All Forum Posts by: Chris K.

@Eric Teran

There are many ways to structure such arranagements. But as a general rule, I'm not a big fan of sweat equity arrangements. It can invite odd tax consequences and also raise fairness issues down the line. Instead of dealing with sweat equity, I would suggest that you guys form an LLC --- another topic --- and you charge the LLC for your time and work. You can then enter into an agreement with the LLC for a reduced rate and agree to other arrangements (e.g. holding off on your payments until end of the project, providing further discount based on the ultimate outcome, etc.). Your partner can have similiar arrangements as well depending on the professional services he provides.

The basic underlying concept is to separate the ownership/entrepreneurial spirit side from the techinical day-to-day work that you guys need to do.  

On a related note, I would try to avoid a 50-50 partnership/ownership. That can also cause a lot of issues down the line. 

Good luck!

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.

@Jack Zhuang

My company works on large scale commercial projects all over the east coast. Professional estimators --- who work on these mega projects and do this for a living --- often make mistakes. It's just not an easy thing depending on the design. If you want to go modular and work with a cookie-cutter-type design, that could be easier to estimate. But overall, estimating is a major challenge. 

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.

@Eric Clement

If you were to do something like this, you absolutely need an agreement between all the parties. But a few thoughts: 

• I don't know whether you are using this attorney as your own lawyer, but I would never have considered this kind of arrangement as a lawyer during my practicing days. It's a crazy path to go down for an attorney due to the ethical rules.

• You also have to be very careful about the contractor claiming that they will cover "labor" costs. Many smaller contractors are often barely floating by. It's already difficult when your contractor fails to pay their employees or their subs. Adding this 50/50 split to it can make it worse.

• There could be some interesting tax and legal consequences as a well depending on how exactly this is set up. But that's a more complex topic.

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.

@Darren Roskott

What do you mean by registering the loan using the LLC? You mean have the lender lend it to the LLC instead of you personally?

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.

@Michael Coletta

Well right off the bat, you will need to pay the full transfer tax amount when you transfer the property from your name to the LLC. I think it is around 4.2% in Philly right now. If there is a mortgage, you will also need to do some research on whether you can transfer the property to an LLC. If you are just looking for a single member LLC, the cost should be sub $1k --- probably around $500 to $750 including the filing fee.

Hard to discuss asset protection in an abstract since I don't know have all the pertinent information and it's probably not something you want to share on a public forum. I know people ask about asset protection a lot on BP, but it's a very hard topic to discuss in a vacuum. What's appropriate for one person may not be appropriate for another. 

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.

@Sam Shah

Sometimes --- and I say sometimes --- rent appreciation can overcome the low returns in the first few years. For example, look at how fast rent has risen in the NYC metropolitan area. Such rapid rent increase is one reason why developers cannot build buildings fast enough around there. In any event, this is a pretty advanced strategy and there is a significant risk. Also, while Philadelphia is a nice area, the rents you get there are not really comparable to the NYC metropolitan area. So it may not be the best way forward if you do not have much experience. 

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.

@Robin Rinaldi

Welcome to BP! 

I can't say anything about the NJ/NY market. But in terms of Pennsylvania markets, you are looking at three different class of markets. Philadelphia is obviously the primary market in Pennsylvania and Scranton is one of the tertiary markets. I consider Lehigh Valley to be a secondary market --- no where close to Philadelphia/Pittsburgh in terms of size but clearly bigger than the other tertiary markets (e.g. Scranton/Wilkes-Barre, Harrisburg, Lancaster, Reading, etc.). So it behaves in its own unique ways. 

You can make money in all three types of markets. But they behave very differently. 

Some other thoughts:

• One could theoretically argue that tertiary markets are better for cash flow since the market cap rate is higher. In practice, that is not always the case for many reasons. But something to keep in mind.

• You can always make your cash flow higher by leveraging less. But your returns typically suffer if you don't leverage. Not sure whether you care about the overall returns or just cash flow. If the latter, buying in a primary area may ultimately be "safer."  

• I would say that folks are generally better off looking at a market that they have the most connections to. Notably, until you start investing in bigger properties, you will mostly hire and work with smaller, "mom-and-pop" businesses. The consistency of service from such businesses are not always consistent. So you will likely find that you need to micromanage them to get the best results. That being the case, having connections to the area can be very helpful.  

I think all three markets could work for you. If I had to pick one, you may want to start by looking at the Scranton area since it sounds like you may have family/friends/connections. If you don't, I would try to figure out what exactly you want from the investment. Higher cash flow doesn't always mean higher returns in the grand scheme of things. 

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.

@Angad Patheja

Welcome to BP! 

The answer to your question will depend on a few factors including what the lease says, how the landlords own the building, and whether there are any agreements between the landlords. If there is a written lease, see what it says. If there is no written lease, then you have a different problem. 

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.

@Robert Novotny

I think you are basically describing a BRRRR --- which is definitely a valid strategy. Now as someone living far away, you have severe disadvantages when it comes to checking in on your contractors and your property manager. That's an issue because the quality of contractors and property managers that you can afford as a smaller investor is not as ideal as someone working on "bigger" projects. This is not to say that there are no small but very good contractors and property managers. It's just that it's harder to find one.

With all the above in mind, you may be in a position where partnering up with someone is the best course of action. If you have friends who are already involved, that may be a good starting point. 

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.

@Robert Novotny

Welcome to BP. To answer your question, I think it is possible for you to invest in US properties while living somewhere else. For the rental side, you will probably have an easier time as you do "bigger" deals. Managing a larger apartment, for example, is typically easier than managing smaller multi-families. For flips, you will need to build a great team. It wouldn't be my first choice when being abroad but it could be done. 

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.