All Forum Posts by: Christian C.

Oh and like any other investment, once you improve it and can show proof it’s making more profits.... you can sell it to pocket some cash. Just make sure you buy it at the rite price.

I’d look at the financials of the business and really find out where the owner is not maximizing the potential of the business. If you can make peace with all the responsibility of running the business (or delegating the business operation which would be best, depending on your local employment laws) then if there is a potential to increase profit through changes to the way the current owner operates the business, then by all means go for it. Apply the same steps you would to real estate. If you can reposition the business to do considerably better then you will do well. I assume water and electricity and cleaning supplies will be your biggest expenses. All areas that can be made more affordable if you make each one more efficient. Alot of businesses are run like it’s still the 80’s or 90’s and technology has come a long way. In upfront investment to lower energy cost can pay off in the long run.

Kind of tricky. If someone gets injured they might try to turn it on you. You also don’t want to mention that to any tenants because you might give them the idea. Speaking to an attorney might be your best bet for guidance. Any update to your lease contracts can avoid this for you in the future. If you have a lease template that you yourself have not read (most people don’t) you might be surprised what you find there and may have a clause that addresses this for you. No lease contact signed, then use it as a lesson learned and adjust accordingly.

Take a look at certified pre-owned Cadillac cars. They depreciate quickly for whatever reason but are great cars that offer luxury with a comfortable ride and reliable. The ATS on lease return is usually below 20k and come with everything you need to feel comfortable showing clients property. If you can, the CTS and SUV are a better option. You can also apply for the GM credit card and use it to buy everything so the points can be used on your next purchase when it’s time to trade in.

@David Faulkner you make valid points. I'm sure where you are at in your investment career, you have the comfort level to do such deals. I myself agree with getting in a property cheap, steadily raise rents and force appreciation.  But I like to see where a person is at in thier investing career, not where I'm at when I offer advice. Based off what @Brian V. states,  starting off on a property with lower risk of having a major repair is a great place to start as long as it is purchased under the ideal circumstances. He can focus on getting and maintaining qualitg tenants and learn how to manage property managers instead of being a landlord, which ultimately turns his investment into another job. Like I mentioned, if he buys in a market that's in a growth phase, and he obviously works numbers and knows the value of placing a low offer, I'm sure he will do his due diligence and get into a great deal he is comfortable with. 

And yes, there apparently are some investors out there that are rehabbing multi families, filling them up with any old tenants then marketing them, at full retail, as the best investment possible for anyone with eyes and ears.  I get that. If we as educated investors do what we're supposed to do then we will offer what needs to be offered and close if and only if it makes sense. Thanks for bringing the other side of this method up for discussion. That's what forums like this are for. :)

@Brian V. in your situation, this might sound like a crazy idea but hear me out.  I know, we are all trying to buy more homes, not sell them. Guess what, you're looking at a potential profit of $50k selling your home. (assuming it's profit) Since your market is soooo out of whack with the numbers, why don't you sell, get your 50k, rent something suitable that meets your needs and doesn't cost more than your current mortgage.  Now hear me out ...  Invest in a turn key multi family investment (already rehabbed and might already be fully rented with cash flow) outside of your area where the numbers work with property management.  Your 50k can be a 20% down payment up to $250k. (Don't make the mistake I just did and make sure you have a 1031 agency ready to take the 50k and hold it for you for the new purchase!) If you can get a 3-4 family under $250k, you can keep a cushion for those unwanted surprises and you create cash flow for yourself.  What are the benefits? You didn't move out of your area. You now own a property managed multi family investment that cash flows.  If you keep solid profit and loss statements, you can probably sell at a profit within 5 years depending on whether or not you did your research on that market and if it's in a growth cycle.  You recoup your 50k, maybe more, plus all the positive cash flow.   This is thinking as an investor and not trying to make a specific real estate tactic, "house hacking", work in a market it's not meant for.  Wish you the best.   

@Joe Stimm A couple of things to take into consideration here.  It's understood you and your father have the experience to undertake the conversion but you must factor in the cost of drawing up plans and getting permits to convert into two new apartments.  You might want to take into consideration that the current set up maybe more profitable.  Let's consider this...

First off, is the owner selling the property? if so, what you're asking about is creating a note for the owner of the property to create a Seller Financed deal. Structuring this deal is out of my scope since I myself am trying to figure this out.  You might want to convince him to accept low payments for the first 5 -8 (maybe 10 years) with a balloon payment at the end for the balance of the sale price. At that point, your credit score will be stronger, if you take care of it, and can seek conventional financing to pay the balance.The benefit to the seller is he gets his property sold, sells it for more in the long run since he's collecting interest on the payments, without having to wait for someone to get qualified for commercial lending. (but at the prices you mentioned, it seems as if anyone can just show up and pay cash so this might be a stretch)  Any who... here's the kicker... If the current restaurant in place sucks and is struggling, then have the current owner evict them before you take ownership.  Now if your town does not have a Starbucks, you have a gold mine if the location is great. (Now I use a Starbucks as an example, but any successful franchise business that makes sense for the area will do) Here's the beauty of renting that space to a new business tenant.... you don't have to do the upgrades!  You let them deal with the headache of paying to convert the space to accommodate their business needs.  This is a great opportunity for you and your father to negotiate the construction contract if your father is a licensed contractor.  Make a profit off the construction rather than pay to do it.  Another thing is, they pay for any damage to the property in that area. If a pipe bursts, they are responsible to repair it.  All you have to worry about is the residential portion.  Once the business takes hold and you have the business locked into a lease plan that strategically increases their rent over time, you will love the fact you never wasted your time converting it into 2 apartments with low cash flow.  That lease contract on that business artificially appreciates the value of the property because the cash flow increases over time.  Lock them in a 10-year lease where most of the rent increase is done up front then tapers off over time. If you're still an owner at 10 years, you renegotiate the new lease based on the performance.  Just my 2 cents.

@Vivek R.  I just recently received some advice on how to structure my incorporation.  I will share what I've learned but this does not count as legal or tax advice nor a complete answer to your question.  You will have to seek (and most likely pay) a licensed professional to work out the details.  This is only intended to give you a guideline to direct your conversation with these individuals.

Incorporate an LLC with S-Corp designation that will be your main business. I use this term "business" loosely because most people become "owners of a new JOB" and not a business depending on how you operate it. But that's a whole other conversation.

Now here is where I get different answers and view points:

You buy the investment property, now what?...

LLP - Limited Liability Partnership - Your personal name is listed as the Limited Partner and your LLC is listed as the General Partner. This is where you name it for example: "123 Main St LLP" This provides good asset protection and a bit of privacy. Now, here's where it gets a little tricky but I believe if you get a qualified tax company that deals solely in real estate tax accounting, they should be able to offer discounts on processing a portfolio of properties tax returns as you begin to grow. The head aches involved with (I believe) setting up this way is that separate tax returns need to be filed for each entity established. This is a great time for a tax professional to chime in to correct me where I'm wrong. This option still seems to be the best option in my opinion.

LLC the property itself - not advised but often the most used by investors. Definitely, have to file a separate tax return and your personal info is listed on the state incorporation website if your state has one. you do something illegal with your LLC and your personal assets become fair game anyway. Google "piercing the veil".

Now here's the one where it sounds great on paper but I'm sitting here like...ehhhhh

Creating an Irrevocable Real Estate Trust for each property where the grantor (you) give the trustee (your LLC) full benefits of the property. Now you will have to talk to a tax professional and a lawyer about how this truly benefits you but it was explained to me as a major benefit. One of the conveniences of this is that you file one tax return. Here's where I see a major drawback to this... I asked, what happens if there's a lawsuit from a tenant on a property (let's say I own 4). I didn't like the answer at all. I was told that the LLC will have to become something to the effect of a nonperforming entity. (any help on properly classifying this will be appreciated) And then you have to form a new LLC to become the trustee of the other 3 real estate trusts that you want the original LLC to be replaced. My first reaction was..."are you kidding me?" Imagine building your main LLC's reputation to have to restart all over from scratch because 1 property had a lawsuit. I'm not liking that option at all. A potential work around would be having your main LLC separate and then creating an entirely different "throw away LLC" to be the trustee of these trusts, but that seems convoluted. I see the value of Real Estate Trusts but this set up seems a little too sketchy for my taste. Maybe having the LLP as the trustee. You still may need separate tax returns, but you gain the anonymity the trust offers.

Some states offer what's called "Series LLC" in which you have a main LLC and then each property can obtain its own LLC designation under the main LLC. Some states prohibit them, like California. If you find a bank that allows you to open up bank accounts using a series LLC, let me know. From what I understand, most major banks will not allow them.

At the end of the day, your decision is based on what your ultimate goals are. I personally have a vision of where my real estate investment company is going to be in the future, so I'm developing a plan and path based off where I intend to be in the future. I don't want to have to back track after awhile and restructure all that I have because the inevitable (aka; Lawsuit) happens. You might just simply want to set something up that protects your personal assets from this investment you purchased. Then a simple LLC might do the trick. Just make sure you don't use your business debit card to purchase groceries one day because that's where you create an entry point for a lawyer to pierce the veil. Hope this helps.

@Roland Paicely thanks for the advice. It led me to seeking out the local reia club for the area I plan on investing in. I'll use it as another resource to build my network.

Great job finding this lead.  I'm with @Jay Hinrichs and @Ian Kurela  

I'd also recommend starting your conversation by asking your investor what they are looking to accomplish and what, if any concerns they may have.  You may also want to see where you can bring value to them by answering any questions they may have.  Ask these open ended questions that will guide you as to where you should take the conversation. You want them to speak as much as possible and you want to listen as much as possible.  If you don't arm yourself with this information up front, you won't be able to address what's important to them.  Remember, they have the money.  Line your capabilities with their desires and you will be more successful.  Then in future deals, you can propose your ideas.  Build that trust, start small.  There's so much advice to be given here, it's overwhelming, but if you stick to the basics, you will develop a long lasting relationship with this investor.  Great job!