All Forum Posts by: Greg Scott

We have owned 14 SF rentals and 4 apartment complexes totaling near 1,000 units, and over 17 year period we have been sued exactly once.

We had a 350lb resident that missed the bottom step of the staircase, fell and hurt himself.  He sued claiming the stair was defective, even though he told his neighbor he just wasn't paying attention and missed the step. His lawyer even told our lawyer he had a crappy case.

I was a bit annoyed that our insurance company settled for a $70K payout.  Fortunately, he got nothing. His lawyer took 1/3 of the settlement, and he owed the hospital $90K.  Our portion out-of-pocket was the $3K deductible.

I'm friends with numerous apartment owners.  A handful have been sued.  None of the lawsuits had a material affect on the business.

FWIW, where you are buying is NOT a place that tourists come to visit. If I had to pick a place to put a STR, it would be far from there. You should come to visit before buying. It will be money well spent.

Also, criminals know how to check which properties in the area are STRs and might be vacant during most of the winter.  You might as well put a vacant sign out front.

Let's say your record video of someone stealing your furnace and hot water, what are you going to do?  That is a fairly low priority issue for the Detroit police.  I can share video of things being stolen from our apartment complexes.  We've never recovered a thing, although I hear one guy got arrested.

STR could be a disaster for you.  LTR makes a lot more sense.  Even then, not for the faint of heart.  Think twice.

Chas:

I'm not a lawyer, so cannot advise you. In my experience, you are thinking through this correctly.

I've heard lawyers say, if the loan is in your name (which it has to be for conventional) and the deed is in the LLC, you aren't treating the business as an independent entity and in a severe lawsuit, the corporate veil is pierced and the LLC can be thrown out.

I agree that one of the best defenses is to run your properties well.  If you are taking care of things, any punitive damages would zero or very small.

Sounds like this was a TIC setup which seems an unusual investment for an SDIRA (and problematic, from what I understand.)

Aren't you the beneficiary of the inherited IRA? Someone must have the authority to sign on behalf of the inherited IRA. If not you, it is likely the trustee of the estate. You or the trustee should be able to sign to sell the property. If that is the case, there is really nothing special to be done. Ask the title company or closing attorney.

I would think that trying to move the ownership out of the inherited IRA or change the deed might be considered liquidating the IRA and trigger taxes.

Of course, this question is best posed to an attorney.  Actually, it is best two talk with two different attorneys.  You should talk with one that understands real estate rules and another that understands special needs trust and SSI rules.  (I have a special needs trust for my son so have dealt with the complexities.)

My bigger concern would not be your liability exposure but doing something that could potentially endanger the support benefits your brother is entitled to.

A FincenID doesn't solve the problem for many entities. 

For example, we have a friend with an LLC with four beneficial owners. It makes their life easier if all of the owners get a FincenID because then they are not constantly updating for expired driver licenses. However, if the beneficial owner does not update thier FincenID the entity is the one at risk of being fined, not the errant FincenID holder.

Hire a public adjuster.  That is not the same thing as a claims adjuster.

I predict it will be hung up in the court for 2 years then reinstated.  After that time, some mom & pop ice cream stand owner will be fined $50,000 by the law for not updating the FinCen after their driver license expired.  It will destroy them. People will start to realize that a law designed to protect against criminal international money laundering captures more innocents than anything.  The guilty people know how to hide their tracks and could have been arrested under previous laws anyway, so all CTA law did was persecute small business owners.  The entire fiasco will create a media circus and a go-fund-me campaign for the poor couple damaged by this stupid law. Then and only then will congress kill this idiotic legislation.

Did they send you a PDF or did you download it directly from Zillow?

There is a ton of fraud out there. It is easy for people to download fake W2s, ESA paperwork, etc, with a few mouse clicks and a credit card.  We regularly have people apply with fake SSNs.  Our systems have caught people using SSNs from deceased people or the SSN indicates they are 2-3 decades older than their driver license birth date.

The truth about an IRA or and SDIRA, and the simplest way to think about them is that you don't own it. The government does. They have custodians that manage their money, and you are simply the beneficiary of that account. (This is why most IRA accounts use the initial FBO "for the benefit of") That is why you can't easily get to the money and have to pay taxes upon withdrawing it.

So, if you invested in real estate, and created some cash flow, the money MUST go back to the custodian and the IRA. If you want some of that cash, you can direct the custodian to send you some money and then you pay taxes on it. It is that simple.

There are two other important things to note:

First, you cannot buy properties in your SDIRA that way that you own your 13 units. That would be a prohibited transaction and self-dealing and would cause you to incur massive penalties, blowing up your IRA. The government does not want you to have any day-to-day involvement in the investment. Instead, you must invest in a purely passive way, such as a syndication.

Second, real estate is a tax-favored asset and investing in a tax-favored asset through a tax-deferred vehicle is a bad idea.  Tom Wheelwright has a chapter in his book Tax Free Wealth on why.  I sat down with a tax attorney and we looked at this in detail.  The truth is that investing in real estate through an SDIRA can often cause you to pay much more tax than if you took the money out, paid the tax, and liberated your money to invest in real estate.

Most of the people I know that started using SDIRAs to invest in real estate, eventually pull it all out to invest outside the SDIRA.