All Forum Posts by: Jeffrey S. Breglio

Here's my two cents after 15 years of being in the business: 

You get out of anything what you put in physically, not financially. So my advice is BE VERY CAREFUL about paying (usually a LOT) of money to be part of a system or education program that brings you deals, education or whatever. Most of my clients that have been involved have had bad experiences. A few have had good experiences. I'm sure a lot depends on the individual investor, like I said. But I find that most of these over promise and under deliver. They are great at selling you the program, and less motivating once you're in. If you start taking a back seat, so will they. At that point you're just work and time to them. If it's deal-based, they also bring you into a eco-system where they control all parts of the deal: hard money financing, wholesaling fees, property management fees, sales, etc. They make money at all levels. Most deals are also out of state, and I'm not a big fan of doing that unless you're a VERY sophisticated investor. The deals, when taken as a whole, are never that great to the investor. And you can get the same opportunities, and possibly better education and networking at the REIAs, and for a just a few bucks. 

In short, educate yourself cheaply first, Attend REIAs, talk to others, read. Then you are in a better position to analyze the value of what you are buying. I have very sophisticated and successful clients that pay 10s of $1000s of dollars for education. They chose wisely!!

Jeff

I have a difference of opinion on putting your team together. The sooner the better! There's nothing that locks you into anyone. You should constantly (I do it every December) reevaluate your business and team. I meet with investors who are more progressed than I am and pick their brains on how to get to where they are. I often bring on new or change my team members. Not only do I change my team, I change my investing strategies to meet changing conditions. Adaptation is KEY in real estate for ALL levels of investors.

Jeff

Yes. It's important to build your entire team. That means lawyer, CPA, bookkeeper, insurance agent, real estate agent, inspectors and so on. Make sure you put experienced people on your team. Interview them, vet them, get referrals, etc. 

CA presents some unique considerations from a legal/asset protection standpoint. The local REIAs are a great place to network and get recommendations. Welcome, you're doing things right.

Jeff

I've been in RE investment personally and as an attorney for 15 years and for over 1000 clients. Always hold real estate investments in an LLC for very long list of reasons. (**See note at the end of this post**). Never hold an investment in your personal name! And despite comments to the contrary, you can put the property into an LLC at any time, and the sooner you do so the better. Anonymity is only one reason (and LLCs really aren't all that private in most states--use trusts for privacy). Using an entity and insurance is a great two-pronged approach. If available, a series LLC is a very convenient tool as well.

That said, if you are going to also live in the property, general recommendation is to NOT put into an entity. It does become, to at least some degree, a "primary residence." You could lose the cap gains tax break from the sale of primary residence and possible other issues. This is an exception to the rule because it's not fully an investment property.

Also, every conventional lender requires that you close the property in your personal name at the time you get the loan. There is no way around this, so your personal name will always be associated with the property (try seller financing to get around this!!). Standard procedure is to immediately (at the same closing in fact!), deed the property over to the LLC. There is no need to notify the bank, and my recommendation is to not say anything. This has been standard investing practices for as long as LLCs have been around.

Yep, this does, technically, violate the due on sale clause (the acceleration clause referenced above). I've posted a lot on this topic. Transfer to an LLC is not an exception to the Garn-St Germain Act. Most banks will not care, however, as long as you are still the, or even one of, the owners. I've heard "rumors" that banks are starting to call these out and call the note due, but I have not yet seen that in practice or even heard of it actually happening anywhere in the country.

Use an LLC and find a local attorney who KNOWS real estate investing, not just a corporate attorney who does entities!!!

Jeff

Note: Never put a long term hold in an INC (a corporation) or into an LLC that has filed an "S-election" with the IRS!! Always have multiple owners (if possible) of the LLC and have it taxed as a partnership. Use the Inc, or preferably an "s-elected" LLC for flips and other types of real estate investing. This is for tax savings, not asset protection. You'll thank me some day :)

Listen to what @Jeff Rappaport said. There are a lot of ways to get into a home without conventional financing. Study up, learn, attend REIAs and you can make it happen.

Jeff

nov 19 works for me.

There's not a lot of call here in UT for tax liens/deeds.

I've had clients buy tax deeds before the 4 year mark (not sure how they got it). But Bill is right. When we closed it, we had to insure around the prior owners (the ones that lost the property) because they can come back for 4 years to challenge, and even another few years after that if there was some error in the procedure of the sale of the tax deed. This was also a lot, not a home. By clients still purchased it (like for $4K) but they are going to wait a few years before putting any money into it so they know that when they sell, it can be insured with clean title. 

I have a few clients that buy out of state tax lien deeds, etc. with success. They are very educated in the topic.

My general recommendation is always this: Be a very educated and sophisticated investor before ever buying something out of your state (or terribly far away from you)!!!

Nearly every "bad" deal that comes across my desk is a client who got into a deal out of state! Seriously!!

Hope that helps,

Jeff

I'm in.

Many CPAs and attorneys can help you outside of your home state. Many legal  things, like entities and asset protection are pretty universal, and many accountants can help with out of state taxes. Some things, especially legally, are unique to your state. But it doesn't hurt to ask. What is truly important is that the CPA or attorney (or anyone else on your team) really understands your business of real estate investing. It's something that "general" practitioners don't always get.

Jeff

I like Bob's suggestion by using trusts. Here are my thoughts:

From a strict legal standpoint, titling in an LLC DOES violate due on sale clause (it doesn't fit in the exceptions to the Garn-St Germain Act). However, banks most likely will not care. If discovered, they will just want to confirm that you are the owner of the LLC (and hence that the borrower still owns the property) and call it good. I "heard" a rumor that some banks we're starting to call this in, but I have not "seen" it in practice. Even if they call it in, you can also put title back in your personal name and see if that makes the bank happy.

Titling in a land trust with the LLC as a beneficiary, still--technically--violates the due on sale clause. The trust exception is for the family trust where the borrower (the human) is the trustor and beneficiary (this exception was created specifically because families put their personal residences in family trusts). However, the trust will be less of a red flag. And as long as you are the owner of the LLC that owns the trust that owns the house, most banks will probably be satisfied that you are still the owner. That's what they really care about--that you haven't sold the house to someone else.

I also recommend the trust for a second reason--titling out-of-state properties. Most clients with property outside of their home state (where their LLC is formed) title them in a trust, with their LLC as the beneficiary. Trust are not registered with the state, so do not need a registered agent nor do they pay yearly registration fees. This could be helpful for CA.

CA is rare with that $800 hit on LLCs. So, an advance, and even aggressive, strategy could be to set up an LLC in another state, and preferably one that recognizes series LLC. Then title your CA rentals in a trust where the beneficiary is the foreign (outside of CA) LLC or series. Use a separate property management LLC (just 1) for management. Then don't register the asset holding one in CA.You're only paying the $800 on one LLC (the management one), but you can still separate out the liability from all your rentals. Check with your accountant on the tax consequences.

Hope that helps!

Jeff