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All Forum Posts by: Phil Petite

Phil Petite has started 12 posts and replied 84 times.

Post: Forming an LLC - Memphis Investor Living Out-of-State

Phil Petite
Posted
  • Investor
  • Memphis, TN
  • Posts 84
  • Votes 54
Quote from @Scott Gresham:
Quote from @Phil Petite:
Quote from @Scott Gresham:

Hey Phil,

I live here in Memphis and can say from experience that Tennessee makes it easy to setup an Llc.  Doesn't mean its a necessity to have it formed here but it is a fairly straight-forward process.  If you have any specific questions I'd be happy to connect with my attorney for advice.  All the best and let me know if I can help in anyway.


Thank you for the reply, Scott! :)

I spoke to my attorney (From NYC), and he suggested forming the LLC in TN. So, I will set it up that way; he suggested this, because if there are disputes between me and the tenant, then they are more easily resolvable if the entity is in TN.

Great news, if there is anything I can help with here in Memphis please reach out anytime.

Thank you, Scott!! Really appreciate it!! :)

Post: Forming an LLC - Memphis Investor Living Out-of-State

Phil Petite
Posted
  • Investor
  • Memphis, TN
  • Posts 84
  • Votes 54
Quote from @Ashish Acharya:

@Phil Petite Forming an LLC in Tennessee is recommended if your rental properties are located there, as it simplifies legal compliance, avoids the need to register as a foreign LLC, and aligns the LLC with Tennessee's laws for property management and tenant disputes. This approach is cost-efficient and eliminates the complexities of dual-state filings. If you plan to invest in multiple states or require advanced asset protection, consult a CPA or attorney to explore options like a holding company structure. For most single-state investors, a local LLC is the practical choice. Remember you are exempt from excise franchise tax if you file an exempt form.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.


Awesome advice, Ashish! Thank you so much for the insight!! :)

I created my LLC, and it is formed in TN :)

Post: Forming an LLC - Memphis Investor Living Out-of-State

Phil Petite
Posted
  • Investor
  • Memphis, TN
  • Posts 84
  • Votes 54
Quote from @Jordan Ray:
Quote from @Phil Petite:

Hi BP! :)

General question here: I invest in long term rentals in Memphis, but I live out-of-state in NYC, so I was wondering if anyone had any general advice about starting an LLC in my situation.


Would you form the LLC in Tennessee or would you recommend forming the LLC elsewhere? Any advice would be great, thank you in advance! :)


Hey Phil! Do you still have the video I shared with you months ago on how to set up an LLC in Tennessee? Check our chat messages, should still be there. I wouldn't recommend setting up an LLC out of state if you are buying in Tennessee unless your tax advisor is looking to help you on strategy.. but from a numbers standpoint, it really doesn't make sense when you start adding up on all of the annual LLC reporting fees from different states and then it starts cutting into your cashflow. Hope that helps!


I forgot about that video, thank you so much, Jordan!! I'll use it for sure to set up the LLC :)

You're right about the annual fees, etc. and I think TN is the best place to set this up.  :)

Post: Forming an LLC - Memphis Investor Living Out-of-State

Phil Petite
Posted
  • Investor
  • Memphis, TN
  • Posts 84
  • Votes 54
Quote from @Scott Gresham:

Hey Phil,

I live here in Memphis and can say from experience that Tennessee makes it easy to setup an Llc.  Doesn't mean its a necessity to have it formed here but it is a fairly straight-forward process.  If you have any specific questions I'd be happy to connect with my attorney for advice.  All the best and let me know if I can help in anyway.


Thank you for the reply, Scott! :)

I spoke to my attorney (From NYC), and he suggested forming the LLC in TN. So, I will set it up that way; he suggested this, because if there are disputes between me and the tenant, then they are more easily resolvable if the entity is in TN.

Post: Forming an LLC - Memphis Investor Living Out-of-State

Phil Petite
Posted
  • Investor
  • Memphis, TN
  • Posts 84
  • Votes 54

Hi BP! :)

General question here: I invest in long term rentals in Memphis, but I live out-of-state in NYC, so I was wondering if anyone had any general advice about starting an LLC in my situation.


Would you form the LLC in Tennessee or would you recommend forming the LLC elsewhere? Any advice would be great, thank you in advance! :)

Post: Question About How to Structure Deals Using Private Money

Phil Petite
Posted
  • Investor
  • Memphis, TN
  • Posts 84
  • Votes 54
Quote from @Evan Polaski:

@Phil Petite, to echo Mitch's comments a bit, you are not taking on investors, you are taking on private lenders.  

So, while at the end of the day, you can do anything you want that your investors/lenders agree too, but it very much against the grain for you to both borrow money from them, keep all the upside, charge a fee to your lenders.  Of course you are going to "keep the cashflow" after paying the interest, because your "investors" don't own the property, in this structure.  They own a note secured by the property.

I think you are convoluting equity investors and the typical terms and structures provided to equity investors and private lenders.

Think of your "investors" as the bank.  Do you charge the bank a fee for bringing them a deal to lend on?  

As for BRRRRing, there are definitely people that use private money lenders as credit lines on deals.  You use their money to buy deal one, you renovate, rent, and refi with bank debt, to pay off their loan, but the agreement is they keep that loan available to you until you find the next deal.  

Again, almost anything is possible if you and your investors agree to what is happening.  But like Mitch said, it sounds like you have had 4 winning deals and no losers.  No one that has been at real estate for more than a couple years has had no losers, and when you lose your family's money, well sometimes those close knit families aren't nearly as close knit and you start getting people playing sides.


Great points, Evan! Thank you for the post! :)

I definitely hear you on the risk - I aim to buy-and-hold the properties and place Section 8 tenants, so the deals tend to be as safe as possible, but I understand your and Mitch's points about deals possibly losing money.

Where I'm getting lost is on how to structure being paid when I borrow from private lenders. You sort of answered this in your post though, where you mention keeping the cashflow for myself, and I don't think it's a great idea to charge an upfront fee for these deals. Keeping the cashflow seems like a more fair proposition for me and for the investor.

I have more to consider, but your post was very helpful, so thank you! :)

Post: Question About How to Structure Deals Using Private Money

Phil Petite
Posted
  • Investor
  • Memphis, TN
  • Posts 84
  • Votes 54
Quote from @Mitch Messer:
Quote from @Phil Petite:
Quote from @Mitch Messer:
Quote from @Phil Petite:

I definitely hear your concerns, Mitch, and I have the same concerns, as well, but that's why I am asking for some advice! I'm not sure what to do.

If you were me, and an investor wanted to give $110k at 7% interest - what would you do if your strategy is to buy-and-hold?


Have you already closed your first buy-and-hold deal?


Yes, I've closed on 4, rehabbed them, and they are all rented with tenants in place :)


OK, and for these deals, I assume you use your own funds to acquire and rehab.

With private money, you're now substituting some individual's funds for your own.

However, unlike when it was just your money, you'll need to proceed with extreme caution to make certain your lenders are well protected if/when things don't go as planned.

Private lending is its own whole profession. It isn't something you can pick up in a few Forum posts.

Honestly, if you need private funding, you're best off finding an experienced private lender and doing at least one deal with them to at least see what's involved, long before involving your friends and family.

That is, unless you don't particularly like having friends and family...


I understand what you're saying, and I really appreciate the advice, Mitch! Thank you! :)

Post: Question About How to Structure Deals Using Private Money

Phil Petite
Posted
  • Investor
  • Memphis, TN
  • Posts 84
  • Votes 54
Quote from @Mitch Messer:
Quote from @Phil Petite:

I definitely hear your concerns, Mitch, and I have the same concerns, as well, but that's why I am asking for some advice! I'm not sure what to do.

If you were me, and an investor wanted to give $110k at 7% interest - what would you do if your strategy is to buy-and-hold?


Have you already closed your first buy-and-hold deal?


Yes, I've closed on 4, rehabbed them, and they are all rented with tenants in place :)

Post: Question About How to Structure Deals Using Private Money

Phil Petite
Posted
  • Investor
  • Memphis, TN
  • Posts 84
  • Votes 54

I definitely hear your concerns, Mitch, and I have the same concerns, as well, but that's why I am asking for some advice! I'm not sure what to do.

If you were me, and an investor wanted to give $110k at 7% interest - what would you do if your strategy is to buy-and-hold?

Post: Question About How to Structure Deals Using Private Money

Phil Petite
Posted
  • Investor
  • Memphis, TN
  • Posts 84
  • Votes 54
Quote from @Mitch Messer:
Quote from @Phil Petite:

I feel a bit stuck in this scenario, and I could use some advice.

I'm raising some money from private investors and wanted to run some options by more experienced posters, because I'm a bit unclear as to what the best way is to structure my deals with private investors, or if there are better options that I'm not considering.
Here are some rough numbers to capture a deal that is on my radar:

  • Loan amount from investor: $110k
  • Yearly Interest Paid to Investor: 7%
  • Monthly Rent from Property: $1300
  • Monthly Interest-Only Payment to Investor: $642
  • Monthly Property Taxes: $71
  • Monthly Insurance Payment: $71
  • Property Management fees: $104
  • Net Cashflow: $412


Now, this is not a bad outcome, and I am fine with it, but I am wondering what someone else might do differently if you were in my position - Should I charge an upfront fee to my investor (maybe $5k or so for this deal and also keep the cashflow as my monthly management fee), or would you instead use the $110k from the investor to BRRRR a bunch of deals, or would you try to just use the capital for one deal at a time? Any advice would be great!


Congrats on finding willing private lenders!

A few observations:

1. Your cash flow calculation is missing vacancy, maintenance costs, and capital expenses. Taken together, they'll likely cut your estimated cash flow in half.

2. You don't specify, but if you're using $110K in borrowed funds to purchase a property worth $110K, you're asking your private lenders for a 100% loan-to-value (LTV) loan, which is super risky for them and for you.

3. Most private lenders don't plan to lend forever, so you should consider how and when you'll get them cashed off.

4. The going rate for private money is considerably more than 7% (generally 10-14% in 10/2024). Your lenders may not know this yet, but eventually they're going to find out. You should plan accordingly.

If these are "friends-and-family" type private lenders, I would urge you to tread very carefully. Borrowing from loved ones is a minefield if not done properly.

Ask me how I know this...


Thank you so much for the post, Mitch! :)

My investor is a family member, and I have a friend who is looking to invest, as well. I'm negotiating a 7-8% return for them, and I will make interest-only payments until the loan matures (I'll ask for 2 years). Yes, it would be a 100% LTV for them, but they're not concerned with that number, their interest lies more in the monthly payments that I will give them.

If you were me, would you take a cut upfront as a fee (let's just say $5k), then keep the monthly cashflow as a reserve? Would you take a cut on the backend assuming a sale of the property after a year and it has been cashflowing? 

I'm just a little stuck on how to make money for myself if I'm using a private investor for buy-and-hold deals :-/