All Forum Posts by: Jason Zundel

Seth:  I am not affiliated with their company, but Padsplit has a good history and experience when it comes to co-living and room for rent vs. traditional home for rent.  They might be a good spot to start your research.  From the buying perspective, you want to make sure that you do your research carefully - some HOAs (and recently even cities/counties!) are limiting the amount of people in a home or the length of the rental, which often comes into play when renting by the room.  As with anything, look at the fine print and details before diving in, but this area has seen significant growth and increased profits!

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Jared, This is a very complicated area of law, with both state and federal rules that may apply.  I would encourage you to reach out to a local attorney before diving too deep just to make sure you are on the right side.  That being said, most federal laws, especially the TCPA (Telephone Consumer Protection Act) are going to apply when you are mass advertising or
if you’re using an auto-dialer, pre-recorded voice, or artificial voice to call consumer. Those will usually require some sort of consent, either written or oral depending on the details. The rules on those also apply to most outreach that is classified as marketing rather than informational or administrative. Although the FCC does not always define whether rules apply to voice calls or texts, it has repeatedly found that the term is broad enough to include both phone calls and text messages, so better be careful when using such.  Now, if you're not using such methods, but rather individually looking up information from a public database and calling directly based on such, you are less likely to run into legal issues.  If you go that route, make sure you are first checking the Do Not Call Registry (that will apply regardless of how or why you are contacting should the recipient want to complain) and don't call again if they make that request.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Quote from @Tyler Munroe:

From what I'm seeing, it seems to be fine to own/run the management company as long I have contracts in place and corporate veil in tact.

That's my whole reason for doing it, actually, since they are all my rentals I'll be managing.

Am I wrong about this?

This is something we regularly recommend to clients and help them set up.  You keep much more value in this manner (owning the management entity yourself), it offer premier tax mitigation strategies, and can even help move the target from the asset holding entities to the income entity, helping to protect the true value, which is the real estate.  That said, you absolutely need to be careful about not just having agreements in place but giving them teeth - make sure they are signed by each entity (which I know feels a bit schizophrenic, but it's important), make sure the terms are reasonable (especially service fees), and that the terms are followed through on - make the payments each month to fulfill the contract.  This is how you make it bulletproof.  References Drew's comment a bit higher up - this adds liability protection because while an attorney will absolutely throw everything up against a wall to see what sticks, if you keep the corporate veil intact, those lawsuits won't stick to you or your other businesses, because there is no standing or contractual relationship.  Thus, it will be very easy for your lawyer to get those parties dismissed.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

I know attorneys are often the number one group to complain about insurance, but with that being said - get and keep insurance. Even if you have every home in it's own LLC, fully separate and protected from liability generated from your other risky assets, it is worth having insurance protection. Between your LLCs for real estate ownership and the insurance for each, you have a fantastic carrot and stick approach to liability - the LLCs ensure that going after your personally or your other assets is more expensive than it's worth (stick) while the insurance makes sure that an actual injury can be addressed with some sort of payment (carrot) and all parties can move on with their lives. It is usually wort increasing the rent a little to offset the cost, if feasible, of good insurance. We have often recommended and had good experience with NREIG (National Real Estate Insurance Group) if you haven't checked with them yet.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Tyler: This is a great strategy, and one we often recommend to clients, both from a tax and an asset protection standpoint. I will emphasize the importance of keeping the corporate veil intact - money flow between entities and individuals should always follow two rules: 1) be based on an ownership relationship (i.e. contribution form the owner or distribution to the owner directly); or 2) be based on a written contract with consideration. This second one is going to be really important here, as your property management LLC needs to have a good agreement between the LLC and the owner of the property (hopefully that's a fully separate LLC the incorporates anonymity for maximum protection!). The service fee should be reasonable, but the other terms can be fairly flexible to give you the most leeway. One final note, the LLC you set up for management should usually be formed and registered in the state where it is offering services or paying a salary, if applicable.


Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Quote from @Pixel Rogue:

State is PA.

Taking to an extreme example for illustration purposes, could someone purchase into an HOA where one owner had 60% of its units, 60% of the vote? Would the HOA not need to disclose in advance of sale?

I will echo the great advice you received from Roland - Request and review the documents.  As a general rule though, no - HOAs are not required to make specific disclosures of the type your are describing. In the majority of jurisdictions, the only responsibility a seller/HOA has before closing is to disclose that it is in existence and the filed CC&Rs.  It will be your responsibility to dig into those, and I strongly recommend doing so carefully to make sure you are fully aware of what you are diving into.  In fact, I suggest digging deeper and obtaining all policies and procedures, operating documents, recent votes, etc.  I know, it's shocking that an attorney wants to see the paperwork, but this has saved clients significantly, both in money, stress, and peace of mind in the past.  Finally, if you are purchasing property as an investment, especially if it will be a short-term rental, you will want to look at the city and county zoning, as many are tightening up the rules and regulations related to such.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Quote from @Carlos Lopes:

This is all very good info. Thank you for the response. As far as advertising and filling vacancies per room, have you dealt with it yourself? What have been some strategies that work best? 

Currently I have a 3 bed 2 bath, plus a big den that could be converted into a fourth bedroom. So I figured if I can manage to rent out each room for about 1,000 each that would be much more profitable than just renting it as a SFR for 2,300.

Just overall trying to see if anyone has had a good experience in SWFL in general doing this. 

Happy to help!  While I have not dealt with it directly for myself, my clients have done most options under the sun.  If you have the experience, marking yourself through local agencies, online, word of mouth, etc. will of course be the least expensive option. This is viable, and even preferred especially if you live in the area as well.  Many clients like to use agencies or groups though, especially if newer to the rent by the room option.  This can range from AirBnB, VRBO, to specialized groups such as PadSplit.

Rent by the room is becoming more and more popular, especially as it allows landlords to increase earnings while lowering the per room cost.  Cape Coral is generally pretty friendly for this strategy, but does require a permit (around $35 so not too onerous), does enforce their rules strictly, and there are some zoning restrictions if the rent by the room will be on a short term basis, so verify that your properties are zoned for such.  Finally, make sure you are under the Cape Coral occupancy limit of no more than two people per average room, including children, though that can vary depending on the size of the room being rented.

Here is a link for specific codes related to Cape Coral - https://library.municode.com/fl/cape_coral/codes/code_of_ord...

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Eunice:  Just wanted to add that you need to be careful on the agreement side and make sure your tenants have signed agreements (no verbal for real estate ever!) and the more detail the better.  In addition, make sure you are taking account the following (non-exhaustive and you should verify your state rules and requirements) list when prepping your agreements:

• Fair Housing Laws: Landlord (you!) must adhere to fair housing laws and avoid discrimination when selecting tenants.
• Occupancy Limits: Ensure that the co-living space complies with any local occupancy limits. This one varies WIDELY depending on your state and county.
• Subleasing: If residents plan to sublet, the landlord's approval is typically required.

• Rent and Payment Terms: This one seems obvious, but you would be surprised, but, clearly define the amount of rent, payment due dates, and accepted payment methods.
• Security Deposit: Include information about the security deposit, its purpose, and the process for its return.
• Shared Responsibilities: Outline shared responsibilities, such as cleaning common areas, maintaining the property, and managing shared expenses. Clearly an attorney opinion, but you can never be too specific!
• Privacy: Address privacy concerns among residents, such as noise levels, guest policies, and personal space boundaries. Bright line rules are harder here, but just having something listed that could count as a breach can go a long way.
• Dispute Resolution: This is an oft forgotten, but vital inclusion - a specific process for resolving disputes among residents, such as a mediation.

Hi John!  I agree with Erik above, but wanted to break that down a little bit, and make sure you know there is flexibility available.  In a loan signing, each party will generally pay their own fee, meaning both the borrower and the lender (or their respective representatives) cover their own legal expenses. Let's break that down a bit:

The general rule in the United States (unsurprisingly called the "American Rule") is that each party is responsible for their own attorney's fees, regardless of who wins or loses a case or transaction. In a loan signing, this means the borrower is the one hiring an attorney to represent their interests, create documents, form LLCs, etc. and the lender also has their own legal representation.  Thus the borrower will usually be paying for said fees.

This system ensures that each party has independent legal advice and representation, protecting their interests during the complex process of securing and closing a loan. Now the fun part: while each party typically pays their own attorney's fees, it's possible to negotiate with the seller to cover some of the buyer's closing costs, which could include attorney fees, in a buyer's market OR if you are the seller, to motivate a buyer by offering to cover a portion of such fees.  Carefully consider how and when to do so or request such as you dive in!

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