All Forum Posts by: Calvin Thomas

Come to NY or NJ and you will see what I am talking about. As for a simple LLC, not if it isn't setup correctly with proper asset protection, that person could be sorry. An attorney, will check and see how the LLC is setup. If there is any commingling involved, that LLC protection is in jeopardy. Whether you have one property or 100 properties, an investor best be prepared for anything these days. I've been and known other people who've been targeted for malicious lawsuits. We won for two reasons. One, good setup of asset protection. Two, good insurance. I am talking from advice from someone who has gone through with this. Should anyone choose not to listen to me, that is their choice. However, don't say to themselves, damn, I wish someone told me this before. Appropriate asset protection is never overkill. Yes, a new investor may only have one or two right now, plus their own home. I ask you, is it prudent to put those properties in jeopardy? What happens, when they now have 5, 10 or more in a few years? Ever hear of Judges clawing back corporate veil protection? Well, in NY, it is done all the time due to not being properly setup and following proper protocol. What I describe sounds like a lot, but it isn't. It's not expensive to setup either. Here's the kicker, once you are setup, you are good to go for life. Just follow the same protocol, and add new LLCs as you normally would within the setup. Any asset protection attorney would agree.

I agree 100% with control everything and own nothing. You, actually all, investors need to meet with an estate attorney and setup a sound plan for asset protection. IANAL, so his is not legal advice. However, a sound plan would include a trust owning a c-Corp, which then owns each of your properties within their own LLC. In addition, each LLC should have their own insurance for said property with the appropriate limits. Some may ask why do this? It is a lot of work. Simple. Do you want to chance losing everything you worked so hard to build? In this sue happy environment, you need legal protection. LLCs offer this protection, along with the proper insurance and asset setup. If you only have, or plan to have, a few properties, it many not be necessary. However, I would suggest everyone to meet with an estate lawyer to to setup proper asset protection.

 No doubt.  Different strokes for different folks.  What works for one person, may or may not work for another.  I applaud your success.

Margin is when you use your investment assets, such as stocks, bonds, ETFs, mutual funds, etc. as collateral and you can borrow against that amount, usually up to 75%.  It is a bit dangerous, as if you borrow too much, and have a margin call, it can be a bit scary.  However, if you give yourself a lot of room, like only borrow up to 40%, you can, usually, be safe from a margin call.  Most higher end brokerages  will offer very competitive loans against margin for balances over 500k.  A person just needs to bank or brokerage private wealth group to negotiate better rates.  I was just at Citibank yesterday and they offered me 2.25% on a margin loan.  When you have balances over 5m, you can negotiate rates as low as 0.25 basis points (0.25%).  Again, just another tool.  

 Possibly.  I am pondering between a mortgage or continue through margin.  Not a big fan of the fees assoc. with the mortgage.

I do not think it would.  The margin interest was between 0.75% - 1.49%.  It would be hard to get that type of loan through any means other than margin.  I tend not to pay interest if I do not have too.  While my accounts are not very big for New York City standards, if I moved them to another bank for a better rate, the current bank would notice.  Thus, it's best to work with me on my rates and fees.  Even when the say it is not negotiable, it is.  Everything is negotiable.  Everything..  Worse case scenario for me is I go to another bank that would meet my needs in fees and rates.  Usual scenario, we meet in the middle, and I am happy with that.  My dad always told me, it not what you sell things for, it's what you buy things at.  It rains true here as well.  If you can lower your overall handling costs for OPM (banks), then you realize more money.  Immediately.  Why pay 5k in mortgage closing costs, where there are ZERO closing costs with a line of credit or a margin loan?  Margin is risky, no doubt about that, however, you have three days to bring the funds into the account.  In addition, if you had a 1mm in stocks/funds/bonds/etc., and only use 20% - 35%, you can safely say you would be insulated from a margin call.  If you used that 250k - 350k to buy two or three (or more homes) outright with no mortgage, you are already ahead of the game.  You saved 10k + in mortgage closing and appraisal fees for said homes.  It's all about mathematics.  The numbers work or they don't.  I'd rather have that 5k, or 10k in my bank account or working on a rehab, or investing in a muni instead of giving it to appraisers, brokers, bankers, etc.        

However, one could say, the leverage could help you in really really good times, but hurt you in really really bad times.  Murphy's law comes out to bite people in the butt at strange times in their lives.  In good times, things are sailing through and you are added new properties and renters.  In bad times, you have unrented homes, or late payers, or issues with the mortgage, or an adjustable rate, etc.  If one is able to not have  a mortgage on these properties, or just a few, they could be much better off in bad times.  I am not sure if you recall, but for about 1.5 years, most banks dried up lending to only the best of the best companies.  If a person is leveraged to the hilt, and they hit some bad luck, they will be in for some real painful lessons in finance 101.  In addition, their portfolio, just like in the market, could be wiped out.  I know this goes against the BP philosophy, however, as a person who experienced with with friends, family and foes, I can tell you; it is not a pretty sight to see.  Well, maybe for the foes, but not the others.  Not saying to not take a mortgage, I am just saying, if possible, not go balls to the wall and mortgage every property to the hilt.  

I know, most of the ppl reading this thread must think I am crazy.  No, just risk tolerant.  Only experience in seeing others get wiped out because of being over leveraged teaches a thing or two about financial responsibility.  No, I wasn't playing Monday morning quarterback.  I was saying for years, the punch bowl can and will be taken away sooner or later.  It's best to prepare.  No one listed to me and said I am too conservative and have to live life.  These are the people that purchased more and more real estate and refinanced their props. when they kept on receiving sky high appraisals.  They basically used their homes as ATMs.  Well, those homes are no longer with their original owners.  Just remember, hindsight is 20/20.  Expect the best, but prepare for the worst.  As history has told all of us, there is little warning before the perfect storm hits and wipes a few of us out.

Hey Chad, I am no master, but I can only give some info from my past experiences.  If any of my experiences can help, I am happy to share.  As for building credit and business lines, that is pretty easy as long as you have a high FICO score.  Anything higher than 760 is pretty good.  I always start out with credit cards.  Stay away from Chase, but AMEX, Citibank, US Bank, Wells Fargo, TD Bank and Discover a great one's to start off with.  Excellent way to build steady credit over time and get rewarded in the process.  Check out DoctorOfCredit dot com for some great offers on all different types of bank accounts, loans and credit cards (I am not affiliated with said site, but I do use it weekly).  Always keep personal expenses separate from business expenses. NEVER, NEVER, NEVER co-mingle.  While you will be required to PG a business card, it still is separate from your personal credit.  Some great business cards are AMEX Plum (used as a trade credit line that offers 1.5% cash back on all purchases if paid off within 10 business days).  Capital One Spark is also a fantastic business credit card.  It will with give you 2% cash back or 2 miles per $1.00 spent on all expenses.  If you are doing rehabbing, registering corps, maintenance, etc., pay via credit card instead of check or cash.  The year end summaries help with taxes as well.

If one does not have a high FICO score, we can work with that as well.  You need at least a 680 for most credit cards, but the higher end ones require much higher (such like a mortgage score of 720+).  Just opening up small credit cards and paying them off immediately before the close of one's statement helps a lot.  Two of the biggest percentages of one's credit is based on payment history, and utilization of credit.  Each card, or line of credit, should be less than 30%.  Hence, over time, you need to have a good amount of lines or credit cards open in order to ensure you can spread the utilization over multiple credit lines/cards.  Having said that, if one is going to apply for a mortgage within 3 months, this can hurt you when going through the app process (one of the reasons why I was interested in non-recourse loans not based on credit).  Other option, but I am not entirely sure it is open for all investment properties are mortgages/loans which are manually underwritten (held by the banks, and not re-sold as CDOs).

Some people like to deal with small banks, I tend not to like to deal with them.  I like Wells Fargo and TD Bank for bank accounts and loans.  Once you establish an account there, both banks will help with loans and other assistance along the way.  Another good one is Capital One.  During the recession, these banks were amongst the strongest banks out there.  

It is important to have savings, both in personal and business.  I highly recommend Discover Bank, Ally Bank, and Barclay Savings for online business savings accounts.  They pay at least 1% on all deposits.  For business, Capital One 360 pays the most currently.  All have no fees.

That's a good place to start for building credit.  It's always best to have a good strong personal credit base to build off of for a business.  Over a few years, one should be able to build off of that where eventually, the business would be able to stand on it's own (hopefully).  What I cannot stress enough is reserves.  All should aim for one year of reserves to cover both personal and business expenses in cash.  Reason being, one can have 500k in credit lines and loans.  However, once a recession hits, banks start to tighten their belts.  Sometimes, they play the chase the credit line game.  Where as they keep on reducing the credit line as you pay it off until it hits zero.  Then, they just cut you off.  Not a fun game for anyone to play.

I will.  I am going o first try and hand deliver it.  I am also in the process of hiring a PM for my units in that area.  I will have that person try to follow up.  If no success, then I will send it certified mail with the letter and pamphlet.  This is a tough one in deed.

No lead was found (thank God).  However, I am going to be hand delivering both the pamphlet and the EPA letter for the tenants to sign.  These tenants were signed up with the previous owner.  What happens if they refuse to sign?  Never been in this situation before, as I've always included said letter and pamphlet for the tenant to sign with the lease.  Apparently, the previous seller never thought to do this.  

Thank you for the kind comments.  

My FICO is 806, so it's pretty high and I have personal credit cards and credit lines over 200k as well.  My credit has allowed me to get nice bonuses like free trips and money for opening up bank accounts and credit cards.  Since I pay the debt off quick, I do not made that type of debt.  I only keep it on my books for, at most, a month until I pay it off.

My comment on not wanting to be rich may had come off incorrectly.  Since selling my companies, I am pretty much okay financially.  I added Real Estate investing after the 2008 - 2009 correction as another business to run for the foreseeable future.  I enjoy doing it, it makes a nice cashflow, and I feel I am giving back to the community while making a nice profit.  I always like to have multiple streams of income.  In case one goes south or has issues, the others pickup the slack.  

I am going to look into these non-recourse loans.  However, I assume the rates would be higher than 3% or so.  I use a few banks.  They find it a bit strange that I do not use debt to grow even more.  I am with Dave Ramsey on the debt issue.  Never use it unless you have too.  If you do, then pay it off as fast as possible.  As I said previously, when running my previous company, before selling it, I ran massive business credit lines, and I was always concerned about the debt levels.  Debt also my my father's and sister's lives hell.  Hence, I am a bit deterred by it.