All Forum Posts by: Nathan Gesner

I have 120 units, plus various keys for common areas, coin-ops, etc. We have two large cabinets for office supplies and the keys are hanging on the inside of the doors on small hooks. We have room for about 20 more units before I'll have to come up with another system. Key boxes won't work because they would have to take up an entire wall!

I don't know how anyone can answer your question without knowing every aspect of the property.

1. Are other managers experiencing long vacancy periods, or is occupancy high?

2. Is it priced properly? Look in the paper at similar units to see what's on the market. Visit them to get a better idea of what's renting within your price range and see how you stack up.

3. Have you property marketed the unit to get the widest coverage? Newspaper, web site, Craigslist, etc?

If occupancy rates are high, you're priced correctly, and it's marketed, there's nothing else you can do. If you price it too low just to find a tenant, you may end up getting the dregs of society and it will cost you more in the long run. Make sure it's priced and marketed and then be patient.

Wait a second...something just dawned on my slow brain!

Regardless of how I finance the company, isn't it still considered a gain on my part? So if I finance it at 3% or at 10%, the value of the company is still taxed, minus my deductions?

So how will the business be taxed? The annual gross is $60,000 and net is around $45,000. Am I going to be taxed based on purchase price, annual gross, or annual net?

I also have a bunch of deductions, such as the loan interest, education, health insurance, work truck purchase of $30,000, etc. The current owner never pays company tax because there are so many deductions, so I'm expecting to be in the same boat.

OK, I'm calling my CPA...again!

OK, that makes sense. I like your idea of discounting the original purchase price and adding the interest, resulting in a total purchase price that is equal to what we wanted to pay. Let's see if this example makes sense:

Original price: $100,000

New price: $94,000 at 6% interest
Total payments: $99,640

I lower the price, but add interest, bringing the total amount back to the original price without interest. Correct?

I obviously need to get in and see my accountant before going further but this will give me a good start. Thanks!!!

I'm preparing to purchase a business and the owner wants a flat purchase price and will charge zero interest on the loan. Her attorney told her she is REQUIRED by federal law to charge a minimum 2.75% interest or else we'll get hit with some kind of tax penalty.

The only thing I can think of is that I would take a hit because it might look as if I gained the business immediately, thereby incurring the entire value as a gain rather than purchasing it over a 5-year period. Does this make sense?

The owner is adamant she doesn't want to charge me interest, but her back is against the wall. This deal is still a dream opportunity at 2.75% interest, but we don't want to pay interest if we don't have to. Can anyone enlighten me on what her attorney is talking about?

I know this is old, but I'll revive it because the topic is important to me personally.

I used a PM in the past and was frustrated at their lack of communication, poor tenant selection, etc. She was also an agent for Prudential, the biggest company in our area, and a personal friend. However, I lived outside of the country and couldn't do it myself at the time. As soon as I moved back I took it over and things are great.

I am in the process of purchasing the top PM company in my area. It's pretty well run, but I still see ways to improve it and increase clientèle. I set a goal of a 25% increase in three years, which is tough to do in less populated areas but I'm sticking with it. I know what it's like to be an owner with a bad PM, so my plan is to prove myself ensuring top dollar for my clients, professional behavior in all I do, good tenants, etc. The way I run the business is my best advertisement and I expect owners to spread the word and bring me more properties.

Everyone using a PM needs to understand you are losing 8-10% of your income every month! If a rental is giving you a 30% return, you're actually only getting a 20% return because of PM fees. Is this in line with your goals of building wealth? I got into RE and PM because I want to build wealth and RE is my vehicle. I use my license to purchase properties and my PM company will manage them. I save on commissions, I save on PM costs, and I increase my bottom line. Oh, and while I'm managing my own properties, I'm also managing properties for others and bringing in a steady $5,000 a month! On top of that, I can buy/sell RE for others and earn commissions. On top of that, my company employs two other agents and I earn commissions off everything they buy/sell. And there's room to grow!

I don't know how much time it takes others, but I'm managing 120 properties and 40 owners in less than 30 hours a week. No late-night calls unless there's an emergency, no work at night or on weekends, etc. Sit down and consider how much time it will actually take you to manage your own and then look at how much you're paying a PM. You might find you would build more wealth (and experience/knowledge) by managing on your own.

Thanks Marcus! Here's why that doesn't apply:

1. I've managed my own rental property for six years and understand the general ins/outs of it. I know this is different because I'm managing more properties and on behalf of other owners, but I'm confident that won't be a problem.

2. I am very skilled at managing other assets, including people. I've managed up to 110 people at once, including training, equipping, funding, etc., and all the documentation that goes with that. I've managed operating budgets of over $2.5M and assets over $20M. PM is a different apple, but I know my capabilities and this won't be a problem.

3. The person I'm buying the company from has about 30 years experience as a PM. She's staying with me as a member/partner (depends on how I structure) and will be the responsible broker. She'll train me on running the business and be there as a back-up if I ever run into a problem I can't solve. She just wants to get away from PM, return to sales, and have more free time (she's 68).

4. I research voraciously and never enter anything lightly. I'm reading everything I can and learning as much as I can, even though it's probably overkill for my situation. This is why I managed to dig up the answer to my own question above. I don't wait for people to train me; I figure things out and get 'em done! I've spent a few hours going over the current owners records and processes and already see areas with plenty of room for improvement. I've also found several marketable areas she hasn't touched because she's just tired and coasting with what she has. Taking an existing program and improving it is where I shine.

5. I'm in a small market and will start with ~120 properties and 40 owners. Even though it's the #1 PM in the area, it's not exactly stressful. The current PM spends half her time in the office and the other half focusing on sales or personal interests, and I've got twice her energy and efficiency.

6. I'm an experienced social worker and retired military. I can handle people regardless of where they're coming from, and I do it kindly, but professionally.

Again, I thank everyone for their concerns, but I've got this. I just wanted an answer to my question, which I have, and now I will move on to the next hurdle.

Regards!

Now that I've figured everything out, I'll close this subject with an explanation of what I'm doing.

I decided to purchase the PM business completely. I left my broker and am establishing my own company. Once that's done, I'll buy out the PM company and take over all their accounts. The current owner will become the responsible broker and a partner for my company. She and another associate broker will stay with me for at least two years and focus on sales.

So I don't have to worry about liability (the current owner has 30+ years and has never been sued). I own the company, which means I can FINALLY work for myself and be responsible for increasing my bottom line rather than increasing it for someone else. I'll earn a nice check from PM, have time for buying/selling, and I'll have two established/respected/successful agents working for me and splitting their commissions.

I've already watched the operation and know I can run it with a month of training. Plus, the current owner will be working in the same office to help out. I'm praising the Lord that I don't listen to the nay-sayers because my net will be above the average family income, and that's just from PM! The company's split from sales is almost as much!

I just read yesterday about the Partnership LLC. The example given was two doctors running a clinic together, but under the partnership LLC they can't be held liable for the actions of the other. So if Doctor A accidentally prescribes the wrong medicince, Doctor B is protected from any suit or judgement.

This is exactly what I'm looking for, but I don't know if it's an option in my state. I'll have to set a meeting with my attorney and nail this down. In the meantime, does anyone have experience with the PLLC or something similar?

Pete, thanks for your concern. I'm not going to post my resume or beat my drum, but I will say I have enough experience with people, finances, and assets to qualify me for the position, particularly when compared to current PMs in the area. And the biggest difference is that most of them got into it by accident and just did the best they could with what they were given. I actually want to manage and WILL be the #1 PM in my market.

I personally believe her fear is unfounded. The two largest PMs in this area are litigation free and I plan on being better than them. I also know E&O will cover me. But I need to do everything I can to allay the fears of my Broker, since I'm operating under her license. If I could get my Broker's, this issue would disappear, but that's not an option.