All Forum Posts by: Richard Elvin

@Chris Carrigan Generally I'm of the mindset that an umbrella policy covers you and is less expensive. 

Usually what "gurus" teach is that the LLC route protects you from "liability". However, this is almost always protection from liability of debts incurred during the normal course of business, ie, if the business fails, the business goes bankrupt while the owner isn't liable. (With major concessions, ie, the business was "properly" capitalized [that's subject to the courts opinion], fraud, etc.)

What they leave out is that, in the event of an injury, which is much more likely to result in a lawsuit, you're almost guaranteed to be named alongside the LLC, especially true if you manage your property yourself or if you do any maintenance, cleaning, interacting with guests, etc. At that point you'll have legal fees to try to sever yourself from the lawsuit and/or legal fees defending yourself from the lawsuit. With an insurance policy the insurance company will cover the legal fees. 

So the question really is: Would I prefer an LLC where I pay legal fees if I'm sued or would I prefer an umbrella policy where the policy covers legal fees if I'm sued?

Since I'm big on "link to something, don't just state your opinion", (unless it's personal experience, hard to link that! lol) here's a link to investopedia: 
https://www.investopedia.com/articles/personal-finance/04011...

@Kenneth D. Have you considered some type of house hack? Just in case you're not familiar with the term, house hacking loosely refers to buying a property that you will live in as well as earn money on. Common idea's are buying a larger place than you need and renting out rooms (this is best if you are single and don't mind roommates) or buying a small MFH. If you OO (Owner Occupy) it's only 3.5% down for a FHA loan.

I agree with @Jaron Walling, with the caveat if you are only wanting to save the $15k in rents.

If you really want to get into real estate, and this is an area you are interested in investing in, and you have a plan for how to manage this after your son graduates, then I would look at either a second/vacation home loan (typically that requires you to spend 14 days a year there) or your son buying a property in his name. If he is a first time home buyer, there are usually programs that help with the DP. The DP is only 3.5% with FHA, for an OO. (FHA would allow up to four units)

I'm not sure I understand how it's more flexible? I can change a sole proprietorship into a partnership, LLC, S-Corp, C-Corp. I can do JV's, whatever. I don't see how an LLC magically gives me flexibility. Maybe I'm missing something. *shrug*

@Mario Richardson That is a high leverage strategy. One of the risks with a high leverage strategy is the the bank, CC, HELOC provider, can freeze credit lines whenever they decide to. I was about 2/3rds of the way through a flip when a CC company decided I was too leveraged and froze my CC. I had used almost all of my liquid reserves to pay the DP for the HDL and had planned to pay my GC (my brother) as I went using CC's as needed. Since I had ~$75k in available credit I had calculated, correctly, that I could stay solvent until the rehab was done and I had sold the house.

I found out quickly that credit lines can be frozen at will. When I was bleeding $$ during the rehab phase it made me look like I was about to financially crash, which wasn't accurate, but I can see why the banks suddenly became worried. Going from ~5% credit utilization to ~50% in a couple of months was enough to freak the banks out. Even when I discussed with them why, how, and when I would be able to pay them off, not just continue making payments, they still told me they are closed for business. (I had made at least the minimum payment and usually substantially more than minimum) 

Fortunately my GC (brother) was a partner in the flip and was willing to forego payment until the house sold. This really set us back though, because he was no longer able to focus solely on this project until it was done, as he still had to make enough $$ from other work to keep himself afloat.

That's a long winded way to say: Make sure you have enough cash on hand to finish any project that you are heavily leverage on. Stress test and plan for the worst. It may be worth pulling enough off the HELOC, if possible, to have the $$ to hold until sale/refi. 

YMMV

@Andrew Steffens That makes sense. I misunderstood and thought you were buying a multi-unit property. I don't have any experience in this space, but would it be helpful to valuate it along the lines of servicing a note? 

Thanks for answering my question! 

Best to you whichever route you choose!

@Andrew Steffens When you say you "The value is in the contracts which can just be assigned." it makes me think you are dealing with a wholesaler trying to sell you a property. Is that a correct inference?

I self manage, although we sold our last rental in 2021. We have a couple of terrible PMC's in Cleveland, I won't name them publicly, but you can probably guess at least the worst one. Zero maintenance, zero screening aside from do you have $$?, zero enforcement of rules, etc. 
A PMC that screenes for good tenants, keeps up on maintenance, and holds tenants to the rules (like no parking in the yard, no roosters in a neighborhood, no cars on blocks, etc), will stand out! My duplex I used to own was in a rental nieghborhood mostly handled by the worst PMC in Cleveland. It's much harder to get good tenants (I always did, but it was harder than it could have been) when you have all the above happening in the neighborhood. Good times!

@Jennifer Niez How long have you been in Cleveland? We are in real need of good PM Co's! (We being Cleveland, TN, not me personally.)

I used to work in Telecom and fiber gets damaged a lot. I've seen dogs chew through it (beside the meter box where the fiber drop ran to the house), landscaping crews routinely cut it, sprinkler installers, homeowners clip it while trimming bushes/trees, even seen a case where wasps chewed through it! (That was inside the Optical Network Terminal, where the sheathing had been trimmed back on the fiber. Huge wasps nest)
My personal favorite was the time that I was out to repair our fiber, which had been cut by telecom A when telecom A repaired their drop (neighbors house), which had been cut by telecom B when telecom B was repairing their drop (still in service at client's house as the inside install hadn't happened yet), which had been cut by our crew when they were installing the fiber drop...
Fun times!