All Forum Posts by: Edward Liu

I assume SBA will sort it out in the coming months with regulations, including how UCC apply, etc. We will hear a lot of complaints online if SBA loan is detrimental to real estate investors. My take is best case, I will use the loan for 30 years; worst case, I will use this for 1 year or until when I need to do transaction such as buying or selling the properties in this LLC.

In addition, given I have many LLCs, whatever limitation is only to 1 LLC. It almost feels as through I should move properties where I plan to pass to my kids (true long term holds) into this LLC with the SBA loan.

As long as you don't default or do things illegally, terms related to SBA's powers to buy the asset does not apply.  Worst case is we pay off the total loan and nothing SBA can do further.   If your business does run into trouble and default on this loan, it is possible for government to forgive this loan also (according to some experts in my wife's company)

Personally I believe this program is intended to help people, not to screw and cheat us.   We are such small fish in government's eyes (especially if loan is less than $200k), it's not worth it for government to chase after us.  Think about how many small loans are out there - tens of millions, while SBA only has around 3500 employees.   For comparison, IRS has around 75000 employees and when was the last time you received audit notice?   

I applied through each of my LLCs - all same info with difference in damage amount.   Only 1 (the one requested most loan amount) is officially approved while most are rejected, a few more still review in progress.  

I am also offered by SBA for the disaster loan for way more than $25k.   Its terms seem to tailor toward natural disaster, such hurricanes and wild fire (thus language of relocations, etc.), as applicants will be location dependent to apply.   Current situation is US wide, so I don't believe relocation applies.  

Most worrying term is

Borrower will not sell or transfer any collateral (except normal inventory turnover in the ordinary course of business) described in the "Collateral" paragraph hereof without the prior written consent of SBA.

For us, I can make argument that every property we hold is an inventory item (LLCs' only inventory or asset is the properties along with equipment associated with each), buy and sell a property is normal inventory turnover as part of normal business activity.   Trading properties is part of the business, thus no need for written consent of SBA.  

I am not worry about receipts and finance part as I use professional property managers and accountants to maintain them.   Need them anyway in case of IRS audit (IRS can audit 6 years of receipts and everything for your tax return, if no fraud involved), so SBA term is not an issue.

 I am leaning towards getting the loan.  I won't use the fund to buy additional properties withing next 12 months, but just for normal operations.   I will make sure I can easily raise the loan amount within 30 days, so in cased this loan becomes troublesome (due to new regulations), then I will simply pay off the loan.   If by luck this loan has minimal affect on buying and selling properties, then I can use it more aggressively.

Although sec 8 offers rent stability, there are many downsides to sec 8 also.   Please do your research carefully.   

- My worst investment is a 12 unit building full of sec 8 when I brought it.  There were so much damage to the building as each unit moves out, water pipe in the basement was cut and stolen, so bad that I kicked everyone out and did remodel (convert to smaller units) and tailor the building now to higher end clients.   

- One of my better investment is 35 unit with mostly sec 8 tenants, where I sold and tripled my cash in about 2 years.   

- Funny things is above 2 buildings were within 10 min walking distance and managed by the same property manager.   

My suggestion is avoid sec 8 tenants with lots of kids (especially teens).  When bunch of them in the same building, bad things occur.   For SFHs, I also have few sec 8 tenants.  Those are mostly trouble free.

You need to make sure property can cash flow without you live in one of the units.   How does the number look with such assumption?   As investment, you can not assume your next buyer will also live in one unit, so it has to make sense to any investor.  

I am more pessimistic about the situation, so have stopped all buying right now and hoarding cash.   I am trying to get government disaster loans even my wife think we don't need it.   I am bunkering down for the worst.   I could be wrong, but there is nothing wrong holding cash today.

I make good money in Hartford with great cash flow.   For my 6 unit buildings, as long as 4 of 6 units pays rent, I am cash positive, anything extra is bonus.  I brought mine a few years ago, so price was lower.   I focus on condo-nized buildings, which have much lower property tax vs any other 6 units, at least 6k-8k less tax per year - which is significant.   There type of buildings are rare, but is available at times.   

My kids company don't have any employees - bunch of high school kids.   So I don't think # of employee matters, but I heard they will process those with more than 1 employee faster and allocate more money.

My 15 year old's company (clothing) just got $1000 grant today.   She started it with 4 other high schoolers in Dec 2019 - no revenue yet.  No credit check as they don't have credit history.   Kids are so happy!

There is hope for everyone who applied.  If you have not applied, definitely try once new applications are accepted.     

It is not just CA, many cities across the country has halted evictions for the foreseeable future.   Some places allow eviction, but the eviction court is not open (not essential).

We are at mercy of the tenants right now.   I have 1 tenant in TX who lost job at a large retailer.   When she asked for options and we allowed her to pay less.  Guess what, she still paid full rent in April to the surprise of the property manager.   She said she wants to pay full as long as she can afford.   At the same time, another tenant in CT who works in a hospital with decent job.  No longer paying rent despite we know he is still working.

I asked my property managers to do following:

- Be helpful to tenants

- More frequent communications with tenants - especially those who are waiting for unemployment check or government check.  

- Avoid conflicts with tenants as it will not help

There is really nothing much we can do other than have a lot of cash to weather the storm.

Outside of metro, If the vacation location is targeted to locals (drivable), then it is getting better. Not as good as before, but at least pay the bills. More exotic locations, no business still. So if your STR is in Hawaii, not so good.

Please also note China also don't have 15-20 million people out of job as it is extremely costly to lay off workers, up to 3 year compensation depends # of working years at the company.   Companies would rather declare bankrupt before lay off any employees.   So its turn around vs. many countries will be quicker given less unemployed.