All Forum Posts by: Leon D.

I'm not intending to sound like a jerk when I say this, but why would you necessarily offer terms that are more generous than they're willing to accept? There's definitely an interest-rate floor you must pay (otherwise the IRS may view the loan as a gift), but why pay 8% if they'll take 4%? Everyone wants the deal to work, which means the lender needs to be repaid, and you need to make a profit. If the terms are too unfavorable to you, neither of those things will happen. It goes without saying (but I'll say it anyway), that it ALL needs to be in writing. You're inviting disaster if it's not. "It won't happen to me/us" is a phrase only spoken by fools.

So what if the plaintiff knows the owner's name? If it's anonymity someone wants, they should take tips from Gene Hackman's character in "Enemy of the State," not be the principal in a legally registered entity. Suing someone as an individual and suing them as the manager of an entity are two, totally separate things. That's why LLC's are bankruptcy-remote, can own property, etc. They stand on their own. A tenant may sue the entity, and [you as] the manager, but that's not remotely the same thing as suing you as an individual. My prior post was written, really, only to alert those who may care, that just because someone doesn't know your name, doesn't mean that you can't be sued.

There's no such thing as equal partners. You may each have a 1/3 equity interest, but who will be in charge? I can't stress enough how important it is to spell out in the operating agreement how situations surrounding dissent, dissolution, business decisions, etc. get handled. And do it in as much detail as possible: I've been party to LLC's that spend 2-3 pages JUST on circumstances under which a shareholder can surrender their shares and receive full value. A quick Google search for terms like "minority shareholder discount" and the like will bring up a wealth of information.

Bringing the thread back to center: each property should definitely be it's own LLC, conventional lenders and often insurers usually require this anyway (loan documents often call for the creation of a special/sole purpose, bankruptcy-remote entity). Should there be a lawsuit, the LLC would of course be named, and you as manager. IT DOESN'T MATTER if they know your name or not. You'll just be referred to as "LLC Manager" or something similar. It won't breach the wall and reach into your personal finances/domain, if you're being sued as the manager. That doesn't mean that they couldn't sue you individually as well, but with competent counsel, that suite ought to be thrown out pretty quickly.

Well, since the jobs/roles are entirely different from each other, I'm not sure it's an answerable question.

Usually 2-5%, from my experience.

Are you sure you want to sell shares in the LLC, and not in the property itself (convert ownership to a TIC)? If you sell shares in the LLC, you introduce "political" issues about distributions, proceeds, dissolution of the entity, etc. Introducing multiple shareholders creates the possibility of a lot of problems. If they're shareholders of the LLC, they'll have rights that extend into anything the LLC ever does, and maybe how it does them. That may not be an issue now, since it sounds like this LLC was an SPE created just for this purchase, but should the LLC do anything else (i.e., if there's an eventual 1031 exchange), things may get complicated. If you convert ownership of the property to tenants in common, the other owner(s) are free to to with their shares as they please, and they don't/can't get in your or the LLC's business (especially if the life-span of the TIC arrangement is spelled out), since your LLC is just another shareholder. Just be prepared to have a total stranger as a fellow tenant some day should the original tenants sell.

That's essentially correct, from an ongoing basis. Strategically, it also frees up the lessee from eventually having to disposition the real property. Walgreen's, Starbucks, Best Buy, Wal-Mart: these are all corporate-operated retail sites, and not owning the land/building allows the companies to concentrate on convincing you to patronize them, instead of worrying about what to do in 10 years when they decide to move locations. Ever seen a dark (empty) Best Buy or Wal-Mart? I can guarantee you that the former tenant is glad as hell to not have to worry about dealing with that, and isn't upset that it's now the (former) landlord's problem.

Jacquie,

Nice part of the country. I'm familiar with it, having once worked for a certain large aerospace company...

Besides Joel's analysis and input, be sure to check the laws in the area that govern these types of MFRs. In many areas, the laws surrounding them are "unique." For example, you may not be able to convert the building into conventional apartments unless each tenant moves out voluntarily (not including evictions); the city may keep track of these places and not let you convert if it pushes some ratio or another too high or low (they arenoften seen as filling a social need for transient housing); some form of rent control may be in effect, etc.

Rooming houses are NOT conventional apartment buildings, just be sure you've done the background before committing.

No need to take it personally, Steve-o. We're both effectively saying the same thing, I just assume that most people don't personally own their investment properties, and use a holding company of some kind, like an LLC. In such cases, the loan wouldn't be for use in a personal investment, but for actual business (the business of the LLC, which is owning the property) and so probably would be a pre-tax expense. Not deductible, per se, but it would lower the taxable income.