All Forum Posts by: Costin I.

Depends @Joe Shepherd.

@Dennis M. - yes, that is usually the combination - buy in trust with an LLC as beneficiary.

But go and ask your lawyer how much protection you have if you just use the trust, without having the LLC as beneficiary.

The LLC is the shield, the trust is just a thin veil on top.

@Account Closed - here is a checklist for you as a welcome gift to RE investing world:

@Carl West @Dave H. - what will you do, if one year after you sold your flip, you are getting sued by the buyer because of some defect or issue, real or imagined, known to you or created by a sub/contractor, or fraud (like, because you made the mistake to advertise your flip for sale with "everything new" and the buyer discovered you didn't change the entire plumbing) and the judge freezes all your bank accounts till things get sorted out? with the lawsuit threatening all the other flips you have going at that time? Or at one of your flips an accident happens and the worker(s) sues you, beyond the limits of what, you (hopefully) have as builder insurance?

Like @Debbie J. Skora said, people can and will sue you, accidents happen and you need to compartmentalize your assets and protect them and yourself from lawsuits. That is the reason you want to do them in an LLC and keep them dormant after selling. How to tax them is a different questions (see above answers). Look into Series-LLC if available to you, so you can create a child LLC whenever you need one.

@Buddy Patrick - in most cases, trusts do NOT offer asset protection, they just provide a layer of anonymity, hiding from public records the true owner of a property, but without offering liability protection. They complement an LLC and are often used together.

@Romil S. - you will NOT cashflow in Austin MSA with properties acquired from MLS (or new) without a down payment of 30% to 40%. With that kind of DP, your cash on cash return on investment will be under 2% - comparable to leaving it in a savings account without any of the risks and associated work and worries - in which case you might want to consider other investments, other areas, other asset class, or other time (prepare yourself to load when a correction will happen).

Unless you are just looking to park cash into an real asset, something that has more palpable value than paper (money or stock), and better than hiding it under the mattress, but without considering performance as an investment. OR you are speculating in real estate appreciation and hoping it will continue to happen, to pull you into positive territory years down the road. Keep in mind you lose 8-10% in selling costs.

@Kellan Martz - Both. 

Get the property purchased by a trust, with the trust beneficiary an LLC. That way, the trust will provide the anonymity protection layer, while the LLC will provide you with liability protection [the trust alone is rather impotent; one complements the other]. That would be the simple answer.

But since you are in CA, you get special treatment and the complicated route - you might want to look into the Delaware Statutory Trust (DST) to save on the outrageous $800 annual fee. How to solve the financing in personal name question, especially with multiple unrelated parties, is another complicating factor (but if you go directly to an LLC/DST, the loan will be commercial so that might solve this question).

And speaking of partners, doing business with friends is a sure way to lose them, so think hard before proceeding further. If you and/or friends have other assets, you might want your LLC to partner with their LLCs in the common asset holding LLC for the full protection. Here is a set of questions to clarify with the "friends":

What are the objectives of the joint venture?
- general trading principles
- what will the business actually be doing
Who puts what in?
- cash
- other assets
- services
- are any existing contracts of either to be taken over by the joint venture
- who actually does / will do what
Will any external funding be needed?
- who will it be raised from
- who will borrow it
- who will guarantee it
Who gets what out?
- sharing of revenue profits or losses
- sharing of capital gains or losses
- is any payment to be made to either other than as share of profits, eg for ongoing services
- will the participants be operating a ‘salary/dividend split’ – ie taking their month by month requirements by way of low salary, balance as dividends?
What, otherwise, will be the policy in relation to dividends – to what extent is it intended to distribute / retain surplus profits?
Who controls what?
- responsibilities for day to day running, in all relevant areas of activity
- tactical decision making (day to day)
- strategic decision making (longer term policies)
what things can only happen if both parties agree
what will happen if you can't reach agreement on some major issue - ie deadlock
What happens if either party 'wants out'?
- on what kind of notice will this be permitted
- does the other have 'first refusal' to take over the whole venture? - if so, on any favourable terms?
To what extent will the parties be free to carry on other businesses
- while the joint venture subsists
- if one party pulls out
Is it intended that spouses/partners should also be shareholders, to allow for tax advantages from a broader split of dividends?
Is there a vision that any others will become shareholders (or be granted grant options to acquire shares) in the company in the future?
- Who?
- Staff?
- Others?
- On what terms?
Participation in dividends?
Voting rights?
Are there any offshore angles:
- Is there potential for overseas sales or operations?
- Does anyone involved in the venture have any overseas connections?
- Does anyone involved in the venture have any plans to live overseas in the future?
Is there yet any written:
- business plan?
- marketing plan?
- cashflow projection?
Is there an ‘exit strategy’? If so, what is it – which of the following most closely hits the mark?
- ‘lifestyle’ business – ie simply intended to be run by and to provide an ongoing source of work and income for the proprietors, no clear vision for the long term future?
- possibility of future sale at some point?
A core object of the venture is to create an asset with a view to sale or flotation in 5 years?
Which aspects of the above do you feel most important at present? Which aspects concern you most? (NB each of you may have a different view here, the question is asked to help understand where each of you is coming from)

You are an attorney, so you clearly understand you have multiple complicating factors in your scenario and you should get your answers from a specialist (like @Scott Smith) and not from a free online forum post, right?

@Nicholas Weckstein - Just keep in mind there is more to foundation repairs than just the foundation. Here is what I collected as "warnings" or lessons (from various sources and some experienced myself) about foundation problems and/or repairs:

1. If you have brick on the exterior, you might have to do tuckpointing. $$$

2. If you have tiles inside, the tiles will crack. And if they have to drill holes for interior piers, you pretty much will have to replace the entire flooring. $$$$

3. You'll have drywall cracks, so you should factor in drywall repairs and repainting. $$$

4. If the doors were adjusted to a crooked foundation, you might need to readjust or even buy new doors. $$$

5. A hydrostatic plumbing test is recommended to be performed by a licensed plumber post Foundation work. Plumbing leaks may void warranty. Old houses have cast iron pipers that will disintegrate (because of age and/or foundation shift). You'll have to replace all plumbing at that point. $$$$

6. Depending on how bad is the foundation state (how many inches you have to correct), is very possible the sewer line will disconnect/break in the horizontal portions. Repairing that requires tunneling, a repair that could be very expensive. $$$$

7. If the driveway- garage differential is big (for example, the driveway slab is sunken and you need to raise the house, you'll end up with an even bigger gap after repair) you might need to replace the driveway. $$$$

8. If you are dealing with an addition built on 12" beams (or if the original foundation is old and not built to current standards), the repair company might not be able to push the piers down to refusal depth or psi due to the beam not taking the load, thus leveling it, but not guaranteeing it will not continue to move in the future, thus not providing warranty.

9. The owner may be required to provide a structural engineers evaluation prior to warranty work.

10. Read the fine print in the foundation repair contract: Damages to the property, interior and exterior as a result of the foundation movement are not covered, during and after works completion. This usually includes but is not limited to PLUMBING, flooring, landscape, utility lines and masonry. The foundation repair does not cover any repairs that may be needed to the home during and after works completion. And you'll have new cracks in unexpected places, old cracks that will not close, but instead enlarge. My suggestion is to add at least 25% to the cost of the foundation repair as mitigation to the problems that will come from the foundation repair.

11. The foundation repair company salespeople (and even owners, in some case) of structure companies are not engineers and though they may be right most of the time, there will be gaps in their assumptions. Unless it's a small job with an obvious solution, get an engineer ($250+) to look at it and sketch up a scope of work for a contractor to do.

12. Many foundation problems have water as a root cause - be that infiltration in a crawl space, drainage around the site, cracked sewer line or water line. Before solving the foundation you might want to get to the root cause of the foundation issue and resolve it, otherwise you might repair the foundation for nothing.

13. If you repair the foundation on only select places, don't be surprised if the other sides will suddenly start "working". If the house is stabilized on one side, you might get cracks in the other side soon after. In other words, if you do a foundation repair, it's better to get the whole house stabilized and the warranty for the whole house.

@Zoran Domazet & @Will Barnard - not an expert, but being in Florida (where sink holes are frequent) and seeing "polyurethane to fill a void" (polyurethane being an expanding foam with little load bearing capability) makes me thing that we are not taking about a small crack in the floors/walls due to foundation settling, but something more vicious. Plus "the seller is willing to sell because he has multiple other properties that he's currently working on" - which means he is experienced in rehabbing properties and this one is just trouble he is looking to unload. Caution.

@Sandra Jorgensen @Neil Narayan - likely because Cedar Park is pretty much land locked, Round Rock is somewhat "central", good schools, good proximity to major employers, Leander is close to the new Apple campus, and with land availability somewhat cheaper?