All Forum Posts by: Chris K.

@Eugene Carelli

A few thoughts:

• One purpose of an LLC is to shelter the members from outside liability. But the other purpose --- and equally important one --- is to protect against liability from each other. Without an LLC, you guys are effectively forming a partnership where everyone is a general partner. As a general rule, each general partner is liable for the actions of the other partner as part of the partnership. So if one of the members messes up, the other members may personally be liable for the conduct of that particular partner. I personally don't do partnerships for this very reason. As a lawyer, I've seen too many crazy situations.

• I personally believe new investors should avoid partnerships/multi-member LLCs as long as possible. Getting all the terms worked out is a long and potentially stressful process. It can get expensive if you work with attorneys and accountants. This is especially true since most of these partnership/LLCs involve a sweat-equity partner and money partner. I think there are better ways to handle such relationships. 

• Later transferring the property may trigger the due-on-sale. And as you said, you will also likely incur realty transfer taxes. 

• As for running the rental payments through the LLC, I don't really see a point. For one, the amount of business credit that the LLC can build running the rental payments for a small multi-family is virtually none. For most small businesses, lenders will require a personal guarantee from the members for any kind of loan. So I'm not sure if running the rental payments through an LLC is worth the hassle.

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 Lipsey

Kind of depends on what you want. Note that most attorneys nowadays end up specializing beyond just a "real estate" attorney. There are still general practitioners but specialization is the clear trend. So the attorney that you use to handle zoning matters may not be the same person that handles your evictions. 

Price depends on the market, underlying deal, and specific facts of the case. For example, the hourly rates for a metropolitan market are generally higher than the hourly rates in a more rural area. Some practice area is considered to be commodity work so you can't charge much (e.g. evictions) compared to more specialized areas (e.g. securities law). 

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.

@Greg Gallucci

Not specifically about commercial real estate but this book is good for income-based properties.

https://www.amazon.com/Estate-Investor-Financial-M...

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.

@Mike Dorneman

I don't think there are any firm rules about when to create a new LLC. It depends on your risk tolerance and hundreds of other factors. One important consideration is the debt level of the LLC. For example, imagine that your LLC owns two properties. Both properties have a 15-year note and have the same value. The main difference is that you bought one property 14 years ago while you just purchase the other one a year ago. In that scenario, your LLC has a lot more equity in the first property. So commingling both may not be the best idea since a hypothetical plaintiff could try to go after the equity in that first property.

But again, it's hard to say. A lot of folks just pick a comfortable number and create a new LLC when the LLC exceeds that amount. For example, you may say that I'll create a new LLC when the current LLC own $500k worth of properties.

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.

@Joshua D.

As a general rule, a valid contract requires something called "consideration." Now a consideration could be money but it could also be other things including promises to do something or not do something. Historically, attorneys always included a nominal, monetary consideration. That's why you see a lot of contracts and other documents that include an exchange of $1. They did this so that if the other party challenged the document for lacking consideration, they could point to that $1. It sounds silly but the courts only cared about whether there was consideration --- they didn't necessarily care if the consideration was "adequate." 

Pennsylvania is interesting because there is a specific statute that deals with this issue. The exact application can get complicated and there are many exceptions (e.g. restrictive covenants in employment contexts have special rules). But the basic rule in Pennsylvania is that if your contract includes the phrase "intending to be legally bound," the parties to the contract cannot void the contract based on lack of consideration. 

I haven't seen the contract. But if this is a reputable attorney, he or she is probably right. 

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.

@Genaro Quiles

Note that if the person works in Pennsylvania, you can try to garnish his wages for damages related to failed rent payment. It's like one of the few rare times you can use wage garnishments in PA. So if you have complete information, maybe you can actually try to recover something. 

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.

@Genaro Quiles

Kind of depends on what you want to do. Do you have a security deposit or other prepayments? Is his employer still in Pennslyvania? What's his income level like?

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.

@Anna W.

There are many factors to consider:

• While it is true that LLC can protect against liability, there are many exceptions. For example, Pennsylvania courts have held that a plaintiff can hold an owner or officers of a corporation liable under something called the participation theory. So depending on how active you are as a member of an LLC, you may face personal liability anyways.

• With that caveat, I would say the fact that they became tenants when you owned the property --- on its own --- would not result in personal liability. But note what @Patrick Liska said. If the basis for liability is something that occurred when you owned the property in your personal name, transferring the property to an LLC won't do much good.

• Remember that the transfer from personal names to LLC can trigger due-on-sale clauses and also generate realty transfer taxes. There are also other considerations as well so make sure you do your due diligence before making the decision.

• Along what @Mike S. pointed out, check your lease to see what it says about a change of ownership. Different leases have different consequences and options. 

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.

@Megan Hirlehey

@Nathan Gesner gave a link to a good article. It's a fine line between a trespasser versus a squatter. Not to be cynical but it also depends on the relationship with law enforcement you have and local politics. For example, if I called the police department in my area and told me that someone broke into my property, they would probably treat them as a trespasser and remove the person from the property. But that's based on my existing relationship. It's unclear whether that would be the case in bigger cities like Pittsburgh or Philadelphia. 

Adverse possession is a different issue. 

So the somewhat interesting thing about all this is that it's theoretically easier to kick a tenant out than a squatter. One requires a simple eviction action; the other most likely requires an ejectment/trespass action. 

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.

@Corey G.

Window business is a weird one. Some thoughts: 

• In the bigger construction world, window manufacturers sell the windows to the job but the actual install is done by another trade (e.g. carpenters, framers, etc.). It's not the most complicated thing to install so it's fine. 

• Where it can get complicated is when you are not dealing with old construction. This is probably not as a big of a deal in Phoenix but many properties in the East Coast have many oddball windows from the 19th century and early 20th century. Replacing those can get very convoluted and expensive. 

• As a practical matter, virtually all window contractors want to sell both the material and labor. That's especially true when you work with established ones with a good reputation. Now it is true that part of it is based on the desire to increase profit. But the other reason is logistics. My company does not do smallscale work but I know it is incredibly frustrating for smaller contractors to show up at a job and realize the owners ordered useless things or didn't get enough of something. That ruins their work schedule and means less money.  

I have no idea how handy you are and whether you have any experience managing laborers or tradesman. If you don't have the experience I would probably hire someone to do it. And it's sadly the case that it is really hard to find contractors that are good, fast, and cheap. You are lucky if you can find a contractor that can get two out of the three.  

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.