New Wholesaler Questions--LLC, etc.

[Marcus Frick]

Hi BP!

Looking to start wholesaling in MN.

And I have many more questions than answers:

Do I form an LLC before I start looking for properties?

Other legal arrangements I need to take care of before I get started?

What are some big red flags in a property?

For those numbers on the DNC list in PropStream, what happens if I call them?

What's your greatest WS success story?

Biggest failure?

Something you wish you had done differently when you were starting?

Thanks!

[Adam Bartling]

Do I form an LLC before I start looking for properties?   -No but having a business allows you to expense and be taxed on less$$

Other legal arrangements I need to take care of before I get started? NA

What are some big red flags in a property?  Wholesaling you NEED to disclose all Problems, hide stuff and you will not have buyers.  Everything is fixable.

For those numbers on the DNC list in PropStream, what happens if I call them? If caught Fines, Big Fines

[Jose Jacob]

Quote from @Marcus Frick:

Hi BP!

Looking to start wholesaling in MN.

And I have many more questions than answers:

Do I form an LLC before I start looking for properties? MOST OF THE WHOLE SALLERS CREATE EACH LLC FOR EACH PROPERTY AND SELL THAT LLC TO THE BUYER. SO YOU MAY WAIT

Other legal arrangements I need to take care of before I get started?   NONE

What are some big red flags in a property?  STRUCTURE DEFECTS, BIG TICKET ITEMS LIKE BOLIER, ROOF, WINDOWS ETC...

For those numbers on the DNC list in PropStream, what happens if I call them?  FINES, FINES, FINES IF YOU GET CAUGHT

What's your greatest WS success story?  GETTING THE DEAL ON THE RIGHT PRICE WILL BE A WIN WIN

Biggest failure?  PRICING IS EVERYTING.

Something you wish you had done differently when you were starting?   I WISH I HAD DONE SOME RETAIL FIRST BEFORE JUMPING IN TO WHOLESALE

Thanks!

HOPE I ASNWERED ALL YOUR CONCERNS

[Eliott Elias]

These are all valid questions, but I think you should start taking some action. Starting an LLC doesn't help you find a deal, or build relationships. Spend all your time looking for deals

[Marcus Frick]

Thanks, Adam, Jose, and Eliott!

Really appreciate all of the feedback.

Any preferred methods for generating leads?

I like driving for dollars, but it's a big time sink.

[Nathan Gesner]

Quote from @Marcus Frick:

Your questions are like walking into a swarm of bees! I recommend you read some books to build a foundational understanding, then come back and ask specific questions to refine your knowledge of a particular subject.

An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.

Warning: I am not an attorney and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.

ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appears on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.

LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.

Additional thoughts:

1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.

2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.

3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.

4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your basic insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.

5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 12 years experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.

If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is likely to be higher, then you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require additional, on-going effort to maintain.

1. Start with BiggerPockets Ultimate Beginners Guide (free). It will familiarize you with the basic terminology and benefits. Then you can read a more in-depth book like The Book On Rental Property Investing by Brandon Turner or The Unofficial Guide to Real Estate Investing by Spencer Strauss.

2. Get your finances in order. Get rid of debt, build a budget, and save. The idea that you can build wealth without putting any money into it is a recipe for disaster and the sales pitch of gurus trying to steal your money. A wise investor will not try to get rich quick with shortcuts. If you can't keep control of your personal finances, you are highly unlikely to succeed in real estate investing. Check out my personal favorite, Set For Life by Scott Trench , or The Total Money Makeover by Dave Ramsey.

3. As you read these books, watch the BiggerPockets podcasts. This will clarify and reinforce what you are reading. You can hear real-world examples of how others have built their investment portfolio and (hopefully) learn to avoid their mistakes.

4. Now you need to figure out how to find deals and pay for them. Again, the BiggerPockets store has some books for this or you can learn by watching podcasts, reading blogs, and interacting on the forum. There is a handy search bar in the upper right that makes it easy to find previous discussions, blogs, podcasts, and other resources. BiggerPockets also has a calculator you can use to analyze deals and I highly recommend you start this as soon as possible, even if you are not ready to buy. If you consistently analyze properties, it will be much easier to recognize a good deal when it shows up. Find Brandon's videos on YouTube for the "four square" method of analyzing homes and practice. It doesn't take long to learn how to spot a good deal.

5. Study the market. You can learn to do this on your own or get a rockstar REALTOR to lead the way. I highly recommend a well-qualified REALTOR that works with investors and knows how to best help you.

6. Jump in! Far too many get stuck in the "paralysis by analysis" stage, thinking they just don't know enough to get started. The truth is, you could read 100 books and still not know enough because certain things need to be learned through trial-and-error. You don't need to know everything to get started; you just need a foundation to build on and the rest will come through experience and then refining your education.

You can build a basic understanding of investing in 3-6 months. How long it takes to be financially ready is different for everyone. Once you're ready, create a goal (e.g. "I will buy at least one single-family home, duplex, triplex, or fourplex before the end of 2019") and then do it. Real estate investing is a pretty forgiving world and the average person can still make money even with some pretty big mistakes.

[Marcus Frick]

The swarm of bees generated a number of very helpful responses ;)

Thanks so much, Nathan!

I'll check out your resources and be back with more questions.

[Basit Siddiqi]

Wholesaling as a business, in my opinion, does not have major legal risks that an LLC would protect you from.

You may want to get an LLC to look more professional but in my opinion, not required.

Speak to an attorney.