All Forum Posts by: Tom C.

Built in the 50s. 8 of 11 units currenlty rented and all "rentable." Master water meter, individual gas and electric. There is a 15 space parking area that I will probably want to repave and potentially wall the property off from the street. A small church accross the street, most houses in the general vacinity are pretty run down. I got comps at the nearest appartments and most are a little bigger and rent for more.

I spoke to a PM today and she said she thought that I could qualify the properties as Section 8 and get the rents to $700, but maybe a little more on the renovation side.

Looking pretty hard at a 10 unit complex on a half acre which I can get for $15k/unit. The units are a mix of 1 room and 2 room stand alone buildings. All houses are brick exterior, tile interior. All are individually metered. Landlord pays water, insurance and gabage. Each rents for between $450 and $550. The property was badly managed and I plan to work to reposition the property. I plan to use a property manager, but I am not sure what to assume for a PM's fee on a property at this price point/demographic. I assume that I will need to put $50K of renovations $5K per building over the next 2-3 years and I plan to pace myself and fund as much of this as possible. My assumption is that for this area my renovation will increase the average rent from $500 to $550, and will reduce the vacancy rate and repair burden for the complex.

So assuming that I have an acquisition cost of $15K/unit and all units are currently in a rentable condition. I see some value-add in the additional $5k/unit in renovations is there something else I should consider before I jump in?

(Please assume financing is not a concern as I am more looking at deal economics at this point)

If buying a property that MFP that has a PM agreement in its primary term, do you often negotiate the transfer of the services, or just ensure the seller has correctly terminated the agreement? Just wondering what people see being done.

I typically see "ABC Company, Series A" as the legal name, but often that entity if transacting with the public will file a DBA as whatever it wants.

From a due dilligence standpoint, you wouldn't spend much/any time reviewing expenses on a property subject to a NNN lease.... You obviously would include that in due dilligence on a gross lease.

If $250 precludes setting up a prudent structure you might consider a sole proprietor.... Don't forget, the primary reason for what you are doing a SLLC is LEGAL, not tax. Although a couple bucks may hurt a piggy bank, it shouldnt' mean much to a business operating prudently as a going concern.

I had a job interview once at a boutique accounting firm that dealt almost solely with the Low Income Housing Tax Credits and I asked... "What happens to this position if the government eliminates this credit?" I still remember the reply... paraphrased as follows. If we ever see a government official that was willing to take the polical heat associated with throwing the poor single moms of the world out on the streets... then we will start to worry. I can imagine the political ads, can't you? The industry and media would likely be able to blackball any politician who proposed it. It would be VERY easy to "humanize" this issue and talking about throwing the poor out on the street (as it would be construed) generally would be hard to get any elected official to sign their name to... and certainly not a majority of politicians.

Entitlements are sticky in this manner as the recipient becomes somewhat reliant upon the benefit (for example a 80 y/o who didn't save anything to rely on SS). Although I am conservative, I am also a realist and think that we will see this program in some form or another as long as we have a lower class. I do see some potential that it is scaled back, leaving only the lowest earners in the program. This may impact the ultra-low rent segment of the rental market.

I think I have read that a "cell" can be taxed separately and can elect to be taxed as an S Corp, even if the rest of the series is C. They can file various other forms and get an EIN, etc. They have generally a lot of rights. I personally think that if you get to that point you may be defeating the whole purpose of the Series LLC to some degree.

My opinion.... I wouldn't have cell that differs so significantly from the other cells that they don't make sense in the series. For example. I think a series LLC taxed as a flow through entity makes a lot of sense for real estate. So you have 10 different projects, "ABC Co, Series A" through "ABC Co, Series J." These all would be have similar, separate protection as long as you accounted for them separtately and included the appropriate language in your formation documents. What I wouldn't do is make "ABC Co, Series C" a service-based company and include it in your series that appears to have been intended to hold assets. You mentioned an S Corp Cell as the management company, but I would assume you want to elect all cells to be taxed as pass through entities since you would clearly want the properties to be taxed as pass through entities.

To me I would set up a series LLC for the assets, and a completely separate LLC for the management company. Many lawyers would counsel you to have those two companies have very disimilar names to prevent people from finding them. Be aware that the management company is the one that would be sued as it deals with your counterparties, employees etc., so it makes a lot of sense to make it "appear" unrelated. It will deter some litigation. If you have the Series K cell be your management company then you pretty much tell Lawyers that you have a LOT of assets out there that the company is so tightly woven that it is worth seeing if your books support the asset protection you want and that may make a lawsuit easier to justify in their view. Then they start to poke at your accounting. Don't let your transaction driven arm (the management company) be a cell as it is worth the small fee to make all those transactions outside the series! One of the benefits to the SLLC is that you file one document with the state and can have a lot of separate companies behind the scenes that are not as easy to find.

Hopefully this logic makes some sense. The cell should just own assets (be on the deed and maybe the note) and receive a payments from the management company (not another cell). You will thank me.

One of the benefits of the Series LLC is that assuming you don't elect otherwise you can have these all taxed as though they are "one company," but receive the asset protection provided by the individual "cell." They are in fact 1 company that merely have statutory protection from creditors and various other rights at a series (cell) level.

Make sure when you file your initial formation doc with the State to include the required language that will protect allow you to protect the "cells." Also remember that your formation documents are also good to consider other languague that may deter a litigator looking for assets.

Sorry, that was what it seemed you were suggesting. My preference was to have the C-Corp external to the LP and act as the GP. That would buffer me from the liability of associated with the GP interest.