All Forum Posts by: Jason V. Henderson

Have you considered househacking? It can be a great mix of both worlds. 

@Marco Y. Make sure you actually review the all of the leases. Occasionally unscrupulous landlords will inflate the rental figures by increasing the rents each year, while simultaneously providing the tenants with a concession equal to the increase in rent, so on paper the figures are higher than the units are actually worth. You may or may not want the specific tenants, but you do want to know what the units are actually able to rent before you purchase.

$1,275 is on the high side for basic needs, but not out of the ballpark for the services they are providing. In this scenario you are paying extra for the custom operating agreement. This is the document that will establish your bylaws and succession plans. It is an important document, but that is where most of your money is being spent. If you shop around for a lower price, you should be able to find one, but the terms of the operating agreement will be the first element to go. This may suit your needs if you are purchasing a SFH, but it may not if you are looking to purchase a larger apartment building.

Two additional points, LLC registrations are annual, and if you don't renew each year, you will generally loose your separate entity protection. See what they will charge to file renewals.

Also, look into what they charge to be your registered agent. This is where legal notices will be served if you are sued. 

Best of luck to you!

As an attorney I work with all types of real estate transactions. As an investor I prefer househacking and multi-families. 

Welcome to the BP community!

What areas of real estate are you looking into right now?

Welcome to the BP community!

A 4plex will still typically be priced based upon comparable properties in the area. It is once you get into the 5 units and above that you begin to determine value based upon the cashflow and market capitalization.

Keep in mind that the equity to purchase the property is not necessarily the same amount of equity for a refinance (so if you put 10% down, you might need to wait until you have more than 25% in equity before you can refinance). Also, remember to calculate the fees you will be charged to refinance when you are doing the calculations.

That is the idea. It takes significant planning and meticulous accounting as it is a very high audit risk, but it can be done. You should talk with a local real estate tax expert for individual advice for your particular situation. In the meantime you can also check out the book Loopholes of Real Estate by Garrett Sutton to give you a basic overview.

I wanted to add some additional information to @Joe Splitrock excellent real-world scenario, and @Susan M. statement regarding member managed LLCs

The very nature of an LLC is to provide asset protection. This protection is not absolute, and it takes careful management. However, the protection does extend to members of LLCs even if they manage their own operations.

Can the owner of an LLC be sued personally? Yes, however the level of fault is higher to make them personally liable.

In states that follow traditional premises liability laws, a property owner has a duty to all customers who enter the property to conduct business. This responsibility is to fix problems on the property they either knew or should have known about. For example, when you walk into the grocery store and there is a spill in one of the isles, the store owner has a responsibility to clean up the spill. That being said, there is a degree of "reasonableness" at play. The court will need to determine if the store acted reasonably in cleaning up the spill? How long did it take the store to discover the spill, what steps were taken once discovered? Was there a wet floor warning sign placed while they went to retrieve a mop? Property owners are not expected to know what is happening instantaneously, they have a "reasonable" time to respond under the circumstances. Property owners will lose a lawsuit if the court determines that the property owner did not live up to this "reasonable" standard and determines that they "should" have inspected the area more frequently or fixed the problem sooner.

Owners of the LLC are held to a different standard when determining their personal liability. In these situations the court asks if the owner acted intentionally or recklessly. Recklessness is a harder standard to prove. Reckless behavior is when drive 40 miles over the speed limit, or when you smell gas and decide to check by lighting a match. It is not merely that you "shouldn't" do something, it is when the action is downright dangerous.

Assuming you have a LLC setup for each property and you've exhausted all of the insurance money, the plaintiff's attorney is going to attempt to go after the assets of the LLC itself. In order to show that the LLC, as owner of the property, should pay, the lawyer only needs to show that the LLC owner "should have done a better job" in order for the lawyer to go after the personal assets of the owners of the LLC the lawyer needs to show that owners were acting intentionally or recklessly.

The difference between whether you want to be judged by a "should have done better" standard or a "downright dangerous" standard is the difference between whether you feel the modest annual filing fee for the LLC is worth the risk to you.

2. Financially speaking, you may get better deals at a foreclosure or short sale, but they come with their own problems. It is very important for you to get a title search done if you are buying a foreclosure, banks will sometimes try to sell you a "quitclaim deed" which is basically saying "we don't promise that we own everything on this property, but whatever we do own, we give to you". This can present problems down the road when you are trying to sell the property after the rehab and some buyers will not purchase a house with an issue regarding the chain of title (ownership). This risk might be worth it to you if the deal is quite significant, but it is something to look out for and keep in mind when you are buying the property.

3. Being a realtor allows you to check out the property without another licensed realtor present, it also saves you half on the realtor commission. Even if you don't have a realtor, the seller's realtor gets the full commission on the sale (6%-7%).