All Forum Posts by: Jon Pitcher

I also like Charles Barnes for real estate classes in Oklahoma. One thing some aspiring agents don't realize is that you will spend $2,000 or so between education, licensing fees, MLS dues, broker fees and other expenses before you are ready to actually sell a house.

OKF Title Services can close quickly on a cash transaction, if that's what you're looking for.

A final update on my eviction in Oklahoma County...

I won a glorious victory in court today.  Well, I at least got a judgment for possession of my house.  My tenant had already moved out, so the eviction was just a formality.    My petition was not served on her personally, so my judgment was limited to possession of the property (no money damages).  

I visited the property over the weekend and found my tenant had actually cleaned it out and hadn't done any obvious damage.  If she had bothered to tell me she was moving, I probably would have returned part of her security deposit.

My court appearance was simple.  All of the forcible entry and detainer plaintiffs and defendants go to the same hearing, so the courtroom was packed.  The judge called all the party names and you stand up and identify yourself.  I had to show my certified mail receipt to prove I had sent the summons and petition to the tenant, in addition to having it posted on her door by the process server.  I had failed to prepare a journal entry of judgment, but the court had a stack of them available to fill out.  

Some defendants showed up.  The judge would ask if they were behind on rent, and if the answer was yes, the judge gave the plaintiff the eviction and awarded back rent, costs and fees.  Apparently the smart strategy for the deadbeat tenant is to hide out from your landlord and avoid service.  Then they can only evict you. 

If a defendant shows up and claims they are caught up on rent, then they get to have a trial, which actually just means they stand in front of the judge for a couple of minutes and answer questions and present any evidence.  In both of the "trials" I saw, the defendant could not provide any evidence that he/she had paid rent, and so was evicted.

@Matthew Trotter 

NOLO is correct on this one - a business entity is never going to be able to shield you from liability for negligent acts that your personally perform. I don't know if there is any reason to form an LLC to manage your own properties. I certainly would not charge yourself a management fee for managing your own properties. That would just serve to convert your passive rental income into earned income.

This arrangement can be accomplished by contract without requiring both investors to sign for the loan and without deeding the property to an entity (and risking the loan being called).  Seek legal and tax advice, but this is the basic structure I have used:

Investor A buys the property using conventional financing.  Investor A puts up the down payment.  After the closing, Investor A and Investor B enter into a contract pursuant to which Investor A agrees to pay 1/2 of all proceeds from rents and from the sale of the property to Investor B.  Investor B pays an agreed sum of money to investor A, and agrees to be responsible for 1/2 of the mortgage/tax/insurance/repair obligations.  Investor B could put a 2nd lien on the property to secure his interest.

This type of contract is not that unusual.  Sometimes an unmarried couple who buys a house together will enter into an agreement like this.

This does create an odd situation for tax purposes. Investor A holds title to the house, and the mortgage company sends Investor A a tax statement each year. My CPA years ago advised me to file a partnership tax return and attribute the income and expenses to the partnership (so essentially we treat the taxes exactly the same way we would if we had created an LLC and deeded the property over to the LLC). Each investor gets a K-1 showing 50% of the income/loss.

The only problem I have ever run into with this structure is that when Investor A goes to get a loan on a new property, the lender can't comprehend what is going on with the prior loan and property.

If all of your investors take an active role in managing the business, you can avoid SEC problems because you won't be selling securities. You will still need an attorney to draft your company documents, but your legal fees will be smaller if you take this route. The LLC is the most commonly used entity for this situation.

If you are going to have investors who don't actively participate in the business, then you are looking to sell securities and you need to either register the securities with the SEC or find an exception to registration.  Such as a private placement, as @Will Barnard referenced above.  In my opinion, the 506(c) safe harbor provisions under Regulation D are the simplest exception to comply with.  But you are only allowed to sell to accredited investors.  LLCs and limited partnerships are commonly used for a small private offering.

In some states, a license is not required to act as a business broker - meaning, depending on where you are, you may be able to collect a broker fee for connecting the seller of a business (or business assets) with a buyer. 

But selling securities is a different matter.  The definition of "security" is complicated.  But if you are selling an equity interest in a company  to an investor who is not going to be an active participant in managing the business, you are selling a security.  And if you are not an owner in the business, then you probably need a license to sell the security for a commission. And you should seek counsel from a securities lawyer before you proceed.  It is possible the deal could be structured so that it is not a sale of securities.

I don't necessarily agree with others in this thread saying that your broker would be entitled to a cut of this transaction, or that you would be violating the real estate license laws by taking a commission on this transaction.  As you've described it, this transaction does not sound like a real estate sale.  But again, you need guidance from a lawyer who knows your state's laws.  

@Dany Namou

I think you are focusing on the wrong problem here.  As you pointed out earlier in the thread, you are trying to broker an investment deal and not a real estate sale. The problem is, you don't have the right license to do that.  I don't know enough securities law to tell you if there is a way you can broker the transaction legally, but you should be very careful and seek out some expert legal advice.

Here are a couple of links regarding SEC enforcement against unlicensed securities salesmen:

https://www.sec.gov/news/press-release/2014-98

http://www.lexology.com/library/detail.aspx?g=b3fc...

On the plus side, your non-compete agreement may not be enforceable.  It definitely wouldn't be in Oklahoma, and the court this Michigan case found a non-compete to be unenforceable. I don't practice law in Michigan, so I don't know what other non-compete cases are out there. But in any event, your broker would have to sue you to enforce the non-compete if you left, and that probably wouldn't make economic sense for him.

http://www.michiganemploymentlawadvisor.com/employ...

@Dany Namou be careful here, I would advise talking to a securities lawyer in your state.  If this investment is considered a security, then you would be acting as an unlicensed securities broker, which could get you In trouble with the SEC.

I have used REI Guard on 10+ flips. Formerly Affinity. They have policies specifically for rehab properties, and you can pay monthly. I never made a claim, so I can't speak to that process.