BP Lurker in Chicago!

[John Carr]

Hello BP Community!

My name is John Carr - I am originally from Charleston, SC and now reside in the great city of Chicago! I have been a BP lurker for the better part of a year, digesting the amazing content that BiggerPockets (and all of its members) provides, but realized that I had never actually posted an official introduction...

I am, for lack of a better term, an "accidental investor" - when my wife and I moved up here in 2013 I started renting out our home in Charleston, and about a year ago, my grandmother passed away and willed me a single family home in New Orleans that was also being rented out. So through sheer dumb luck, I now own two cash-flowing properties. Through these experiences, I have come to recognize the immense power that real estate (when done correctly) can hold to unlock a financial future that until recently I never thought possible.

I am currently trying to expand my rental portfolio (this time on purpose!), researching potential multi-family properties in the Chicago area. Though I have taken advantage of the knowledge that BP provides, it is my goal now to take advantage of the great networking opportunities that I have been to this point missing out on. Drop me a line if you'd like!

[Thomas Franklin]

@John Carr I am presuming you are interested in Residential Multifamily Properties such as a Duplex, TriPlex, or a Four Plex. Many Realtors will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a 203k Loan. A 203k Loan is where the purchase price and rehab costs are rolled into a single loan.

Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). Because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC.

If you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.

If you think you will go FHA, 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.

Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You many be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.