehab Materials, Contractor Labor, Loan Payments, etc.). Also included should be the Percentage of Profit Split (after all parties involved are made whole). I would include two Addendums. Addendum A would be a detailed Scope of Work and Addendum B would contain the Property's Legal Description as specified in the County's Public Records.  

Each party should keep all their invoices, receipts, credit cards statements, etc. to substantiate the amount one claims, for reimbursement, when the HUD-1 is drafted, for the backend closing, by the Title Company. This documentation will need to be submitted, to the backend Title Company, to justify reimbursement for project expenses incurred, by the Joint Venture Parties.

I suggest that you interview, at least three General Contractors and ask the following questions. In addition, I strongly recommend that you verify all licenses and Insurance Policies.

1. How many homes have you rehabbed and/ or renovated? What was the magnitude, of your projects?

2. How many projects is your company currently undertaking?

3. Do you work with Investors that need to adhere to strict timelines and scope of work?

4. Do you have multiple Sub Contractors, for similar trade skills, such as plumbers, electricians, flooring crews, painters, etc.?

5. Would you provide a copy of your GC License, your Certificate of General Liability Insurance, and your Certificate of Workman's Compensation Insurance? 

6. Are you bonded?

NOTE:

To be “bonded” means the Contractor must purchase a Surety Bond, which serves as a form of Insurance to protect the Contractor’s Customers if he or she fails to complete the job properly or fails to pay for permits, subcontractors, or other financial obligations.

7. Are all of your Sub Contractors Licensed and have Workman's Compensation Insurance? Would your Sub Contractors be willing to provide such information, or would you be willing to sign a waiver stating "All your Sub Contractors have Workman's Compensation Insurance?"

8. Do your Sub Contractors have the ability to verbally communicate, with English Language Only Speakers?

9. Do you pull all necessary permits?

10. Do you provide a written warranty, for all labor? If so, what is the length, of the warranty? (a minimum of 1 year)

11. Do you provide all applicable warranties, for materials?

12. Who is in charge of the job site, to ensure timelines are met and the Scope of Work is properly completed?

13. How do you handle dirty work such as debris disposal and clean up?

14. Would you be willing to receive four draw payments that would correspond to four phases of the rehab project?

15. Would you provide references, from past clients?

If the General Contractor that you are interviewing does not provide you their GC License, their Certificate of General Liability Insurance, and their Certificate of Workman's Compensation Insurance, this should be a Red Flag, for you telling you to move on to another GC. 

If the General Contractor that you are interviewing does not give you specific answers, to the other questions, this should be a Red Flag, for you telling you to move on to another GC.

You should contact their Insurance Company and verify all Policy information such as, but not limited to the Policy Number, Coverage Limits, and the policies’ date of expiration. In addition, you should also visit your state’s Department Of Business And Professional Regulation and check the GC’s License that it is current and valid. You should also check, if any complaints, liens, lawsuits, etc. have been filed against their license. Vet! Vet! Vet!

@Damon M.

I would strongly suggest you establishing a Corporate Entity such as a S Corp or a LLC. This is a relatively inexpensive process. I invite you to Google "Creating a LLC or S Corp in _____," "Division of Corporations in _____," or another phrase. You can go to http://www.sunbiz.org and see how Florida does things, to give you an idea what to look for, in a website. You also need a well crafted Operating Agreement by a Real Estate Attorney that specifies in great detail the Corporate Structure, how the business is to operate, “what if contingencies” such as divorce, etc. 

If you are partnering, with other people or Corporate Entities, I encourage you to have a detailed Joint Venture (JV) Agreement. In any Joint Venture, the ultimate goal should be to create a Win-Win Situation. It is important to know and understand the needs, of your Joint Venture Partner. All Vested Parties should feel comfortable and happy, when everyone leaves the Closing Table. Be sure to “Paper Up” meaning everything is in writing, with Ironclad Agreements. If you and your Joint Venture Partner will be forming a Corporate Entity together, you will need to have an Operating Agreement crafted. All documents should be created, by a Real Estate Attorney.

Create a Joint Venture Agreement that specifies the following: Recitals; Rights, Duties, and Responsibilities of each person/ entity entering into the agreement (Who will pay for what to include, but not limited to any down payment, holding costs such as Property Insurance Premiums, Utilities, HOA Fees if any, Rehab Materials, Contractor Labor, Loan Payments, etc.). Also included should be the Percentage of Profit Split (after all parties involved are made whole). I would include two Addendums. Addendum A would be a detailed Scope of Work and Addendum B would contain the Property's Legal Description as specified in the County's Public Records.  

Each party should keep all their invoices, receipts, credit cards statements, etc. to substantiate the amount one claims, for reimbursement, when the HUD-1 is drafted, for the backend closing, by the Title Company. This documentation will need to be submitted, to the backend Title Company, to justify reimbursement for project expenses incurred, by the Joint Venture Parties.

I invite you to please consider the following, from a Federal Income Tax Filing Perspective. I cannot stress the importance of finding a very good Investor Friendly CPA. Below are some things you may wish to consider, as to which Corporate Enity is best, for your Business Model as well as your REI Goals and objectives.

Flipping Properties

If the primary objective of your real estate business, or one of your real estate businesses, is to buy, potentially fix up an existing property and resell it within one year, the Internal Revenue Service can consider that to be an active trade or business. Unlike passive rental income, the income from an active trade or business is subject to self employment tax is nasty. If your goal is to reduce that self-employment tax to a minimum, an S Corporation is the best entity to use. Why?

It is the only entity structure whose rules allow the business owner to take a "reasonable salary" (subject to social security and medicare) and then take the remaining profit (often as much as 50% of the remaining income) out as distributions not subject to self-employment taxes. Correspondingly, all business income taken from an LLC under similar circumstances is subject to self-employment taxes.

Holding Properties

When holding properties as a cash flow investor, the LLC (or LP) is generally the better choice because an LLC has more liberal distribution rules. The key here is flexibility. LLC distributions come out of the LLC at cost basis. The members of an LLC are issued K-1 Form and have to pay taxes on all profits as though it were income, which could expose the owners to high employment taxes. Also, an LLC can elect to be taxed like an S Corporation.

While there is never only one answer that is correct for all circumstances, there is a general rule that is almost always the correct choice. So remember, for legal and tax planning, a good CPA will recommend that clients hold their properties in an LLC or Limited Partnership and run their businesses as S Corporations to avoid self-employment taxes.

We are forming a focused Real Estate Mastermind Group for investors who are serious about growth and developing wealth — whether you are just getting started, already have a few deals under your belt, or have much experience. The goal is to create a consistent, high-value environment where members hold each other accountable, share insights, and challenge each other to level up. No selling, no fluff — just Real Conversations and occasional Video Calls with a community focused on supporting the Knowledge Development, and the Investment Goals, of each other. Analysis of potential acquisitions, acquiring Investment Properties, etc. will also be part, of this Mastermind Group.
If you are committed to showing up, adding value, and being part of a long-term group of peers, we would love to connect! DM me or @Parker Robertson for more information; we will follow up individually to see if it is a good fit. Many of the Momentum 2025 Groups went nowhere which why we are vetting.

@Tyler Palmer 

I sent you a Private Message. 

@Joe S. Please see the response, from @Parker Robertson above. 

@Parker Robertson
We are forming a focused Real Estate Mastermind Group for investors who are serious about growth and developing wealth — whether you are just getting started, already have a few deals under your belt, or have much experience. The goal is to create a consistent, high-value environment where members hold each other accountable, share insights, and challenge each other to level up. No selling, no fluff — just Real Conversations and occasional Video Calls with a community focused on supporting the Knowledge Development, and the Investment Goals, of each other. Analysis of potential acquisitions, acquiring Investment Properties, etc. will also be part, of this Mastermind Group. 

  If you are committed to showing up, adding value, and being part of a long-term group of peers, we would love to connect! DM for more information; we will follow up individually to see if it is a good fit. Many of the Momentum 2025 Groups went nowhere which why we are vetting.   

@Josh R.

I would suggest that you interview several Realtors and ask them the following questions, to ascertain if they are truly Investor Friendly, or if they are throwing you a sales pitch. You can use BiggerPockets’ Resources to find multiple Realtors, in your area. You may also go to REIA Meetings and local Meet Ups to find multiple Realtors, in your area.

1. How many investors do you currently work with and how many investors have you worked with, in the past?

2. How many transactions have you closed, with investors?

3. Do you currently own any Investment Properties? If so, what type do you own?

4. Are you a member of any REIAs?

5. Would you provide me, at least three references?

@Lee Williams

You can find GCs by going to REIA Meetings, Local Investor Meet Ups, contacting your Local Building and Zoning Department, etc. I suggest that you interview, at least three General Contractors and ask the following questions. In addition, I strongly recommend that you verify all licenses and Insurance Policies.

1. How many homes have you rehabbed and/ or renovated? What was the magnitude, of your projects?

2. How many projects is your company currently undertaking?

3. Do you work with Investors that need to adhere to strict timelines and scope of work?

4. Do you have multiple Sub Contractors, for similar trade skills, such as plumbers, electricians, flooring crews, painters, etc.?

5. Would you provide a copy of your GC License, your Certificate of General Liability Insurance, and your Certificate of Workman's Compensation Insurance? 

6. Are you bonded?

NOTE:

To be “bonded” means the Contractor must purchase a Surety Bond, which serves as a form of Insurance to protect the Contractor’s Customers if he or she fails to complete the job properly or fails to pay for permits, subcontractors, or other financial obligations.

7. Are all of your Sub Contractors Licensed and have Workman's Compensation Insurance? Would your Sub Contractors be willing to provide such information, or would you be willing to sign a waiver stating "All your Sub Contractors have Workman's Compensation Insurance?"

8. Do your Sub Contractors have the ability to verbally communicate, with English Language Only Speakers?

9. Do you pull all necessary permits?

10. Do you provide a written warranty, for all labor? If so, what is the length, of the warranty? (a minimum of 1 year)

11. Do you provide all applicable warranties, for materials?

12. Who is in charge of the job site, to ensure timelines are met and the Scope of Work is properly completed?

13. How do you handle dirty work such as debris disposal and clean up?

14. Would you be willing to receive four draw payments that would correspond to four phases of the rehab project?

15. Would you provide references, from past clients?

If the General Contractor that you are interviewing does not provide you their GC License, their Certificate of General Liability Insurance, and their Certificate of Workman's Compensation Insurance, this should be a Red Flag, for you telling you to move on to another GC. 

If the General Contractor that you are interviewing does not give you specific answers, to the other questions, this should be a Red Flag, for you telling you to move on to another GC.

You should contact their Insurance Company and verify all Policy information such as, but not limited to the Policy Number, Coverage Limits, and the policies’ date of expiration. In addition, you should also visit your state’s Department Of Business And Professional Regulation and check the GC’s License that it is current and valid. You should also check, if any complaints, liens, lawsuits, etc. have been filed against their license. Vet! Vet! Vet!

@Druce Asah

Wholesaling in many states is ILLEGAL unless there is intent to purchase, i.e. a Double Closing. For Florida I refer you to Florida Statues 475.42 and 475.43. Many other states have similar language.

Link: https://www.richardhornsby.com/crimes/regulatory/unlicensed-practice-of-real-estate.html

You need to make certain whether or not this Wholesaler is assigning the contract or if there will be a Double Closing. I have been a Real Estate Investor, since 1998. Please feel free, to review my profile.

Since you are interested in fix and flips, I propose the following action plan. It is not the Fast Food Plan you want, but it is strategically methodical and highly accurate. The first step would find an Investor Friendly Realtor assuming you do not have access, to the MLS. I would suggest that you interview several Realtors and ask them the following questions, to ascertain if they are truly Investor Friendly, or if they are throwing you a sales pitch.

1. How many investors do you currently work with and how many investors have you worked with, in the past?  

2. How many transactions have you closed, with investors?  

3. Do you currently own any Investment Properties? If so, what type do you own?  

4. Are you a member of any REIAs?  

The next step would be to work with the Realtor and determine the hot markets, in your County, with the greatest number of sales over the last 90 to 120 days. Personally, I would prefer 90 days because markets are always changing. This list would contain the zip code and corresponding name of the municipality, and a breakdown of the number of SFRs. This will be your Farming Area. From this data, you can utilize a website bestplaces.net that will give you a breakdown of the percentage of homes that sold, in various price ranges, for a given zip code. This will identify the retail price ranges, in which you can list the rehabbed property and the price ranges, of distressed homes, you should target.  

You can use the Realtor to help you find deals and also use Wholesalers. If you acquire a property, from a Wholesaler, once the property is rehabbed and ready for the Retail Market, allow the Realtor that provided you the zip codes, to list the property for sale. This creates a WIN-WIN Situation and gives the Realtor incentive, to work harder on your behalf.

Since you are interested in flipping houses, I thought I would share the formula I use, for determining my Highest Offer. FIRST, never trust an ARV that is posted by a Wholesaler.    Many Investors that flip homes use the 70% Rule that says 0.7 x ARV - Repairs = Your Maximum Allowable Offer (MAO). What hurts Investors that use this formula is it does not account for Holding Costs, Backend Selling Costs, etc.

I use the following formula to determine my Maximum Allowable Offer (MAO). This formula is the Profit Margin Formula that accounts, for 99.99%, of everything.   

ARV - Desired Profit - Closing Costs to Buy - Repairs - 10% of Repairs - Holdings Costs - Concessions - Realtor Fees - Closing Costs to Sell = Your Offer (MAO or Maximum Allowable Offer).  

ARV: After repaired value or what you think it will sell for once repaired.  

Desired Profit: This should be taken off the top first. Most people run their numbers to determine what their profit should be. That is backwards, you should use your profit to determine what your offer should be. As a General Rule, my Desired Profit is $20,000 or 20% of ARV whichever is greater. To have an offer accepted, one may need to adjust their Desired Profit; however, it should not be below $20,000, or what one feels is acceptable.    

Closing Costs to Buy: What is it going to cost you to buy the property? If you are using hard money you need to budget for the points and fees as well as traditional third party closing fees.  

Repairs: The money it is going to take you to rehab the property plus an extra 10% of estimated repair costs to account for unexpected repairs.  

Holdings Costs: Here is where a lot of investors get tripped up. Start by determining an amount of time that you will hold the property, probably 4-6 months. Then add ALL costs related to holding the property (utility costs, property insurance premiums, property taxes, loan payments, HOA Fees, etc.).  

Concessions: Concessions are what you give back to the buyer at closing. It could be for closing costs, unfinished repairs or something else. I typically subtract 3%, of the ARV.  

Realtor Fees: What is the commission you are willing to pay your listing agent (unless you are the listing agent) and the buyer's agent. Utilize 6% of ARV.  

Closing Costs to Sell: Title fees and other closing costs. You can budget around 4% of the sale price to cover these.  

This is a conservative formula. If you come out ahead without Buyer Concessions, on budget, etc., this puts more money in your pocket, when you close at selling.