All Forum Posts by: Kelly Byrd

@Basit Siddiqi: We're in California, the property is in South Dakota. 

Thanks for the quick reply @Andrew Severino! I do plan to run this all past my CPA, she's the one that suggested an LLC for properties initially, but warned me about the residential financing. But it's July 4th and I was hoping to get the basics answered here so I can ask her more focused questions. Once again BP members come to thru.

Yea! More LLC questions! Everyone loves LLC questions! Right? ;-)

In an effort to get specific answers, I'll try to be as specific as possible about my situation:

My wife and I are under contract for our first rental property, a 12-unit building. We're going to buy-and-hold this long term. Originally, we were looking at smaller properties, and I was not going to put the first one or two in an LLC just to make it easier to get conventional mortgages. However, this 12-unit came to us suddenly. We liked the numbers, so we jumped on it. With 12-units, I'm looking at a commercial loan. Since we're new investors, I expect to have personally guarantee the commercial loan.

So, I plan umbrella insurance regardless of the LLC or not. We do have personal assets I would like to protect from issues with the 12-unit. Right now, I am thinking that I should go ahead and form an LLC and place the property in that LLC. I know an LLC isn't a magic wand. We'll be having a property manager run the property well. We're not trying to use the LLC to avoid liability for mistakes we make personally or to avoid the bank coming after my other assets if I default on the commercial loan. I'm looking for a firewall for liability surround the property leaking out to our personally held assets. The LLC members would be my wife and I, and for now, let's assume the LLC holds only this property.

With all that said,  I have some questions around timing:

• Because we weren't prepared with the LLC already, we signed the purchase contract as individuals. Do you think changing this during escrow will be a problem?
• If I can't change the purchase agreement and I do find financing before closing (I'll come up with cash otherwise), how much trouble do you think I'll have with the commercial loan and transferring title to the LLC?

Finally, one question about an LLC that I have not seen answered: What are some guidelines for transferring money into and out of an LLC's operating account? We plan to build up and leave CapEx reserves in that account, but if we have an unexpected large expense sooner, we would have to transfer more personal capital in. Or, once our standards for reserves are met, we'll be pulling more money out of the account.

Thanks for the replies, let me clear up a couple of things:

- @Arlen Chou: Totally agree. We're not actually willing to go up in price. Our negotiation strategy so far has been: "we know what we're willing to pay, let's offer that." We're willing to negotiate on other terms to make the offer stronger or figure something out with the seller, but the offer price is the price we're willing to pay. We may not always do things this way in the future, but that's where we are now. We're perfectly willing to let deals go by rather than to talk ourselves beyond where our numbers say we should be.

- @Chris Haas: I agree, I can always transfer money out to get the balance where I want it, generate the letter for a specific offer, and transfer money back. That's just not very efficient if we're doing more than a few offers in a short period of time.


I had not thought of the idea that a proof of funds well above the offer help convince the seller I can close. I like that.

My wife and I are making offers in an effort to get our first deal. Where it makes sense, we are making cash offers and offering to close faster to get a better price. Unsurprisingly, our agent is asking us to provide a verification of funds. My bank will only provide a letter with an exact account balance. So if our offer is $53,000 an we have a $123,456 balance. The bank's letter will say: "this account balance is "$123,456 as of 6/27". I would prefer the bank's letter to be less specific, something like: "As of 6/27, this account has at least $53,000". 

I have two concerns about this:

1) With an exact balance, I am giving more information about my cash on hand to people I don't know, in general this sort of thing bothers me.

2) Does this reduce the chances of my offer getting accepted with the seller? Will they see my $53K offer, see my >$100K balance and think "These people have enough to pay my $60K asking price!"  

It's not hard (but is extra work as I end up producing a unique letter per offer) to temporarily transfer balances around to produce a proof of funds letter close to the asking price, but I'm looking to streamline where I can. Any advice is appreciated.

Thanks Mindy, 
Yea I'll do a wire transfer in the future. I don't know why I didn't think of that.

Anyone?

Maybe I'm just overcomplicating things and avoiding the obvious solution, but I thought I would try forums.

We're investing out of state and making several offers. For earnest money, should I just send a check via USPS to my Realtor or do the pros here have a faster and easier method? I thought maybe I could have a national bank do an Official Check at a local branch or something similar. Any ideas?

I think of an LLC a bit like a container: You buy things in the LLC so that things OUTSIDE the LLC are protected from the things inside the LLC. So, if you have two rental properties inside an LLC and someone sues over something related to one of these properties, in theory the lawsuit cannot reach outside the LLC and risk your other assets. But they could come after the other value of the property inside the LLC.

An LLC isn't a magic wand though. There are a few ways it can not work they way you expect. The typically example I've seen is that if you personally do some work on the property you are liable for the work you do. But, there are others. There are several posts on BP about LLCs vs umbrella insurance policies (another option, many people do both) reading those might give you some background. After that it might be helpful to book a 1-2hr consultation with asset protection attorney to get your questions answered. As Nichole said, setting up a simple one shouldn't require an attorney, but you really should know the types of things it will and won't protect.

But, I see that you're a fellow Californian. One problem with LLCs and living in California is that each LLC will likely owe $800/year to the state. This is true even if the LLC and the properties are outside CA. The reason for this is that the CA State Tax folks have recently taken a more expansive view of the phrase "doing business in California". Now, an out-of-state LLC is considered "doing business in California" if it has at least one managing member living in California. Did you talk to a property manager company to sign an agreement to manage your property? Did you respond to the PM's email to approve a charge to repaint? You're probably considered managing member the LLC. If you're at all unsure, talk to a tax advisor.

That's true, it wasn't real "examine the fund like a public company" research. So here are the types of things I did:

  * Read up a bunch about private placements, in general and real estate ones in general to get an idea of some of the typical terms for an operating agreement.

  * Asked questions in public and private messages on BiggerPockets about various Note funds and the people running them

  * Asked the funds for an operating agreement. Read it, made sure I thought I understood it.

  * Talked to someone at the funds to get questions answered and to get a "vibe" for the culture. Does the fund feel like they're more open to allow me to exit early or not? What is their take on the current Note space, do they sounds credible, does it match up with what I believe? 

At some point, I had to make a slightly informed judgement call. In my opinion, I'm really betting on the team. We're betting they're honest and that they're capable of doing what they intend over the time my capital is invested.