All Forum Posts by: Brian Burke

Tough question, Calvin L. Todd Jr.! In order to best answer it I'll make some assumptions. I'm assuming that you are looking for entity selection advice specifically relating to private investors investing equity and/or debt. If I'm off track let me know.

First off, I'm neither a lawyer nor an accountant. Just an investor that has been there and done that. Entity selection decisions are very personal because your income projections both inside and outside of the entity can influence the decision as well as legal issues. When choosing, I start with my accountant and once I have his opinion, I tell my attorney the accountant's opinion then get the attorney's opinion. This decision will also vary by state because different state's fees, etc can make a difference. For example, I don't use LLCs in California for investment entities because the fees to the state get very high when the income climbs above certain thresholds.

In CA I use limited partnerships. My investors invest in the LP and receive a split of the profits. These investors are equity investors, not debt investors. It's a pretty simple structure. The general partner of the LP is an LLC of which I am the managing member. This gives me the limited liability personally that the LP by itself won't give me. This LLC wasn't formed for liability protection however, that is what insurance is for (although the added protection of the LLC isn't lost on me), instead it was formed because I have partners and we needed a structure for the business itself. It could just as easily have been an S corp, but my CPA advised to go with LLC because he is very familiar with my income situation and thought it might have a slight edge. My attorney agreed because the LLC gives us incredible flexibility in the structure and arrangement between partners.

In Texas, I use an LLC. Now I don't have to do the LP+LLC structure that I do in CA because TX doesn't have the ultra-high state fees. Even though I don't have to, I still do anyways because all of my entities are managed by the main LLC. I guess for the TX entities I get double liability protection (triple if you count the insurance). :) Otherwise, same deal for the investors except they are LLC members not Limited Partners. Semantics.

For debt partners, they just get a note and deed of trust securing a particular property. No entity structure needed except that the entity having ownership of the asset is the borrower and trustor. If I owned the asset personally, I could have no entity at all and I would be the borrower/trustor.

Finally, you asked how do you position your business for success?? For starters, entity structures don't position you for success, they just give you a vehicle from which to conduct your operations. What positions you for success is your strategy, your market acumen, your TRACK RECORD, honesty, integrity, and results. These all take time to develop, and many newer investors fail because they don't have the patience to do the steps necessary to attain these things.

I hope the answer to your questions was in there somewhere!

You're probably right, Minh...I just tend to understate the positives as my silent retaliation to those who make it sound better than it really is. LOL

I've been in the North Bay and East Bay counties and the I80 corridor. San Jose has probably appreciated more than those areas, but we're not too far behind.

Not that I've seen. I agree, not too user friendly, that's for sure!

Welcome Anton. Good to have another fellow NorCal neighbor on the site!

It can be done. I have a little under 100 houses in the SF Bay Area and Sacramento. The average cap rate is around the 8% mark, not extremely high like in some areas, but high enough to produce returns in the teens with conservative leverage. These houses are up 15-20% from where I bought them, and in raw dollars that's a pretty big number in less than two years. Add the cash flow and the appreciation together and calculate the return!

CA housing values don't track rental prices. These homes sell on supply and demand, and in a state where it can take ten years to get a subdivision approved, and a SFR building permit can cost $100K, supply is a big problem.

Buying at 3-5% rental yields doesn't work. People who are buying those are just betting on appreciation. Luckily for me, they just don't try hard enough to find better deals.

That's good advice from J Scott, and I'll add another suggestion. If you can get an idea of what YOUR pest company would have charged, you might offer to increase your offer price by that amount. You were going to pay for the pest work anyways, and by having the work done there is added value in the deal (and better yet you can now add the cost into your financing if it appraises high enough). That, coupled with the possibility of a lawsuit or buyers agent commission obligation if they violate the contract and back out, might convince them to cut their losses and eat the balance of their mistake.

I did it, and now I wonder how I ever operated without it. Wait...now I remember...I just did a lot fewer deals and gave the sales commission to someone else!

Karen Margrave, all of my single family stuff in in CA (strong renter and resale demand and massive resetting of prices). Multifamily is primarily in Texas (strong job growth and in-migration). I'm looking at some out-of-state SFR but haven't found anything yet, but I don't see myself buying MF in CA anytime soon! You never know though, markets change so I've got to change with them.

Thanks Jeff! Houston Texas.

Welcome Anna! I buy a lot of houses in your area, good to have some company. Look me up if you need a buyer.