All Forum Posts by: Dan Grove

I recently had a discussion about transferring my properties from my personal name to an LLC. I was told that, when I transfer from my personal name to the LLC, I would lose my title insurance. Is that true? Is that a state by state thing? If so, I'm buying in Michigan.

Thanks.

0 Votes

Quote from @Dylan J Berget:

Hey Dan,

I think Lawyers, by nature, are skittish. We see the worst-case scenario all day, every day. People typically don't come to lawyers when everything is going swimmingly. In fact, we are paid to think about all the bad things that could happen and make sure that the contracts we use are air tight.

That being said, any endeavor over a long enough time horizon runs the risk of having legal issues. I think it's inevitable when you are making any kind of impact.

It's just a risk verse reward. LLCs are nice because they can limit any potential claim to the assets within that LLC. But 99/100 you probably don't actually need an LLC.

I don't have any data but I just wanted to weigh in.

Thanks Dylan! So nice to get a lawyer's opinion. I totally get where you are coming from. I'm a physician during the day but I try hard not to recommend a costly intervention unless there is good evidence that it is necessary.

1 Vote

Baltimore, Maryland

Hello friends,

I have heard many podcasts with lawyers saying that real estate is the most common source of lawsuits and that its not if but when we'll get sued. A lawyer obviously has a vested interest in scaring us but I was wondering if anyone actually knows of any data on this topic. What is the actual risk of being sued? Are there studies saying that X% of real estate investors have been sued? Does it depend on how much real estate you own?

It seems like there are strong opinions about an LLC, multiple LLCs, series LLCs, Something in Delaware, offshore accounts, umbrella polices but I have yet to see any actual data on the topic.

Calling all quants and data nerds, I need help.

Thanks

Dan

PS, I have 4 offers out there so I hope to be under contract on my first (or first through fourth) properties soon.

1 Vote

Baltimore, Maryland

Quote from @Nathan Gesner:

Quote from @Dan Grove:

This is not an exact science. It depends on your financial strength, the quality of the property, how many properties you own, etc.

I like to start with one major expense and three months of vacancy. Imagine if you had one single-family home. The tenant fails to pay their last month's rent and leaves the place needing new flooring and paint. It will take two months to turn it around and get it rented. That's three months of mortgage and utilities, the cost of flooring, and the cost of painting. That's a pretty common scenario and could cost you $10,000 - $15,000 so that would be a good starting point for your reserve.

But there's more!

What if you're a cardiologist with no debt and making $250,000 a year? You could probably afford $20,000 without much impact on your personal budget. If you're a single mom with student loans, a car payment, and living paycheck-to-paycheck, then $20,000 would be devastating and a reserve is critical.

What if you have an apartment complex with 20 units? Do you save three months of vacancy for each unit and $50,000 for the roof replacement? That would be around $90,000 sitting in a savings account! At this point, I would recommend having a line of credit to cover these things so you don't have money sitting in the bank doing nothing when it could be put to work.

I have 33 units, no debt except for mortgages, and excellent income. I can pay for all my problems using the cashflow from my current rentals. I also have a $175,000 line of credit at the ready if something catastrophic happened. A reserve is unnecessary, but I still keep around $15,000 - $20,000 in my account.

The point is, you should sit down and assess your personal finances to determine what the worst-case scenario may look like, how much you would need to cover it without impacting your life, and whether you will need to build a reserve.

What about during the initial period from purchase to first tenant to cover the rehab costs? I have the capital to buy more than one but I don't want to get in a situation where I don't have the reserve if there are construction overages or delays or if it takes longer than expected to get the first tenant.

Thanks so much for responding!

0 Votes

Hello all,

I have the opportunity to buy more than one property but wanted to make sure I have enough money in reserve for problems with the rehab, longer time to get a tenant, etc. I am going to budget money for vacancies, repairs, cap ex, and PM. On the one hand I want to make sure I have enough money extra available during the initial process in case there are any issues. On the other, I don't want to hold too much capital back that could be used for other projects if they come along.

The simple question is, how much money do you hold back for each project as a percentage of the esimated all in cost. For example, if I estimate a cost for the house plus the rehab of 100K, how much should I keep in the bank just in case?

Thanks,

Dan

0 Votes

Hello BP friends,

I am currently building a core 4 team as gudied by the David Greene long distance real estate book. I have money ready in my personal account and have an itchy trigger finger to buy my first place and was wondering if there is a resource that goes through the nitty gritty about how to set up the business side of things. I am unsure of the small steps in getting started. Specifically, I would like to learn how and in what order to:

1. set up a local bank account in my LLCs name. I am getting a lawyer to set that up now.

2. Transfer money from my personal bank account to the LLC account.

3. Set up stessa

4. Get a business credit card.

I suppose I should have all of this done before making the first offer but am not sure. The more automated this process can be the better.

Thanks! None of this would have happened without the help of the BP community so I am eternally grateful.

Dan Grove

0 Votes

Hello BP friends,

I need a REI friendly lawyer in missouri that can help with LLC formation and assets protection.

Thanks

Dan

0 Votes

Quote from @Greg Kasmer:

Dan - Overall, I would suggest you think about how many properties (or assets) you want to hold in the LLC that you are currently setting up. There are several schools of thought on whether you should have multiple properties in one LLC or an LLC for every property. Personally, I think having one LLC for several (5-10 properties) makes the most sense, balancing the documentation/cost against the risk for lawsuit. However, you'll need to find your own balance. Additionally, I will suggest you start calling banks and developing finance relationships as not all will loan in an LLC name, especially a newer LLC. Those that do loan to an LLC will likely want a personal guarantee, which I have done several times. I also invest in PA, so let me know if you have any further questions or want to discuss. Good Luck!

That is very helpful, thank you so much. Do you have experience with the law firm Fox Rothschild or do you use a different firm?

0 Votes

I have been reading a lot about LLCs and am having a lawyer set one up for me as we speak but there are gaps in my knowledge of the steps to take next. I am investing out of state in pennsylvania. I think this is the path but would love someone to correct me:

1. Set up LLC (done by lawyer already)

2. Set up bank account in PA in the LLC name

3. Transfer money from my personal bank account to the LLC account

4. The LLC will purchase the house

5. Set up a quick books account for all transactions.

6. Pay for repairs, rehab, and all expenses from the PA account.

7. Have rents deposited into the PA account.

8. Try to refinance the house to pull money out.

9. Create a new LLC and New account

10. Transfer the loan proceeds into the new account

11. Drink a six pack of beer to celebrate

12. Go back to step 4 and repeat

Please feel free to add, change, or rearrange any steps as you would see fit.

Thanks so much!!

1 Vote

This is all so helpful. I went to college in St. Louis and love the midwest (aside from the weather). I am now looking at Detroit, KC, St. Louis, and Indy. I am planning on picking just one but, if it goes well and I learn the ropes, would want to expand to others. Thanks!

0 Votes

Baltimore, Maryland

All Forum Posts by: Dan Grove

Dan Grove has started 16 posts and replied 32 times.

Post: Am I going to lose my title insurance?

Post: Should we believe the lawyers that we're all going to get sued?

Post: Should we believe the lawyers that we're all going to get sued?

Post: How much should I keep in reserve

Post: How much should I keep in reserve

Post: Looking for education on setting up the business

Post: Looking for a lawyer in Missouri

Post: LLC and accounting starting out questions

Post: LLC and accounting starting out questions

Post: Market Suggestions for good BRRRRs