All Forum Posts by: Chris K.

@Yacine Rimmo

Depending on the insurance coverage you have, your insurance carrier might provide a form. Essentially you should have a contract with the contractor and also have him sign this waiver stating that: (1) he/she is an independent contractor; and (2) he/she does not carry WC Insurance as the owner/sole employee of their business. 

But it really depends on why you are doing. I didn't listen to the referenced podcast so I don't know what the idea behind the suggestion was.

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 Smith

If you do a search, you should be able to find past posts by me and other folks on this topic (e.g. @David Krulac). But the short version is that buying at a judicial sale can be risky. It is possible for these sales to divest existing interests. But that requires strict compliance with notice requirements. If the Tax Claim Bureau fails to strictly comply, you will be responsible for dealing with it 99% of the time.  

Also note that you will likely have to do a quiet-title action no matter what. This is so that you can get a marketable title that title companies can insure. Not required but you probably can't sell it or get a mortgage without it. 

The cost of it will depend on the situation. It might be a few thousand dollars as @Kate Daye Ruane mentioned plus fees/costs. But it can end up a lot more if someone contests the 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.

@Lizbeth Vaquero

If you want to be a real estate nerd (which is not necessarily a requirement for success as investor), that's not really the point of a cap rate. Cap rate means basically nothing as an ROI metric.

For example, let's say you have near mint 100 unit apartment selling at a 7 cap. Should you buy? Well, probably not if you are in Scranton. If it is in NYC, you should run to the seller with the money and contract in hand. 

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.

Hi @Kyle Knowles:

There are a few of us on here including @Mark Lladas, @Adam Guiffrida, @Marc Winter, 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.

@Jeff Lamothe

A few thoughts: 

1. Most tertiary markets like Harrisburg and Scranton/Wilkes-Barre should meet most of your qualifications except maybe number 6. I just don't know what the job growth data in the past 10 years is. 

2. Except for Philadelphia and Allegheny County, most landlord-tenant laws in Pennsylvania is the same. So there's no meaningful differences outside of those two areas. 

3. You should be able to meet the 1% rule in Pennsylvania. Most properties should meet the 2% rule. 

4. I would note that Pennsylvania areas outside of Philadelphia and Pittsburgh rely heavily on cars to get around. For example, my guess is that most people in Luzerne County will have a 20 to 30 minute commute in non-city-traffic to get to work. So you often need to look beyond a specific city limit when you are evaluating a market. 

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.

@Brock Sheets

1. That won't work. Transfer tax gets assessed when you transfer the property. Using an out of state LLC has no impact on that process.

2. Sure. Last time I looked into it, I thought Fannie or Freddie changed the rules so that it allowed the use of LLCs in certain circumstances. But I might be wrong on that. Assuming they don't, you will just need to use a portfolio loan.  

3. I'm not sure what you mean by "abandoning" a LLC. Assuming you mean abandoning the idea of using an LLC, that is also an option. Whether you should use an LLC depends on several factors. It's hard to know what your situation is online. Probably worth talking to that attorney or someone else you can engage to review your situation.

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.

@Maria Laura Lapoint

You can also try @Marc Winter and his team!

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.

@Grant R.

50/50 arrangements do not guarantee "equal financial footing." The party with a bigger war chest will have an advantage in that regard. Now it's better than say being 49% member of a 49/51 LLC. But the 50/50 arrangement doesn't really protect you from being rolled over by a better financed member if a conflict were to occur.

It's basically the same concept as to why it's generally a bad idea to fight against the governmental agencies like the IRS or a major bank. It doesn't matter if you have a reasonable claim against them. They are just too big and well funded for you to realistically survive a lawsuit. 

I think the story you are thinking of is Queen --- Smashing Pumpkin's reunion process was less than ideal. But those stories do not really concern the benefit of an equal equity split. Yes, maybe that was one factor to reduce the tension. Yet often the central conflict in those situations goes much deeper than just the money or equity. I would also note that for every story like Queen, you get the other side as well (e.g. Michael Jackson - Jackson Five, Justin Timberlake - NSYNC, Beyoncé - Destiny's Child). 

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.

@Grant R.

I don't necessarily disagree with the spirit of what you say. But the purpose of an operating agreement is to set the rules for the members of the LLC. It's not an employment contract where the members should hash out their day-to-day responsibilities. The inherent problem with a 50/50 situation is that there is always a potential for a deadlock. If it truly blows up, that's not something you can solve with an operating agreement that defines roles and responsibilities.

Whenever you think about an operating agreement, don't look at your current partner as the member you will deal with. Instead imagine some other person in front of you that you really don't want to do business. It could take on the form a creditor of your current partner. Or perhaps it is the partner's spouse that you actually hate deep in your guts. Does the operating agreement clearly spell out what your rights are in those situations? And more importantly, have you seen the agreement/language get litigated over in court? 

I am not saying you can't form a proper 50/50 LLC. It's just that it is hard and costly. And trying to do a 50/50 LLC on top of having this "working" member and "equity" member split is even worse.

On that note, the fact you successfully completed these deals with a 50/50 LLC doesn't mean the form is good. It just simply means that you did a good job running the business. The true test of any of these arrangements is when things go nuclear. It's what I say about every single agreement --- if everyone involved is making money, it honestly doesn't matter what the agreement says. It's when things go sour where it can get ugly. The purpose of any agreement is to keep things civilized when that time comes.

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.

@Bryce T Attisani

Aside from what @Dmitriy Fomichenko wrote, note that you have to pay the realty transfer taxes again if you transfer the property from your personal name to the LLC. You also want to make sure you don't violate any due-on-sale clauses.

In terms of where to open your LLCs, I generally form the RE Holding LLC in the state where the property is. So if you investment property is in PA, then I form the LLC in PA. Why that's the case gets complicated but I think it is generally the best option for slew of legal/practical reasons. For what it's worth, I never considered state income tax as being a major factor in forming an 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.