All Forum Posts by: Chris K.

@Miriam Levitz

What's the scope size of your construction project? The role of the GC on a small project is very different than the role of the GC on a big project. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Chris Laino

Not sure what tax benefits you will get in your situation unless you are flipping and doing an S-Corp. If you want to get taxed as a partnership, then my understanding is that it's somewhat moot from a tax perspective whether you have an LLC. But I'm not really a tax expert.

Asset protection is a complicated topic. simply having LLCs is not that meaningful. Now when you have other partners involved, I generally think LLCs are a smart idea not only because it protects against both "external" and "internal" liability. The biggest weakness of a general partnership is that the general partner is liable for the conduct of the other partners. I still remember a situation where the owners of a successful mid-size business got into major trouble because they --- for whatever reason --- continued to do business as a general partnership. Pretty amazing they lasted that long if you think about it. 

Insurance wise, you typically need to buy property related insurance through whatever entity that owns it. So if you are going to own the real estate using an LLC, then the LLC will buy the insurance and protect it's members. For contractors, you will want to them to provide your with their certificates of insurance as well to make sure they are insured as well. But really, you should work with an insurance broker. I personally can't live without them.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Chris Laino

For the LLC that will actually own the property, I typically do LLCs in the state that where the property is located. At one point in time, some states had serious advantages when it came to the LLC laws. Nowadays, competitive advantages have more or less flattened out. I think that is especially true for real-estate holding companies.

In the venture captial world and the "big business" world, many of them incorporate in Delaware. But I don't see a strong argument for why an average real-estate holding company should incorporate in Delaware. For example, you are unlikely to take advantage of the Court of Chancery in Delaware. If you are looking to do an IPO or an MA for your startup, being in Delaware could be a good idea due to the fact that majority of folks you will deal with use Delaware as the "standard." 

Filing for an LLC is easy. The harder part is for you and your business partner to agree on an operating agreement. That's especially true if you guys are looking to do a 50/50 llc.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Jon Schwartz

Very standard document. Some lenders have it in their mortgage/loan documents. Other lenders have it as a separate document. Some lenders do both. 

Now if it's a nontraditional lender, I suppose the document can have unusual languages in there. But if it's a normal bank, it will basically have the same set of languages in there as everyone else.  

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Jian G.

I think you will need to first narrow down the scope of new construction. Building a few 5 units is a very different project than building a mid/high-rise building. It's also different from building a bunch of smaller 5 units in a development. Having a narrower focus will allow for a more meaningful conversation. 

With that in mind: 

• I think it's hard to say that ROI on a new construction project is automatically higher than just purchasing an existing property or flipping.

• My experience with new construction --- as a lawyer, investor, and business owner --- mostly come from larger projects. For larger projects, you are forced to rely mostly on specialists to get the job done (e.g. proper GCs, architects, lawyers, consultants, etc.). It's arguably more hands-offish then an average flip once all the pieces are in place since everyone involved in the project should be at least competent at what they do. The question then becomes whether you can afford such a team for the project. To state the obvious, not all markets/project can support such a team. For example, you probably cannot afford that kind of team if you are just building smaller properties. 

• Consider the NYC metropolitan area. There's an incredible amount of new construction happening at the moment. For example, if there is anything resembling a vacant land on the NJ side, someone is going to put a decent sized building there. Part of this has to do with the fact that the average rent in this area increased by $1k or so in the past ten years. That kind of natural appreciation makes it an attractive market to build new projects. You don't see these kinds of projects in the tertiary market that I live in.

• Politics and local laws can have a drastic impact on new construction projects. Not to stereotype the area, but my guess is that San Diego is probably a bit heavy handed when it comes to those matters. From a developer's perspective, they generally like to work in areas where they can count on support from the local government. 

• Low-income housing is such a complicated topic. We work on a lot of those projects out here in the Northeast. In fact, we have customers that primarily focus on such projects and they make money from it. I don't know anything about the San Diego market, but there could be 100 different reasons why these projects don't appear in your area. It's a topic on its own.

To answer your underlying question, I think most people struggle to jump into new construction projects because the scope of the project they want to work on is not large enough to support a proper team. To overcome this problem, the folks would either: (1) need to raise more money and aim for a bigger project; or (2) cut corners somewhere (e.g. using a smaller GC then the project requires, using less skilled architects, etc.). 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Charlie Moore

As an attorney and investor from Pennsylvania, my experience has been that any investor that has their stuff together uses an escrow account for security deposits. It takes minimal effort to set up and maintain. Most banks will have a product available to serve as an escrow account.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Jon W.

If you want to manage properties that you don't own, then you techincally need a broker license (or at least get a broker on the record). 

On the vacation rental side, has there been a new change of law? Last time I checked, the official position of the State Real Estate Commission is that the general law on property management applies to vacation rentals as well. There was a high profile case but I believe that case got dismissed in favor of the Commonwealth. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Matthew Meizis

It happens from time to time. From an owner's perspective, it's not favorable since you want the architect to be on your side when there are issues down the line. This is especially true under the AIA system that gives the architect a lot of power. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Kevin Korejko

Welcome to BP. There are a lots of folks on BP in that neck of the woods. There are also many folks on here that work in the architecture/construction world. Good luck with your journey!

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Karen G.

Depending on the facts, you probably need to file for ejectment and/or trespass action. Unfortunately, both actions can get expensive and time-consuming (at least a few months and potentially over a year). If you could reach a settlement with her for a few thousand dollars, I would consider that a "win." But speak to your attorney to see what he or she says. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.