All Forum Posts by: Jerry W.

Welcome to BP @Jackson Acuff.  Lots of places to invest in Wyoming, but the party has already started.

@AJ Howard, you obviously need to listen to all the advice, then make up your own mind. I am not an expert, but some of this advice is directly opposite to my experience. First, financing is not cheaper using an LLC. I have been borrowing from banks and help do loans for hard money and have never heard of a hard money lender preferring to loan to a corporation. Now they do NOT want to loan to someone who plans to make the house their residence. Next banks will always make you personally guarantee a loan. I have always found loan rates higher for LLC loans than personal loans. I have been borrowing for over 40 years. The Fannie Mae Freddie Mac loans are not available to LLCs that I have heard of. If it has changed it would be good to know. Most new investors I know try to max out those loans before forming a corporate entity. I have found the rates to be about 1% lower borrowing personally as compared to from a company. There are no benefits tax wise to having an LLC than owning it personally. The sole exception I am aware of is forming an entity as a SUB S company. That is mostly used by flippers to try to funnel money to you as wages in order to avoid some short term capital gains taxes. If anyone has different knowledge please speak up and enlighten me using the tax code. There are benefits to liability using corporate entities. You must use them correctly. However very few landlords get sued. It does happen especially if you do it wrong. First don't break the law, of course if you do the LLC won't protect you. Next try to keep the assets to reasonable numbers in each LLC. My preference is a million or less to each entity. Next buy good insurance, and get educated on how to do it right. Read the local housing laws.

There are some very good liability protection firms out there, and they will preach to you the benefits of an LLC for each property and their special secret sauce that will protect you and make you anonymous. If you are already a multimillionaire you might want that, especially if you are buying million dollar properties with great cash flow. The reality is that most folks cannot afford it and it really hampers your ability to be a real estate investor. Buying property is inherently risky, that is why it can pay so well. Think about buying the best and safest car, maybe a limousine. Say it is $400K. You could buy a Toyota for $25K and would probably be ok. Is it worth the extra $375K to only buy and drive Limos? Your call. To a beginner the fees like Anderson charges will easily be $15 to $20K. That will kill the profit for most new investors and you will lose the ability to network or benefit from REI groups if you try to remain an anonymous investor. Finally, in my opinion, anonymity simply doesn't work if you are a hands on investor.

I do like LLCs, I prefer to not make them Sub S taxed, but I do have Sub S companies.  Make your own mind up, but learn the costs of doing it each way.  Good luck and Merry Christmas.

@AJ Howard, welcome to BP bud. There are pros and cons to forming an LLC. If run correctly LLCs provide a fair amount of liability protection. However if you don't have a lot of assets it is protection of nothing. Next if it is a single member LLC you simply add the properties to your individual tax return. You deductions are the same whether you incorporate or not. You will have more trouble getting loans. Fannie, Freddie loans are a thing of the past. Expect to pay about 1% more in interest and only get 20 year loans with 25% down on purchases. I currently have 3 companies, but still own 3 rental houses in my personal name because of strange events. I carry $500K liability on each house. I am currently looking into an umbrella policy (after 25 years of investing) and it looks like about $900 per year for 2 million, but it only covers my personal rentals and the bigger company. If it were me I would max out the number of personal loans that you can get before jumping over into an LLC, but it is a matter of personal preference. Do you want cheaper loans or higher asset protection? My state is landlord friendly so I lean towards cheaper loans, but it is a personal choice. Best of luck and Merry Christmas.

@Carl Edelman, I am all kinds of bad news on contractors, I have had prices double of what was estimated, I have had some leave town with a few thousand dollars in tools in the back of their rig, I have had several drunk on the job, and of course lots of no shows.  I tend to hire handymen and work them as long as I can before something happens.  I have done jobs myself with a 14 and 16 year old as helpers, and of course I have torn out work others did and done it again.  Really decent contractors here are massively expensive as there are so few of them.  One contractor doing jobs all over town did a shower for me, all the water flowed away from the drain and it leaked inside the wall.  He wouldn't come back and fix it.  Right now I have 2 guys who work for a decent amount, but have other jobs they go to.  I get them cheaper as fill in work between other big jobs.  I have a plumber who just started business that I helped get started in business so I get a cut rate.  Even so he is averaging about $400 per week from me for a few months and I need more done.

Hmm numbers. I have $35K into the 2 trailers and lots. One house had about 14 cats in it. I went to evict him as it was as bad as you would imagine. His mom came up with 4 months rent for $300 per month, so that makes the payments on both while I fix up the other one. Payments are about $230 per month. Hopefully the other trailer will be done in 4 months and ready to rent so I can go to work on the cat house. I expect to get about $600 per month on trailer I am working on first. It is a 3 bedroom 2 bath, 16 X 70 roughly. I am replacing a few floor decking sheets, replacing the entire bathroom in one tore walls out put in new studs, tub, toilet, etc. Will probably replace every inch of pipes as they leak like sieves, fixing skirting, etc. I expect to be about $9K in repairs and clean up. I actually financed $35K on the loan. I have no idea on the cost of fixing the cat trailer yet. I am going to guess $7K, it should rent for $500 to $550 per month once it is fixed up. I am hoping for ARV of about $70K, but it is hard to tell. They were the worst spot in the neighborhood, so I am hoping property values rise. I hope to cash flow about $450 per month after taxes, insurance, repairs, cap ex, and vacancy.

If my projections are correct I expect to have about a 38% ROI for the $14k I have in it. The problem is that while the ROI is great, it is on a small amount so the work is high, and mobile homes require a lot more maintenance than houses and they do NOT appreciate. We have had a pretty good run on home buyers this summer, so I am predicting a higher rental demand to offset there being fewer houses to rent. I went in pretty hard on buying lately. I have 1 flip under contract, and another buy and hold. I also picked up house in foreclosure and have 4 months to wait for redemption periods to run.

It is a crazy market here, I hope that it doesn't reverse and bite me.  Time will tell.  I can always owner finance and make money on any of them.

@Timothy Bose well did you get the place?  @Carl Edelman give me a shout if you stop by Thermopolis.  I am in the book, but pretty much everyone knows me, especially anyone related to law enforcement.  We can catch a cup of coffee and maybe look at a few places.  By the way I did close on the 2 mobile homes and lots and have started rehab on one of them.  I have had quite a run and have 2 more under contract, we will see how that turns out.

@Erik Kuhi, I just use the AIR BnB and VRBO apps on my phone.  I don't use any other apps.  It works fine.  I have several messages preloaded for guests about check in and check out, but it is pretty simple.  I run 2 VRs currently.

@Chad Hensley, this is not my area of expertise, but my experience is that most lenders want you to own the property at least 6 months to a year before they will refinance on its value as compared to the purchase and build price.  It is often referred to as a seasoning period.

@Daniel Cisneros, I did another deal like this about a year after this post.  I bought a beautiful massive 4 plex.  Long story short while waiting in line I talked to a guy who ju8st inherited his dads 4 plex.  He along with 2 siblings were losing money each month and it had no mortgage!  I eventually bought it with them financing $45K at 4% interest, with monthly interest only payments of $150 per month with a 5 year balloon.  The bank carried the rest and they got a nice big cash payment for the rest up front.  I calculated the cash return exactly as I would any other house, but included the interest only payments.  At the last minute I got cold feet and did a 20 year mortgage, not a 15, so I had to make a backup plan to pay the $45K as the mortgage would not be small enough to pay off with a refi if there was no increase in value.  I paid that note off this year and actually lowered the payment as I got a 30 year loan at 4.25%.  I have actually never had a 30 year loan on a property, it is disconcerting.  Anyway, the property only had marginal cash flow, but I literally got it for only a few hundred bucks out of pocket.  Other than a new roof that was 50 squares it has been very low maintenance, so while cash low is low, cash on cash looks impressive.  Even at only $75 per month after expenses, it has vacancy, cap ex, and repair expenses included.  At the end of 5 years cash flow is now up $200 per month and appreciation almost $100K.  It has probably appreciated more than any other property.  My experience is that nicer properties cash flow much less, but appreciate more.  It is a balancing act to add a few of those in.  I try to do at least one every year or 2 if I can afford it.

@Jack B. you seem more intent on being rude to people and trying to show off what you know than in learning things bud.  You really need to be aware that an Irrevocable trust normally means that you lose ALL control over it.  If you can make decisions about the trust you can render it useless.  You really do lose control, not kind of, not maybe, you lose control.  Next you can simply use an institution to control the trust, like a bank or trust company.  You can make sure they are bonded well above the amount you put in trust.  Many Trust companies and banks have millions of dollars of bonds that insure against theft or embezzlement.  They are common.

The big thing is that you have not given any compelling reason yet to create an Irrevocable trust.  Normally inter vivos trusts do not provide protection from law suits.  Irrevocable trusts do because you cannot compel how the trust money is spent so they cannot compel you to use the money to pay them.  If you retain the right to use the interest from investments, they can compel you to pay the interest to you.  There are very good reasons to use Irrevocable trusts, but I have not heard you mention a single one of them yet.  What you propose is kind of like locking all of your money in a vault, having it sealed, then hiding it.  No one will ever take that money from you, but you never get to enjoy it.  Every time the trust happens to give you money a debt collector can garnish it.  Unless you have children and a net worth of over 15 million currently I cannot imagine a reason to go with an Irrevocable trust.  Even if you have those items there a lot of other ways to do it that I would suggest first.  I had a friend or two who did an Irrevocable trust, but I never really understood all of it.  A lot of the purpose had to do with inheritance tax rates of 70%, a family ranch that was appreciating in value, and hoping to keep a legacy for their kids and grandkids.  The trust locked in the inheritance tax value at the time creation, and allowed the Grantor to go on living and investing, but he knew that 70% of everything he had left was going to be taxed at 70%.  Funny thing, they increased the inheritance tax exemption buy about 14 million years after he had done this, so he gave up complete control the thing he loved for no reason after the laws changed.  Now if you have a strong family history of dementia at age 40, and you are 30 and have one or more special needs kids, and want to make sure that neither you or anyone else can squander their money.  Put a few million into an Irrevocable trust, have a bank or trust company run it, have them post a bond every year, have an outside accounting firm audit it every year, have it make annual reports to the court, and set up a list of people you trust be able to audit it at will.  If you have any interest in investing in real estate forget the irrevocable trust.  You will not be able to do it.

@James Luciano, hmm since I was mentioned I will tell you about the hole I dug myself out of.  My hole was ignorance.  I had moved into a really bad trailer house that my dad had gotten behind on payments on.  I had a very little bit of money to give him and catch the payments up.  I was in college making very little on the side as a night watchman at a power plant, and opening a gas station from 6 a.m. to 8 a.m. then off to college to be 5 minutes late for class every day.  I knew nothing about fixing it up.  My girlfriend moved in and we got married.  The windows were crank up windows but the cranks were broke so when the wind blew the windows would sometimes wave open letting the bitter wyoming winter inside.  So I duct taped the windows closed.  I put straw bales over top of the sewer line that ran out the side of the skirting because it kept freezing shut.  Eventually I was ready to move to the university in Wyoming and I tried to spruce it up a little.  I found a place that sold trailer house parts and found new cranks for the windows so they worked right.  I built a little box over the sewer line and fixed up doors and other items.  So after living in it completely messed up I fixed it up the last month I lived in it.  I sold that trailer for enough to make a down payment on small trailer and piece of land a few miles from Laramie.  The owner of the land carried the contract at 10% inter4est the trailer a bank loaned me money on at 14% interest.  We heated it with candles and a coleman lantern until I got a ditch dug for the power company to lay the power cable in.  Then we rented a propane tank to heat it with but had an electric blower on the furnace.  We hauled water until I found a well driller who would take payments for drilling a well.  We couldn't drink the water but we could finally wash clothes at home and not a laundromat.  I worked at a service station after school until closing and painted houses, roto tilled gardens, etc. on weekends, or in cold weather I shoveled snow when I could.  When I moved a friend helped me rent it out.  The t4enants were awful, only paid rent about every other month, had a pile of cats in it, and I eventually had to buy propane for them to keep them from freezing up the pipes.  I evicted them, it took forever, and I cleaned it up a little and sold it through a realtor.

So my ignorance had me not fixing a trailer up for 3 years until I moved out, not knowing anything about renting and getting bad tenants, doing no background check at all, and paying a commission to sell it.

There is a happy ending.  Wyoming was in a horrible recession so I was able to buy a house dirt cheap where I moved to next.  It was a foreclosure and inbetween 2 other foreclosures.  However when I sold that trailer house in Laramie, I took the check from it and marched down and paid off that house.  Real estate can be very forgiving of ignorance.  Looking back I made dozens of pretty dumb mistakes, but time fixed them and I survived and even thrived.  Now learning more about real estate has allowed me to move out of the house I paid off over 25 years ago, and buy my wife a very nice house she really wanted.  Most holes you get yourself into are from ignorance.  The way you dig yourself out is usually hard work and educating yourself, and maybe a little bit of luck and forgiveness.

There should be a moral to these stories, mine is work hard, educate yourself, and accept and give forgiveness.  Merry Christmas.