All Forum Posts by: Greg Scott

@Shannon Allaire

Here is the thought process I would go through:

1) Your current property is not only a rent property, it is also your home.   That requires a little different focus.  You should be certain you are comfortable with any changes.  

2) From a pure financial perspective, the $170K is completely dead equity.  It isn't helping you in any way.  I would look at getting it out of there.  Let's say you take out $100K at 5%, that is $5K extra interest you will have to pay, but if you are a smart buyer you should be able to get 15-20% on your new investments, putting $10-15K in your pocket every year.

3) The easiest way to ease into this new framework would be to get a HELOC and use it to buy a few properties. HELOCs are short-term instruments so I wouldn't stay in a HELOC. I would look to do a rate & term refi after a couple years and move the HELOC debt into a long-term mortgage. Alternatively, you could just do a cash-out refi now and do it all in one chunk.

4) Yes, I would also look to buy out of state.   I've had properties in 6 different states.  I've had some properties that I've owned and sold, made a ton of money and never even saw them.  It is very possible.  Private message me if you want more gory details on ways to do that.

If the seller is willing to hold a note for $10K, that is not a concession, it is a second mortgage.  Your title company can draw up the paperwork accordingly.  Just make sure the language is correct in the purchase agreement.

@Stefano Mannino, one other comment.  I hope you have more than $10K in the bank.  You need a buffer to protect yourself against unexpected repairs or a vacancy.  You don't want to have a furnace go out, lose your tenants and not be able to pay the mortgage.  You could quickly lose not only your investment, but also destroy your credit and make it very difficult to rebuild.

Ryan:

I think you will be lucky if you get a check for $80K.   Your business partner does not sound very ethical and based on your post, you just gave him $35K in equity.   That is a $115K incentive for him to ignore your request.

Before getting tax advice on something that hasn't happened, you should get legal advice on how to get out of the situation you put yourself into.   See a lawyer.  It is cheaper than $35K.

Would love to hear more.

Practice. Practice. Practice.

Go out into the world and find properties.   Analyze them to see if you think they are deals.  Track what they sell for.  Talk to investors about whether or not they think they are deals.   After a while, and it shouldn't take very long, you should be able to spot the deals from the non-deals.  Once you can consistently pick out the good ones, you will know you are ready.

It is a great way to get going without risking money or your reputation.

In your initial set-up, I thought you were going to be looking at commercial properties or multi-family (apartments of 5+ units, not multi-unit single family). That is the sort of LLC structure you would want on a syndication. Then you went on to describe problems related to owning single family properties.

Instead of buying a lot of single family, you may want to look at stepping up to bigger properties.     Even if you look at small multi-family (say a 8-15 unit apartments) that is a great structure for managing those types of properties.

@Chris K.

Thank you for providing a voice from the legal community that isn't just "you should buy more entities".   There is too much of that in the industry.   We need more discussion about the balance of risks, costs, and filing requirements.

@Cara Lonsdale  LLCs can be set up as pass through entities but that is not always the case.  Some LLCs must file tax returns.   

Setting up 1 LLC per property can actually increase your risk exposure. You must be certain to run the LLC as an independent entity, ideally each one with its own bank account and books. If you fail to operate them correctly a lawyer can easily argue to pierce the corporate veil and disregard your LLc structures entirely. So, if you are going to go that route you are wasting money unless you put in all the other effort to maintain the entity correctly. If you have more than a handful of properties, that gets really tedious really quickly.

Yes.  Others have done it.

Lifestyles Unlimited has a national MLS feed so you can easily find sales comps and rental comps for any property in the country. https://www.lifestylesdiscovery.com/   I believe you have to have at least their basic membership and there is a month-to-month usage fee for the system.   I've used this system before with very good results.

I am not aware of any other national system.

If you are an active SF real estate investor, having something like this is invaluable.

I've had Michigan LLCs own properties in other states and have had Texas LLCs for properties there, while living in Michigan. Either way it is kind of a pain. In most cases you are going to have to have to file the state LLC paperwork and in the other state file the LLC as a registered foreign corporation. You will likely also need to have a registered agent in the state where you do not live.

In most cases, I stopped putting properties in LLCs and shifted focus to protection via insurance.   I beefed up my individual property liability to $500K and then bought a $2M umbrella policy off of my homeowners policy.  That strategy is much easier to execute, avoids any due-on-sale issues, makes it easier to refinance, and still allows me to sleep well at night.