All Forum Posts by: Joseph B. Davisson

If you are asking about "contract for deed" or "land sale installment" contracts, you really should reconsider.  It will cost the same and create less liability to go with a deed, note and deed of trust.  There are countless posts on the topic.

If you are asking about contracts to paper the agreement pending closing and you don't want to have original contracts drafted, you might consider TREC promulgated forms for simple transactions. They are widely accepted and current with Texas law.  It is likely that a sophisticated buyer is familiar with them and therefore you will spend less time negotiating the documents. See the TREC website for the forms.  Take note of the legal disclaimer in red type at the top of the page containing the contract PDFs.  For a simple transaction it is possible that all you need is a contract (form 9-12 for unimproved property) and seller financing addendum (form 26-7). As mentioned, there are all kinds of Junk DIY contracts on the internet. You will likely need counsel to assist you with the Deed, Note and Deed of Trust.  Close with a local fee attorney who can handle the closing and assist with preparing documents.  They may even assist you with the contract.

Define "set up" and list what you are getting for the fee. Filing an LLC and actually operating an LLC are two different things. Filing establishes the existence of an LLC-(easy... point, click, pay about $300), but now what do you do? How the LLC operates is determined by the operating agreement.  This is the soul of the entity. Drafting the operating agreement and any other initial organizational docs is the reason you pay an attorney.  More often than not it is cheaper to hire counsel to do this in the beginning rather than pulling some boilerplate off the internet and running wild with it.  The operating agreement needs to consider the laws of the state where the entity is formed and where it operates.  There is no one size fits all when it comes to operating agreements.  Also, READ the operating agreement and understand what it says and how it affects YOUR business.  It is likely that along the way your operating agreement and resolutions will be scrutinized by a title company or lender.  If it is not adequate, it will cost you more to hire counsel to amend it than it would have cost initially to get it drafted correctly.  

The cost to form should include: filing fee, initial consultation to discuss your current operation and aspirations to gain an understanding of what the LLC will be doing (1 hour), drafting the agreement and other docs (probably around 2 hours but could be more depending on the number of members and the complexity of the operation) and and another consultation to review the documents and discuss what the LLC can and can't do and how to manage the entity as a manager or member. Total, you are looking at $300 + about 4 hours of legal work. (This is a baseline and it can certainly go up from here but this should get most investors up and running with adequate protection)

Keep in mind the administrative expenses associated with working with a series LLC. To achieve the protections the structure is intended to achieve, each series must be insulated from the others and keep separate books, bank accounts, and records. Is it worth managing different bank accounts for each residential property? Series work well for larger commercial investors where each series controls one multi-million dollar investment so the scale of the investor's operation supports the ongoing administrative expense of maintaining a series LLC, but the same is not true for the smaller investor. You may be best served by lumping 5 or 6 properties in each LLC and reorganize if/when your operation gets big enough to support a more complicated structure. Go make money and undertake protective measures that are proportional to the amount of wealth you accrue. Setting up a complicated structure before having the assets or equity to protect is akin to building a vault and having very little to put in it. Start with a lockbox, then move up to a safe, and then someday you may need to build the vault.

If the prior foreclosure was foreclosure on a Deed of trust the the prior foreclosure could have been reversed due to improper notice or posting or last minute filing of bankruptcy. If this is the case, owner likely has legal counsel and perhaps that is who you should be dealing with.  A tax sale could have been reversed during the redemption period.  Buying pre-foreclosure directly from the owner might be the best option.  However if you do this, be on the lookout for  a lien from property tax lender.

As stated above, they are not worth the hassle, risk and expense.  I've never seen anyone do one correctly.  In most instances this seem like an attractive strategy because the buyer is under funded (otherwise they would be using more traditional means of financing) and this leads to cutting corners (costs) in the course of properly documenting the transaction.  Investors and seller end up using free forms they find online or forms provided by an investment seminar.  More often than not, neither of these sources properly account for Texas law.  

In light of Texas law, this one of those "creative" financing ideas pitched by seminar guru's that sounds great, but is not practical in Texas.

If you find an attorney in Texas willing to properly paper such a transaction, more power to you, but the liability and risks extend beyond merely drafting the documents.  There are accounting and reporting requirements that are ongoing throughout the terms of the arrangement.

As a tenant/buyer, you are less at risk, but enforcing such a deal if the landlord/seller changes his mind, or dies, or sells the property 

While the seller bears most of the risk in such a transaction, doing business with a seller who is willing to take this risk, whether they are aware or not, should also be an indicator of future interaction with the seller.  What other laws and duties are they willing to ignore or not care enough to investigate.

I would also like to add that I see new investors or investors with small portfolios structuring complicated entity structure like Limited Partnerships with corporate general partners, or forming trusts etc... in an effort to "creatively" structure purchases. While this sounds great on paper and may be suitable for sophisticated investors with significant portfolios and significant assets, more often than not, new/small investors do not consider the ongoing expense, opportunity cost and transaction costs of operating such structure. How much does it cost and how much time does it take to properly establish such a structure and what on the ongoing expenses? Drafting resolutions for each transaction, corporate minutes, annual meetings, maintaining separate bank accounts and bookkeeping for each entity, tax preparation, franchise taxes filing and payments... the list goes on and on. I see many wise investors who buy in their personal name or in a single simple LLC and buy insurance to protect themselves from liability. Consider general liability and umbrella policies to protect you rather than a complicated entity structure that requires ongoing expense and attention. Get you operation off the ground and streamline it later. Use your cash and time to find deals and generate cash flow.

Re you looking for hard money or partner?  "Funding Partner" is a bit ambiguous.  Is the property under contract. PM me.  

Texas Veterans! Research additional benefits you may have through the Texas Veterans Land Board.  In the past I have worked with veterans who have used these benefits to purchase investment property. Many Texans Veterans don't seem to know anything about this opportunity unique to Texas. 

This pricing is on target for setting up the LLC without too much customization. Keep in mind that forming the company involves filing with the Secretary of state, drafting the Initial Organizational Resolution as well as the Operating Agreement. Obtaoning an EIN is probably a good idea too.

I often encounter investors who file with the Secretary of State and think they are finished.  Not so. That's the easy part.

$1200 + the filing fee should get you what you need to properly function. If you have multiple members, be certain that there is a push/pull buy/sell clause in the operating agreement allowing for a mechanism for the members to buy or sell their interest in the event of an deadlock. 

Be careful on online forms for operating agreements that are not intended to be used in Texas. The attorney who forms your LLC is an appropriate choice for a registered agent.

Sent me a private message and I will share the names of 2 inspectors I recommend and use personally.  

There is no clear answer to this question.  Even Annotated Business and Commerce Code does not give any good answer as to what it means to "do business in Texas".  There are lots of examples of what is NOT doing business in Texas, but the caselaw is not clear.  

@Tim Priebe has the right idea. The real question is why you want to develop such a complicated structure and do you know the cost of maintaining such a structure in light of the number and type of transactions you are closing? I see investors who are well served by a Texas limited partnership with an LLC as the general partner.

Also, the caselaw surrounding Series LLCs is not fully developed.  Ask an attorney who is confident they know exactly how and why to structure this way.  Often these structures sound good in theory but the practical use is not worth the protection.  

Talk to a lawyer about contract assignments.  In TEXAS if  the contract states that it CANNOT be assigned, the any assignment must be in writing and agreed to by seller and buyer (assignor).  You will often see contacts where the buyer is written as "john doe and/or assigns".  this is simply unnecessary from a legal standpoint if the contract does not expressly prohibit assignment.  If you intend to wholesale or flip, it is best if this is disclosed to the seller upfront, especially if you don't actually have the money to close as the contract is written.  Don't wait until you are at the closing table to assign.  If the assignee is an entity, the title company may require documents pertaining to the asignee-entity and all docs then have to be re-drawn to reflect the proper signature lines.  This causes delay and doubt with sellers.  Further, it irritates the title company and the lawyer who drafter the documents.