All Forum Posts by: Brian Burke

Your seller might be smelling blood in the water. Let's say he has an offer lower than yours, but is confident that the deal will close. Then he has your higher offer, but they sense that you are new to the game so they aren't so confident that you will close. To mitigate the risk that you might walk away, they ask for a high deposit and an offer without contingencies. If you back out, they keep your money then sell to the other guy. If you have to put in a big deposit without contingencies, it had better be a screaming deal.

Allow me to outline a different perspective from the majority. I don't know the specifics of your financial position, but let create an example based on what I do know:

1. Personal residence worth $100,000, has $70,000 mortgage, $30,000 equity
2. Rental #1 worth $100,000, has $75,000 mortgage, $25,000 equity
3. Rental #2 worth $100,000, has $75,000 mortgage, $25,000 equity
4. No other significant assets, $80,000 net worth comprised primarily of RE equity
5. You have insurance on all your properties and a $2 million umbrella policy

Now consider your exposure. Your primary concern is being sued by a tenant, passerby, or worker. before they sue you, their attorney will research your assets to decide if suing you is worth $30K+ in legal fees. If the above example describes you, it might not be worth it.

Your most certain exposure is the legal fees to defend the suit, and LLC or not, you're stuck with the legal fees. Your insurance carrier will pay for your legal defense if you are properly insured, LLC or no LLC.

Your POSSIBLE exposure is from a judgment. I say "possible" because just getting sued doesn't mean that the plaintiff will win (but you have legal fees win or lose). Let's examine two scenarios. One: the plaintiff gets a $2 million judgment. Your $50k equity in the rentals is at risk, your house might be safe because of a homestead exemption. The "unspoken" factor here is that the plaintiff's attorney is going to settle with your insurer within the policy limits, because reaching higher than that isn't worth it.

Scenario two: you get hit with a $5K judgment in small claims court. Your net worth is worth pursuing in this case, but your insurance should respond. Even if you have to pay a $5K judgment out of pocket, it's cheaper than paying the cost of an LLC for just a couple of years. And lets not forget, even if you have an LLC, you arent exempt from that judgment...your LLC will have to pay it (if you have no insurance), the LLC just means they cant tap your personal assets, which as you say, are limited anyway. LLC costs: Most states charge an annual fee, plus you can't forget the cost of preparing the LLC's tax return and other misc costs.

The bottom line is that LLCs are great if you own a lot of property, have a lot of exposure, and a lot of personal net worth to protect. They are just overkill in some situations so they are not for everyone. Good insurance with high limits IS for everyone.

Over 20 years in this business, hundreds of rental units, and never hit with a judgment. Been sued, but never lost. Plenty of legal fees paid by insurance. That's my experience, your mileage may vary.

It somewhat depends on the market in your area. If the market is totally dead, you might get these houses at a deep enough discount to flip them, and certainly a good enough price to acquire them as rentals.

If there is even a flicker of activity in your market, it will be an uphill battle to get a simple carpet & paint rehab cheap enough to make a decent profit flipping it. Owner occupants and buy/hold investors that can tolerate paying close to, or at, market value will outbid flippers in most cases, or the banks will not approve the low price in favor of waiting for a higher offer.

If you are a buy/hold investor these may be good opportunities for you. If you are flipping, your low offers will have better odds of acceptance on properties than need more work than the simple carpet/paint rehab.

Brent F., J Scott is absolutely correct about the final escape hatch of backing out with a due diligence clause. But use that advice wisely. You don't want to get a bad reputation in the (very small) real estate community by being the type of investor that gets into contract and uses the inspection clause to back out of a lot of deals. If you find yourself in a bind, use it, but don't make it your standard operating procedure.

One of the reasons we get a lot of very good deals is that everyone knows who we are and how we operate. We do what we say we will do and make every effort to make transactions smooth and not back out of contracts. Establish that kind of reputation, it will make you money.

That being said, there is a practical way to utilize Jon Holdman's advice without making a bad name for yourself.

1. Submit your offers with 1 or 2 day response deadlines.
2. Only submit offers on a property you want, at a price you want.
3. Unless you do a lot of volume, don't submit all of your offers on the same day.

If you make 3-5 offers per day, with short response deadlines, the chances of you getting 10-20 accepted contracts all at once is eliminated. If you are lucky enough to get more than one signed contract back, either you offered too much or you now have twice the likelihood of making a profit. If you can't buy both, take the one you want, and wholesale the other...or get a partner or private money loan or borrow from family or do whatever it takes to make the most of your good luck. Or, if all else fails, use a provision in the contract, such as due diligence, to back out.

First was a part-time bookkeeper that also did misc. office tasks. Second was a project manager, around that time my part-time bookkeeper was full-time. Third was an office assistant that started part-time but within a year was full-time, and is now director of acquisitions research. Next came two more project managers, then buyers, laborers, accounts payable tech, etc.

The first employee was around ten tears ago, the second was about five years ago, and about 23 more in the last 4years.

When to hire is a pretty easy question. When I first started, I did everything myself. When I was doing 40 hours per week, I was maxed out and needed help. I found the task I was most comfortable delegating and hired for it. When an employee or myself gets maxed out again, it's time to hire again, and so on. If I am preparing for an expansion to another area, I hire for that too unless there is slack time with the existing staff.

Welcome Jason! Sounds like you are well on your way already. Good luck and congrats!

It means, take your big wad of money and dump it into a bad deal and you can watch your money disappear. You worked hard to accumulate that cash, it will vanish much easier than you can earn it if you don't know what you are doing. Don't "do deals" for the sake of "doing deals". Have a clear roadmap of your goals and the route to achieve them. A bad strategy will take your big fortune and shrink it into a small fortune before you have the opportunity to even realize what happened.

If the property is worth $470K - $490K, and needs $50K - $80K in repairs, the flippers would most likely be under $350K. That being said, you could potentially have competition from owner occupants. I doubt buy/hold investors would want it unless rents in that area are really high, but surprisingly, I've seen it happen more often than it should.

Jim, I haven't studied Memphis enough to render an intelligent opinion.

Kevin, you are absolutely correct that overbuilding is a real risk. In my opinion, this cycle is much different than the 80s. There is tremendous job growth in Houston right now (leading the nation on a pure numbers basis) and skittish lenders are not fueling the development pipeline. Couple that with the fact that existing buildings are trading below replacement cost, and you have a recipe for controlled supply side influence in the near term. If you look at building permit activity and supply forecasts, the data supports this thesis over the next five years. I'll probably look to be a seller in that market at the first sign of a change in imminent supply.

Welcome Abdul,

There are essentially three things you need in order to succeed in RE investing:

1. The ability to find good deals
2. A viable strategy
3. Money (yours or someone else's)

Having some of your own capital to work with gives you a huge head start, but you have to move with precision. One way to make a small fortune in real estate is to start with a big one, and a bad strategy. There are tips on items 1 and 2 all over this site. Move carefully, but don't get stuck in a paralysis of analysis.

Ask questions here, network with local people that are doing what you want to do, and read a couple books. Save the seminars for after you have done a deal, or a few deals, the material in the seminar will mean a lot more to you then.