All Forum Posts by: Caleb Asbridge

Hey Daniel, I don't mean to present anything as a "has to be" situation, just wanted to share the advice I've received and some info. I think it's important that you both are clear in your roles and how each of you would be compensated in the end. This can be done through an operating agreement, within your articles of incorporation, or another vehicle as advised by your attorney. But even in the clearest agreements, each partner has a percentage of ownership and therefore has some say in the management of the operation. I believe this is the case even when you agree that one partner will carry the management duties.  This is why I was advised that the cleanest way to manage 100% of the entity with the minimum chance for dispute is to treat the person who is funding the deal as a lender as opposed to a partner.  Sorry for not being clearer on that point.  All that said, I'm not an attorney and am limited to my own experience.  There may be others with different experiences.

Daniel, would your friend be participating in any way in managing the business?  Or would he/she simply be loaning you the money?  Your parenthetical reads to me like you don't want to just borrow the money, but your description doesn't look like your friend would play a management role.  My attorney has advised me that I should only partner with someone when they play some role in the management of the project or when there is a clear description of our roles and duties within the partnership.  As I understand it, if the "partner" doesn't play any role in management, then they are a "lender" and not a "partner" at all.  Here's a link to a blog article on the subject.  Full disclosure: I am a client of the author's law firm but this article is not an advertisement and is freely available for information/education purposes.  Hope this helps.

Hi Jared, if you treat your friend as "the bank," I recommend having a solid promissory note and making sure your friend has a 1st position lien on the property that is purchased.  If you don't do the lien my understanding is that you can get into SEC trouble.  The interest rate is up to whatever you and your friend can agree on.  I have a similar situation and have worked out a 12% interest rate amortized over ten years with no penalty for paying the loan off early.  This is just what we have agreed to, don't have the promissory note written up yet.  Hope that helps.

I don't claim to have a lot of experience in this area yet, however the law firm I work with (as their client) provides a good bit of free education in this area. Rodney, these links may be helpful if you need some more education/insight into the topics of leveraging your IRA funds and avoiding UBIT/UDFI taxes:

Buying Real Estate With an IRA and a Non-Recourse Loan

Self Directed IRA & 401K Prohibited Transaction/Disqualified Person Diagram

I hope this is useful information.

Hi John, this looks to be a frequent topic on this forum.  You can do a search and find many posts and replies.  Here's a link to a discussion yesterday.  Hope that helps.

Hello John, here is a fairly recent thread in the forums on this topic.  This came up yesterday as well and I think that thread linked with the one below:

Auction.com Thread from BP Forum

Hope that helps!

Jonathan, I'm not sure this fits exactly what you are asking but I thought this might be helpful.

Raising Money in an LLC or Joint Partnership-Securities Law

Full disclosure--I'm a client of Mat's law firm but this article is on a public blog and meant for general consumption and is not specific to clients of their firm.

There's a podcast that I've listened to on this subject (not BP Podcast), if I can find it I'll post it here too.  Hope that helps!

My experience has been that most banks and traditional lending sources like you to have been in business for at least a year before they will talk to you.  You can go the credit card route with an entity but if you're looking for a small business loan or something similar, my experience is that you'll most likely have to wait a year.  I would love to hear about the experiences of others who have set up corporations, though.

@Riley F. with the management and repair assumptions and assuming 16% vacancy rather than 8%, I'm coming up with roughly $150 per unit profit per month. I have limited experience so please take my feedback with a grain of salt, but I have lived in rural areas most of my life and if the units are well-maintained I know you can find long-term tenants. If this were in my backyard, I'd likely jump all over it--presuming nothing major turned up during the due diligence. Hope that is helpful.

Riley, would you be financing the down payment? Would you be managing the property yourself? Do you plan on keeping a certain amount back each month for replacement reserves?

Oh and last question, any information from the realtor/owner/rent roll disclosure on vacancy rates in the past few years or so?