All Forum Posts by: William "W.J" Mencarow

Robert, interesting questions. I'm in touch with lots of note investors in my work. Some buy notes in LLCs, but no one has ever mentioned using the series LLC. I'm not aware of any reason a series LLC could not buy notes. One advantage would be if a mortgagor successfully sued you, your other notes would theoretically not be threatened.

Using a series LLC as a vehicle for jv real estate and/or note investing is an interesting idea. I'd have to think more about that, but my initial reaction is favorable.

Bryan, it is true that not every state  allows you to create an SLLC within the state. However, you can create one in, for example, Delaware, and it is my understanding that it can register in any other state. For example, California law does not permit an SLLC to be formed. However, the California Franchise Board website (https://www.ftb.ca.gov/businesses/bus_structures/S...) states:

Hi Mike. If you mean they haven't been tested in a Texas court, possibly not. I haven't done the research. My attorney recommended the series LLC to me as the best way to go. That's when I started looking into them, and the more I looked, the more I liked them.

The properties in the series LLC do not have conventional financing (I don't use it), so I don't know anything about using a series LLC for properties with conventional financing. If that was a problem I would use the series LLC for properties I bought with purchase money mortgages, private lenders or partners. -- Bill

One major problem with owning rental real estate is liability. People can sue you for any reason — or none at all. If you hold title to your real estate personally you could lose everything. That’s why most real estate investors create limited liability companies (LLCs) to hold title to each of their properties. At worst, they might lose one property in a lawsuit but likely not all of them.

However, it's not cheap to create and maintain an LLC. You can form one yourself, but you'd better know what you're doing. If you miss something and are sued, the other side may be able to have the LLC thrown out and attack your personal assets.

Then there's the considerable workload and expense of filing taxes for each LLC, a multi-step process. If the LLC has only one member it is considered a "disregarded entity" and the member files a Schedule C with a personal federal income tax return. If the LLC has two or more members, it must file Form 1065 and a Schedule K-1 for each member with the IRS. In turn, each member must file an individual Form 1040. The LLC might be required to file and pay other taxes as well such as unemployment tax, property tax and state taxes. (An LLC also has the option of filing as a C Corporation.)

Because of the hassle and cost to create and administer many LLCs, some investors put two or more properties into the same LLC. They know they are taking a risk by exposing more than one property to litigation, but they reluctantly decide it's worth it to avoid the headaches of having numerous LLCs.

I recently bought several rental properties from an investor. Instead of creating LLCs for each, I used a relatively new vehicle called a Series LLC, a.k.a. SLLC. It's so little-known, at least in my area (Deep In The Heart Of Texas), that the title company had never heard of it.

Read the rest at http://tinyurl.com/series-llc

If in doubt, run notes past an LMO (licensed mortgage originator) and pay a nominal fee.

Of course, another route is a hard money lender.  That will be high interest + points.

First you need to make the mortgage note attractive to an investor.  The single most powerful component of a note that drives the present value is the amount of the monthly payment.  I.e., a short-term fully amortized note is worth more than a longer-term note with a balloon.   You will also have to show good credit to make the investor comfortable that you will be paying on time.  Be aware that a note on a non-owner-occupied condo will have limited appeal, even at a relatively low ITV.

Before you write a mortgage, PM me with the property details and I'll contact some investors.  If there's any interest, work directly with them to craft the terms of the mortgage.  -- Bill

Greg, you could write a mortgage against the property and sell the mortgage.  Your effective interest rate will be high because the investor will discount the mortgage.  But that's a way to get cash out while maintaining 100% ownership of the condo.  $50K would be a 62.5% ITV for the investor if your estimate of value is correct.

Or, bring in a partner and sell them half interest in the condo for $50K with you doing all the management and splitting all costs 50/50.

Congratulations, Desi!  But aren't you afraid that if you own enough notes that you won't have to work for a living?  :)

Some note investors like yourself don't care where the property collateral is.  Others want it close enough to keep an eye on it.  What convinced you to be in the first camp? -- Bill

Chuck, there's no way to do your questions justice in a posting.  Google my name, send me an email and I'll be glad to provide some info.