All Forum Posts by: Travis Thornton

Hi @Mindy Jensen. You're certainly on your heels if you find yourself in this position and you don't want to be there because you're now in the position of having to sue the tenant and rebut his assertion that the agreement speaks for itself.   It would be your burden to prove fraud or some other mitigating theory.  Not to say you couldn't, it all depends on your local law as to how high your hurdle would be, but it will certainly take time and $. 

Having been a real estate attorney for 20 years, I've had clients modify documents I've created for a specific transaction and use them for other transactions.  The bought them and the documents are theirs to do with what they wish.  No morality or legality involved.  This happens both with full disclosure ("I want you to make a form for me that I can modify and use"), and without.  But it is most definitely a buyer beware situation, both with regard to you practicing law pro se (and many lawyers won't even represent themselves under the maxim "the lawyer who represents himself has a fool for a client"), and to your relationship with your lawyer.  I've had a number clients come back saying "I did this in that document and now I've got a problem.  Can you fix it?"  Maybe I'll be willing to take that on and maybe I won't, depending on my relationship with the client.  Also, I've been in the uncomfortable position of having to effectively rat one partner client out to its other partners when a partner "goes rogue" by creating or modifying documents himself.   

Note what Brandon said. It sounds like he didn't form an LLC. Rather he acquired and his and his partner's names as tenants in common (TIC). For buy and hold, this could potentially be important because they only way an LLC can use a 1031 exchange is for the LLC to acquire the replacement property with the LLC in exactly the same form (same percentage ownerships). With at TIC, each can take his/her proceeds and go their own way in acquiring replacement property, or realign their percentages differently in a new joint acquisition (you may hear about "drop and swaps," but I wouldn't go there). Also, when you form either a TIC or an LLC (or perhaps an LP), hire a lawyer to prepare a written agreement. This is very important for buy and hold because you need to have a clear exit, whether as a result of a dispute or just because one of you wants to liquidate your interest and move on to other things. For example, if your partner is truly silent, they shouldn't care when they exit so long as they get their return, so you should be able to buy them out whenever you want (a "call"). You also need very clear dispute resolution provisions (often resolved with a buy/sell provision) to avoid litigation and partition. In short, invest in the relationship up front by hiring an experienced attorney to explain all the moving parts, help you select your structure and generate a form of agreement for you that you can use for this and future relationships.

You're taking it up a notch in complexity here. At the institutional level, you'll often find a fund or partnership taking title to each property in a new "special purpose entity" LLC to isolate the liabilities associated with that property from the partnership's or fund's other assets. But doing this also carries the burden of administering the multiple entities and observing the corporate formalities so as to prevent "piercing" of the liability shield. Series LLCs are a way to deal with this also, and are available in a few states including DE (and you can form your LLCs in any state you like). If you're in a phase of planning for expansion and want to design a legal structure for that growth intentionally (and I think it's a good idea), I recommend you consult with a good attorney and CPA. And because this is next-level stuff, they do need to be experience in this area.

Alex, while LLCs have become the preferred entity for real estate ownership, and they can be very simple for single owners if the formalities are respected (liability shield, but invisible for federal tax purposes) at a relatively low cost, it gets more complicated with partners and/or if you may use 1031 tax deferred exchanges as part of your exit from any properties. If you choose to do business under an LLC, you then have choices as to how you'd like to be taxed (corporate taxation vs. self-employed or partnership taxation). You would be well served by a little attorney and CPA time at the front end to design the best entity structure for your investment program.

I would recommend you consult with a WA attorney for at least your first deal, or if you have an ID attorney you like, he or she should have done WA deals before or at least consult with local counsel on the first deal.  Each state has its traps for the unwary (WA certainly does).  I'm a Washington attorney and regularly do real estate transactions in other states for clients, but I always have local counsel available for advice.  Attorneys are permitted to do this.  I believe there is an investors group in Spokane with members here on BP.  They should be able to refer you to someone good.  

So you're talking simply about the original borrower and lender agreeing to release the property from the debt obligation?  There may be quirks under state law, but this does not sound like a problem to me.  Each state has its own terminology, but recording a release, termination or reconveyance of the mortgage instrument should be effective.  If you any relationships with a local title officer or attorney, they may give you a few minutes on the phone to talk through this.  I would.  

Good advice in the above replies. It's not a one-size-fits-all situation. You do need to consult with a local attorney and CPA to set up a structure that fits your plan. An LLC can be a helpful additional layer of relatively cheap "insurance" by virtue of the liability shield if the formalities are respected. The LLC itself does not drive the tax structure.  A multi-member LLC will be taxed as a partnership by default, but you can elect corporate tax treatment if that better fits your situation.  But once that election is made. there are restrictions on going back to partnership taxation.   The filing and maintenance fees will run a few hundred initially and a couple hundred per year (depending on the state).  Setting up an LLC Agreement properly with the help of an attorney will be a more substantial investment, but well worth it and even if you don't choose the LLC you would be well advised to have an written agreement in another form (partnership or tenant-in-common agreement).  Finally, if use of 1031 exchange treatment is part of your plan, there are issues that arise when an LLC is involved which must be considered.  

Hi everyone.  I'm venturing into investing in real estate on my own account for the first time.  I've been a real estate attorney for nearly 20 years and have worked through zillion issues, large and small, for clients.  In the past, I've been hesitant to invest in real estate because my income and a good sized chunk of my net worth (my house) are already in the sector, but I love the field and it just makes more sense to me than trying to bet on other people's work (stocks).  Looking forward to getting to know some good folks and to learning a lot.