All Forum Posts by: Mark Kenney

A “surety bond” for utilities can be used in some locations, instead of paying a full deposit for utilities. 

We had one property that was going to require a utility deposit of $62k. Instead, we got a surety bond for $4k.

With a surety bond, you pay a fraction (as little as 1–10%) for a bond. That leaves more money available for reserves/working capital.

Even if you already paid a deposit on a property, you can potentially still get a surety bond and get some cash sent back to you for the initial deposit you made.

And don’t forget when you sell, you might get a refund from the bond. You must cancel the bond (or ask the utility to release it), and the surety company may issue a partial refund—depending on how much of the term remains.

Hello @Chris Seveney Before you partner with anyone, you want to make sure you fully understand roles and responsibilities. Make sure you have an operating agreement between you and your partner(s). Most people end up doing a 50/50 partnership. While this can make sense, you have to be very aware of how this can "hose" you if you don't structure you operating agreement correctly. While there are many things that need to go into the operating agreement, a couple things to consider:

Make sure you have an independent 3rd party spelled out in your operating agreement who can serve as a tiebreaker, if you and your partner can't agree.

Make sure you can remove your partner, if needed.

Make sure you can force a sale. I have too many examples of one partner (and investors) wanting to sell, but the other partner won't agree. If you can't force a sale, you are pretty much out of luck.

Here’s something most people don’t think about until it’s too late:

If you take out a loan on a property with 4 units or fewer, it’s almost always full recourse — meaning if things go south, you’re personally on the hook.

But when you buy 5 units or more, you may qualify for non-recourse debt — and that sounds safer... until you read the fine print.

Even “non-recourse” loans can come with bad boy carve-outs that still leave you personally liable. Sure, those usually cover fraud or theft — but many lenders quietly sneak in other triggers that you need to be aware of.

Don’t assume non-recourse means no responsibility. Always know what you’re signing and your potential exposure.

@Brian Capossela

Hi Brian,

If you are trying to invest with someone else (like a syndicator) using 1031 funds, there are a few things you should consider.

The syndicator needs to confirm with their lender that 1031 funds are allowed. Even if 1031 are allowed, it is common for a lender to limit the number of 1031s investors to 2 or 3.

You want to know if you as a 1031 passive investor will need to sign as a KP/Guarantor on the loan. If you are signing, you want to know if the loan is recourse or non-recourse. But, even non-recourse still has liability due to "bad boy carve outs." It is very likely you will be asked to sign as a Guarantor. Some lenders allow a workaround for this, but it can be a little odd. Basically, another KP would be a manager of your 1031 LLC. You want to make sure you understand what this means to you.

You want to make sure you understand what control you do/do not have as a 1031 investor. For example, do get to vote on a sale or not.

If there is other equity coming in, your 1031 equity percentage will be determined at closing and typically based on what is expected to be raised; not necessarily what was actually raised so far. So, you want to be aware of this.

There are additional fees when a 1031 is involved on the buy-side and the sales-side. You want to know who is paying for this...you or the property LLC.

I have been through this many times and there are a number of things to consider before investing.