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All Forum Posts by: Michael B.

Michael B. has started 4 posts and replied 194 times.

One option is to use LegalZoom or the like if it's a pretty generic structure.

They ask questions about what you're doing with the LLC and set it up from your answers. The questions also give you things to think about.

I guess I see them as an in between ground. Less expensive than an attorney, but requires less hands on than doing it your self. As long as you're not doing anything that can't be handled by a generic LLC or corp they do well.

Post: Private money from parents

Michael B.Posted
  • Apopka, FL
  • Posts 207
  • Votes 120
Originally posted by Camilla Sauder:
My parents are interested in lending me money for real estate investing. ...

Everybody else is talking the mechanics of borrowing from your parents. I'm going to suitability. Are you sure this is a good idea? If you lose part of your parent's money, how will that leave them for retirement?

Borrowing from family is always fraught with peril. If things go wrong, it can impact your relationship badly. Losing cash of an investor can end up in court. Losing cash from your parents can inflect an even more damage.

With savings interest rates hovering around .25% it can seem a good idea to put retirement cash at risk in a business. Just make sure you understand the true cost of the cash if things don't work out.

Do you know the neighborhood?

If not I'd suggest meeting him over coffee to shoot the breeze first. After that, pitch it as being a friend. "It's only a matter of time before something gets broken." Let him know that the goal is going to end up costing him a trip to small claims court if he's not careful.

That type of conversation is hard if you don't know the man. I ALWAYS make a point of meeting every neighbor when I buy a place. It's much easier to go to neighbor with an issue if you already have a relationship. Also the neighbor can be your informer if the tenant does something stupid.

Get to know him. It will pay off in more ways than a bb goal.

I've always accepted checks, and have had very few bounced. I've never had the initial check + deposit bounced. However if you do bounce one on me -- $25 check fee + late rent fee. And I don't take checks for 1 year. We always talk through that at lease signing.

And that's a place that people really miss an opportunity. At the beginning of any financial relationship people are feeling good about each other. Spending a few minutes to lay down exactly what I see as expectations (rent on time, don't be a problem in the neighborhood, basic cleanliness) and listening to what the renter expects (good maintenance -- especially with safety issues, timely response to all questions). This talk before move-in can really prevent lots of misunderstandings.

Of course, it's been 30 years since I was taking rent from somebody moving in with me. May be a different ball game all together.

Post: Why do banks dislike flipping?

Michael B.Posted
  • Apopka, FL
  • Posts 207
  • Votes 120

Because flippers are risky, and bankers hate risk.

Unlike on TV, rehab projects can go bad. The investor runs out of money or more likely didn't know what he was doing in the first place. Costs get out of control and the investor loses interest and walks away from the house and loan.

Banks are all about risk. They perceive flipping deals as riskier than owner occupied deals, and therefore are less likely to want to be involved.

Post: Paying Cash for SF Rental homes

Michael B.Posted
  • Apopka, FL
  • Posts 207
  • Votes 120

Originally posted by J Scott

I know what you're getting at, but don't care for the phrasing.

If you emphasize the will then it will provide more cash flow, more net profit, and higher ROI than all cash purposes. However then you qualify your statement with "when done right" it really detracts from the bold certainty of the will.

In fact leverage can indeed do good things, but always raises risk. Leverage narrows your ability to react during a crisis. It can force you into sub optimal long term decisions to meet the payment schedule. It adds expenses that are demanded by the lender (lower deductible insurance, for example).

Lots of investors over the last few decades here in Florida found that leverage was a great thing when home prices were increasing 12% per year, but found it pretty terrible when suddenly prices dropped by 60%. The corpses of leveraged transactions can still be seen in houses that are unoccupied or even unfinished for several years.

And actually I don't think we're that far apart, and I may be unfairly grousing at semantics. I've borrowed in the past to buy real estate -- and may in the future -- but am currently totally unleveraged. It was just I was struck by the bolded certainty of the good things leverage can do with the "when done right" added at the end. That smacks of what statisticians call 'survivors bias'. If we define those making money with leverage as doing it right and those bankrupted as not doing it right then the additional risk associated with leverage isn't acknowledged. But it's always there.

Post: Foreign (Chinese) Investors

Michael B.Posted
  • Apopka, FL
  • Posts 207
  • Votes 120

Thanks for the responses:

Joel Owens --

Everything would be all cash probably forever. I guess there could be a time that we would change the direction, but leverage isn't in the foreseeable future.

There has been no discussion about cap rates.

Andy Chu --

I know that at least part of the money is already in Toronto (RBC).

Another complication: It's been obvious that while I'm talking to 1 partner, there's at least 1 more that may be putting up part of the money (extended family thing). The hope is that I can have only 1 investor involved, with any other working through the known colleague. I also get the feeling that moving cash out of China may be part of the reason for wanting to do this. With a last name like 'Chu' you probably have a better understanding of this than I. :-)

Also it will not be a 50% JV. I would have a piece and be the managing partner, but will have less than 50% ownership. Exact investment and ownership still TBD.

Brian Burke --

You've hit the concern with the second sentence. I'm comfortable with the real estate end of the matter. Being an investment sponsor -- not so much.

Post: Foreign (Chinese) Investors

Michael B.Posted
  • Apopka, FL
  • Posts 207
  • Votes 120

I joined BP a couple of months ago, mostly to get around to asking this question. How to approach this problem has been rattling around in my mind for about 3 months now.

I've been a small time landlord for about 28 years now, owning no more than 4 units (SFH or condo, currently own 2, no debt) at a time, always with little or no debt never with a partner. But I've consistently done well over that time. Yes, I'm very conservative in my approach and a control freak when it comes to my properties.

In my day job I'm a statistician, and work with colleagues in China on a regular basis. Over the years I've had a few casual inquiries from Chinese colleagues about investing in Orlando, FL properties (where I live) with me, which I've dismissed as not something I want to do. Usually that ends the matter.

About 6 months ago I got an inquiry about partnering to invest a low-mid 6 figure amount in a partnership to buy SFH/Condos in Orlando. I would also invest, control the LLC, and manage the properties. The Chinese investor (for now, anyway) wants to invest passively toward a 15 year retirement horizon. He has been fairly active in pressing to do a deal. We haven't gotten down to the details of the partnership, but I'm confident I could structure this pretty well as I want.

I would seriously appreciate any thoughts on the matter. I'm still pretty reluctant as this would be a departure from my past practices, and gaining a partner would undoubtedly cut into my control freak mindset. As a statistician venturing into the unknown brings up all sorts of risk-related thoughts and possibilities, most of which I have limited control. But on the other hand, when opportunity knocks sometimes it's best to toss the security blanket and trade in the binky ...

Deal structuring advice, financial and tax issues, and random thoughts all appreciated.

Mods: I'm not sure what topic I should have put this. Please move as appropriate

Post: How did you incorporate? C-Corp, S-Corp, LLC??

Michael B.Posted
  • Apopka, FL
  • Posts 207
  • Votes 120

I'd agree with Brian Burke.

Depending on your current net assets, it may be an OK thing to just invest in your own name. It's pretty easy to move assets to another entity sometime in the future if it's needed.

Implicit in this advice is the fact that most RE investors never buy their 2nd property. Either they get cold feet and don't get the first, or have bad enough experience on the first that they never want to deal with the 2nd.

So, my advice is not to sweat the small stuff. And in the beginning what type of entity will hold the properties is small stuff. If you don't have a lot of assets hold it in your own name. If you do set up a simple LLC. Concentrate on getting a great deal for the first one. Because if you don't do well on the first there will never be a 2nd, or a need for an entity to hold it.

My advice would differ a little from above.

I would put one person, and one person only, on the lease. Look through the applications and pick the best of the lot. This way you get a single point of contact for issues and you let that person do the rent collection for the rest of the crew.

It's really hard to pursue some people for cash if they break the lease. The whole 'blood from a turnip' thing. And the joint liability may work, but trying to figure that out who to pursue for how much is probably going to cost more attorney's fees than you want to pay.

If this were to become a big part of your business, it might be a good idea to figure out how to make the joint liability work. But for a one-off deal, I'd just pick the best of the lot for the lease and pray.