All Forum Posts by: Greg Scott

Since agency loans don't allow you to put the loan in an LLC, ask your wife this. Could it be considered piercing the corporate veil if the mortgage for the property is in your personal name but the deed is in the name of the LLC?

I've heard lawyers argue that it does. If true, then you would want to have each property 100% in the name of the LLC, with a mortgage and deed in the name of the LLC. Crossing the lines may not provide proper liability protection.

Personally, I just kept my SF rentals in my name and got excellent insurance coverage, $500K per property plus a $2M umbrella.

Please get some help with this.  You understand some of the basic concepts, but also have some giant holes in your plan. Hopefully this helps....

You need an attorney that specializes in SEC regulations to create your PPM.  A typical PPM will cost about $10K.  This attorney should handle creation of your PPM and state filing requirements, but they do not handle the PSA or closing.  Expect to spend another ~$8K for that.

If you are planning to close all-cash and bring enough cash with you for operating expenses and rehab, you are looking at a minimum capital raise of about $3M and that is for a cheap 32 unit. Anything bigger or in a nice area, could multiply that amount.  If you are new, be sure you can raise the funds before proceeding.

In my opinion, you are going to have a hard time raising money with a 6% pref and 70% of the profits after that unless you have a lot of newbie investors in your Rolodex.  Newbies create a lot of different issues, however.

You are probably not going to be able to use Fannie Mae as a contingency. Those loans take  about 45 days to put together.  If you find you are unable to raise the money for an all-cash purchase, switching gears to Fannie will only work if you have a LONG time to close in your PSA or have many extension options (which usually require more hard earnest money.) Fannie is now also requiring the GP team to have significant skin in the game.  Unless your team can put in 10% of the total money raised, you will have trouble obtaining financing.  That means your GP team needs a minimum of $300K to invest, more if you buy a bigger or nicer property

FWIW, SOFR is not a loan you can get. It is the interest rates at which banks lend to each other and is short for Secured Overnight Financing Rate.  Floating rate loans are normally quoted at SOFR plus a spread, a profit margin for the lender.

Most agency loans will expressly forbid such an arrangement, so if they found out, the odds of having the loan called would be very high.  You would want to look for an owner that has a loan through a bank or credit union or one that has no mortgage.  Most likely those would be smaller apartments, sub 50 units.

It is harder to find solid property management on the smaller apartments.  If you want it to run well, you may be spending a lot of time at the property. Ideally you find something within a 30 minute drive.

How many mentorship programs have you joined?

There are two reasons this is a bad idea.

Investing with an SDIRA (assuming it is not a Roth) will often result in paying significantly more taxes.  (Google UBIT or read Tom Wheelwright's book Tax-Free Wealth)

Investing actively in real estate through an SDIRA voilates the self-dealing rule for IRAs. If IRS finds out you are doing that, you would blow up your IRA and pay massive penalties.

Loans like this can be useful or very dangerous, depending on how you manage your business.

The ideal situation for a loan like this is when you have a property that will take a while to get up and running.  When revenue is low in the first couple of year, so is the interest payment.  People that get destroyed are ones that are enticed by the low interest rate and assume they can refi after the second year.  But here is the rub, what if you can't?  Or, what if the new interest rate is even higher and you are stuck at 6.5%?  This is how a lot of people lost houses in the GFC.

Only get in this loan if the property cashflows at the 6.5% interest.

The properties we operate are all in Indiana. 

I have passive investments all over the country.  I'm not counting those since I don't manage them, but I typically avoid cities and states with laws antagonistic to landlords.

Most of us on this forum are focused on real estate investing of one kind or another.  Some start by househacking, which is a great way to start.  After that, most people wouldn't consider their primary resident as the kind of investing that leads to financial freedom.

I would say you've left off some important options.

According to U-Haul, South Carolina is the #1 "move-to" state. (see graphic)

Since all real estate is local, it doesn't help to just look at a state.  You need to look at city (and submarket).  According to RealPage and YardiMatrix, several Eastern and Midwest cities top the charts for projected rent growth (see graphics)

And FWIW, Zillow doesn't agree with any of your recommendations, but I don't know what criteria they used.  Also, this is not a "where do you want to live" website.  It is about investing.

I was curious about the Michigan law so did a little poking around.  I found this great article.  https://logicalpm.com/new-michigan-section-8-laws-what-can-l...

As the article points out, these sorts of laws often result in the opposite of the intended effect!  When will the government wonks realize it is hard to force the free market to solve a problem they helped create?

Kudos to @Drew Sygit for this article.