Seems I keep getting beat on properties going for full price and more. These deals often have low returns and function solely on best case scenarios in my opinion. Anything good is snapped up quickly. At this point with multiple properties I've debated on accelerating payments on everything until I find something good. Recently was outbid on a small condo which could rent for $1250, to a person who went all cash at 125k. Having 125k in cash sitting around, the COC on return would be 5 percent after expenses. At that point I'd rather go idle......being a landlord isn't as easy as ALOT of people make it out to be!
Anyone else in the same boat?
Paying down a mortgage on a income property is a terrible idea as a investor. If you have cash or equity it should be moved to a different investment vehicle not simply allowed to wallow in a property where it is essentially being sent to die. That is hoarding not investing and a embarrassing use of money.
Every 100K in a property will suck $866/month directly off the top of your income based on a conservative opportunity value of 10%.
Take the money and invest in a income fund or REIT if you want to hold, do not burry it in a property where it will essentially kill your cash flow and turn the investment into a liability.
Simply because you are on hold does not mean your money should stop earning it's keep.
Lend your money short term to people with deals at 10-20%, instead of paying down rental property debt. Lend it, keep some in case you find a deal, or keep enough to acquire one and borrow from private money the rehab at a rate...pay down personal debt maybe if you're going to pay down anything (personal home, student loans, stuff like that). Student loans in my opinion, is the most dangerous debt you can have. It's worse than credit card debt because it's not going to ever go away until you pay it off.
Just some suggestions, and my hatred for student loan debt reared its ugly head. Sorry. lol.
@Frederick Kirk Wendel, I am sorry but I am having a difficult time understanding the question so I will make some assumptions on information needed in order to form an answer. First I will use the assumption the LLC was sued and the LLC owes the debt. They can attach the assets of the LLC. They can garnish the bank account, they can file an attachment on the property, they can do anything a regular debt collector can do. It does take time to file your notice file to foreclose and force a sale as you don't have the power to do a foreclosure by puiblication so it involves a lot more in legal wrangling. If you loaned the LLC money to pay the down payment to buy the property and you document it, you can placwe a legal mortgage on the property that was bought. Do it correct and file it on the records, and put it in your minutes and vote on doing it. It can hurt your ability to get more loans as it affects your DTI and total debt owed. If you have enough property to satisfy the judgement then just pay it. If the judgement is much greater than the value of the property you can file a bankruptcy. In a bankruptcy creditors are put in classifications of priority. Secured debts are usually first priority. Those are things like perfected mortgages, and liens on vehicle titles, etc. The next priority is usually wages for workers who have earned them. Then you get to unsecured creditors.
now lets jump to the assumption that you were sued personally and the LLC was not sued and you have a large judgement against you that you cannot pay off. First your house is worth lets say $200K, and you owe $100K. The bank who holds your mortgage has filed it and no one can get in front of the bank's mortgage. They can file a notice or lens pendens on it, but are they willing to pay off the bank in order to sell it? lets say the judgement is against you personally but not your wife. In Wyoming if the property is owned as Tenants by the Entireties the creditors cannot touch one penny of the value of that property even if it had no mortgage on it at all. If your wife was named in the suit and the judgement was against her as well they could go after the property. Lets say the judgement was $2 million, and your home and your LLC were your only assets, you could file bankruptcy, and in a state like Texas, Florida, and a few others, your home is totally exempt. The debt is wiped out and only the mortgage holder gets anything and he just gets a reaffirmation agrement saying you will pay the mortgage off as you promised. In Wyoming you only get a $10K homestead exemption, but your wife can claim it too. So your $220K house with the $100K mortgage would have to pay $80K to the trustee of the Bankruptcy to divide among the creditors. You get to keep your $20K in equity from the homestead exemption. I actually do not know how the Trustee would treat an LLC asset. If he honors the state law and only does a charging order, the creditor only gets what the LLC pays out to you. I have never dealt with a solvent LLC in a Bankruptcy yet and have not taken a class on it.
If you owe the debt personally and lets say your residence is exempt, and your LLC is the only major asset left, they garnish you of course and get a charging order against the LLC for distributions. The can garnish all of the distributions, but can usually only garnish 25% of any wages drawn, so you can draw a wage of $2K per month for example and the creditor gets $500 of it. The good news is you got $1,500 of it. Now if you deposit that check the creditor can garnish your bank account and take the $1,500. So you have to take the check to the bank and have it converted into cashiers checks to your creditors like gas company, car payment, credit card payment, etc. If the debt is small enough then pay it off, if not then again you have bankruptcy. Once the lawsuit is filed against you, any transaction that benefits you and leaves less for the creditor will be suspect, and could be undone by the court. It could also be used as evidence to try to pierce the corporate veil. I realize this did not answer your question directly, but it gives you an idea of how these things proceed and the mental math an attorney needs to do before he files suit.
@Jerry W. Thank you.
Sorry for the poor delivery in my first post.
You answered two, and a third, formed as I read your post.
And I have more now. Meeting an Estate Lawyer tomorrow.
Thanks for the info!
Kirk