All Forum Posts by: Russell Gronsky

@Chris Svendsen, this sounds like a solid deal to me. Do you have other sources of income that can help you through a potential downturn? If so, pull the trigger on this deal. If the units are inhabitable now, rent them out and focus on cutting costs. Passing the electrical expense to the tenants will help out quite a bit with that. Moving the heat and water expenses to the tenants will also help tremendously. Just don't do everything rapid fire or the tenants will freak and you;ll get lots of people moving out at once. Make one change, let the shock subside, then notify the tenants of the next modification that will be happening in 2 months or so. This will be particularly effective if other buildings in the area already bill tenants for utilities and stuff. Once expenses are cut down and the building is as efficient as is feasible (LED lights, efficient furnaces, etc), then you can look at making improvements that are pleasing to the eye.

Also, instead of renting out the lot to a trucking company, maybe your tenants would be interested in having storage units there that they can rent out? 12 units at $50 per month for storage is $600 a month, versus the $250 you are expecting for rent from the business down the street. You probably won't get all 11 or 12 tenants to rent storage but you only need 6 people to rent and you'd earn more than you would from the business down the street. You would have to get approval from the city and invest in putting up a building of some kind but might be worth the trouble and tenants wouldn't have to deal with truck noise? Just throwing out an idea.

Sounds like you have a great deal here with some big ticket expenses already taken care of by the current owner.

I supply all materials to my GC, but that's because I have a business partner and he is on-site to provide the contractors what they need and QC their work. I also have a discount on material/finishes. 

The last, and one of the most important advantages for me to supply materials is because I can take 12 months to pay for the materials through my connections, which is plenty of time to flip a house and let the revenue pay off the materials, instead of cash out of my own pocket. If I let the GC buy materials, that cost would be factored into every draw period.

However, unless you have someone who can be on-site daily for your project(s), I recommend letting the GC buy their own materials as it is way too much work to get them what they need efficiently, if you also have a day job.

@Andi Mysza, You'll know when to shop for your own supplies as you get more seasoned in the RE game. As a general rule, you'll probably not get cheaper materials than a contractor, unless you have a wholesale/B2B/contractor/distributor agreement with a company that provides materials. Best way to avoid getting price gouged by a contractor is by getting many estimates for the project you are trying to do and using contractors other smaller flippers in your area are using for their projects (if the investors actually tell you what contractors they use).

@Jim Growfer, I'll be very frank with you. From your posts in this thread, it appears you are brand new to this. It also seems you have not yet learned how to read financial statements and don't know what all the expenses are for an apartment building so right there, you cannot correctly calculate anything. 

If a seller gave you an income t-3 and an expense t-3, would you be satisfied with that? Is that sufficient information to calculate all the ratios and acronyms you've been mentioning in your posts? Do you know what metrics you need to calculate that no one on this thread has mentioned so far...especially if you are wholesaling to investors that have been in the apartment game for a while? 

I'd recommend you pick up "what every real estate investor needs to know about cash flow...and 36 other key financial measures", by Frank Gallinelli. Buy the paperback so you can underline and make notes in the book. Read the book cover-to-cover at least 3 times before you start looking for a deal. This will be the best bang-for-your-buck investment you will ever make in your RE education journey. Good luck.

@Curt Smith, thanks for the fact check. I was frustrated while typing out the original post so I mixed up a few pieces of info. It makes sense to put rentals into a non-entity. 

@Brian Bradley, thanks for the explanation and tips to talk to local attorneys. I didn't think about the ramifications of having an out-of-state asset protection structure in a liberal state.

@Scott Smith, you bring up great benefits of a Texas SLLC. I was looking at a WY LLC before but it sounds like a TX one would be simpler to deal with.

@Mike S., wow. Thanks for the very detailed layout of your plan. It sounds slick and has multiple layers so even if one layer gets pierced, there are additional pieces to get through before someone can really get at the big juicy assets. Definitely sounds like you are not the low-hanging fruit.

@James E Tan, you make a good point. I've had rentals for over 14 years and insurance has worked out quite well and you did remind me that I've been meaning to bump up my umbrella policy coverage.

@Raju V., yes, the umbrella policy gives some good piece of mind and I've been meaning to bump up mine.

@Cameron K., definitely important to keep the books separate between personal and LLC expenses. Otherwise, everything is wasted, for sure.

Sorry if the below sounds like a rant but this is starting to drive me bananas.

I've been looking to set up some asset protection as I have 11 buy/hold residential rental properties that are scattered across 3 states, as well as a flipping operation in Maryland. I want to protect the flipping business from the rentals, protect the rentals from the flipping stuff, and protect all my assets from my tenants. 

I've talked to multiple CPAs and multiple asset protection attorneys and I can't get 2 people to agree on a single thing! Here is some of the advice I've gotten from the professionals:

1. Set up a parent LLC with children LLCs. Each child LLC will hold 1 (or more if I want to save on renewal costs) rental. The taxes will be pass-through so I would only need to file 1 tax return each year.

2. Set up a series LLC instead of a parent/child LLC since with the parent/child structure, you have to file K1s in addition to your annual taxes, so this will cost you more money each year to file my taxes.

3. Set up an S-corp parent with LLCs as children so you can claim a salary as a way to reduce my overall tax burden and I'll only need to file 1 tax return as the S-corp is pass through. Place 1 (or more, if I want) rentals and flips into children LLCs.

4. Don't set up an LLC or an S-Corp. Just make sure you have adequate insurance on each rental property and an umbrella insurance policy. Get builder's risk for the flips and don't worry about being sued on the flips because your GC's license and the subs and their licenses are what would be under fire in a lawsuit since they are doing the work and defects would be their liability.

5. Get a commercial insurance policy that covers each rental and provides an umbrella policy. Get builder's risk insurance for the flips and open an LLC or an S-corp for every property you flip.

At this point, I feel like taking a poll of the audience as about as good as talking to the professionals. 

Like I said, I want to protect my rentals from my tenants and the flipping business, I want to protect the flipping business from the rentals, and I'd like to file 1 tax return that doesn't cost me $3,000+ to have prepared each year. 

Is this possible or am I asking for too much here? Anyone who has rentals and is flipping, can you help out with some advice on how to set this up?

@Nathan Burnett, as others have said, it sounds like you are out of contract and either party can walk away from the deal. And with no EMD being held by escrow, this is an even easier case as the two parties will not fight over who gets the EMD and who is in breach of contract.

If both parties still want to do the deal, nothing is saying they can't. Both can complete the transaction, as originally agreed.

As a side note, let this be a lesson to you: everything, including contract termination scenarios/triggers are spelled out in writing, in the original contract.

To add one more layer of protection, if one or more parties want to walk away from the deal, all parties should sign a contract release form. It basically puts into writing that all parties agree to terminate the contract and walk away from the deal.

@Jon S., local credit unions will do HELOCs on properties where they don't hold the 1st position note. Wells Fargo, US Bank and Chase will do them too, if you're interested in big banks. But with your house already being at 75% LTV, it is unlikely that you'll be able to get a HELOC on your house...not without agreeing to astronomical interest rates and having a credit line that frankly, isn't that large. But, I guess if Brandon Turner was willing to take on a 12% interest and 12 points loan to get in the game, the high interest HELOC might be something you are willing to take on.

@Fred Engh, yes, you are being too cheap. The property is priced too low to ask for part of the commission. If you are buying a property 250k+, asking for 1% of the commission from a broker doing both sides of the deal is perfectly acceptable because it’s still more than what the listing agent would have made if you for your own agent and you can get sever thousand dollars back.

Keep in mind though, that listing agent is all for the seller so you might not get the best service. If you are a seasoned investor, this isn’t a problem but if you’re just starting out, get your own agent so you can learn the process.

@Jon S., the short answer to your question is yes, you are in a position to invest in RE. 

As @Arlen Chou said, do NOT refi that loan on your primary residence. You will NOT get terms that favorable at this time and probably not for the foreseeable future. 

The HELOC might be an option, but I honestly doubt it. 75%-80% LTV is the sweet spot for HELOCs to get the good interest rates. Anything more than that and the rates increase exponentially. Some HELOCs go up to 90% and even 95% LTV but the rate is going to suck really bad so probably won't be worth it.

Look at borrowing against your retirement account. Maybe you can borrow on margin? If not, perhaps it is worth it to actually take money out to invest and pay the penalty? I'm not suggesting you actually do this, but I'm throwing out leads for you to look into and see what makes sense in your situation.

Also, if you own stocks, you might be able to borrow on margin against your holdings. Not all stocks are marginable but a quick call to your broker and you'll know if and how much you can borrow. I personally love this strategy because there is no mortgage approval process to do this. You just call the broker and tell them you want it. Boom, wired to your account in 3 days or less. It's a beautiful thing if you have it.

Also, you might be able to just get a loan for a new house purchase. Some lenders get weird on you if you've bought and sold property before and you try to get an FHA loan but if you run into that, maybe your wife can get the FHA loan, if she's never bought property before?

You might also be eligible for a conventional loan with 5% down. You'll get PMI but if you go back to your curretn lender, maybe they will pay the PMI for you again? If you make 200k a year, your credit is good (720+) and your only debt is your house, your DTI should be fine to take on another loan. If you are driving that sweet, new 7-series and wifey is rolling in a new GLE Mercedes, then your DTI will be all sorts of hosed up. Your DTI needs to be under 43% to get a loan.

Overall, name of the game is look at any assets you own...absolutely everything from savings accounts to any bonds you hold and see if you can borrow against them. Also, look at asset-based lenders who will loan based on how well a property will perform instead of your personal financials. These guys are great if your DTI is above 43%. And finally, look at Hard Money Lenders. These guys will give you short term financing (6 months to a year) and then you need to refi into a conventional loan. This can work out if you find a beat up property, buy it, fix it up, get the appraised value up, get renters in it, and then you can refi into a conventional loan under the new appraised value. IF you do this right, you'll pay off your hard money lender, end up in a conventional loan and have a new property.

I personally love Baltimore. Maybe I'm just smitten because I grew up in San Francisco and we didn't have the gorgeous row homes build out of real brick, with real marble stairs, with real hardwood floors. Or maybe I just like living next to the ocean again, after spending 8 years being land-locked in Colorado. Either way, I look for investments in Baltimore city first and foremost. I'll take on county projects if they are screaming deals but I love Baltimore and I want to do my part in making it shine.

As others mentioned, it is so bizarre to me to see the city is run so poorly. The taxes are astronomical and the benefit of those taxes aren't always easy to see. They also say they want investors and want to improve the city, and you can see it in some departments but the processes in place for getting simple things like bump outs approved or working with BGE can be daunting to say the least.

If just a few, key parts were to improve in the city, I honestly see Baltimore becoming a crazy hot market. It's less than an hour to DC, 2 hours to Philly, 3 Hours to NYC, gorgeous piers and water views, one of the best hospitals in the entire country, low cost of RE (you can get a completely remodeled row home in Fed Hill with quartz, hardwood floors and a roof top deck with city and water views for $250k-$350k. There is much more expensive stuff in Fed Hill but that is one of the most popular, coolest neighborhoods and you can be in for pennies compared to other cities). The property taxes are a different story and that is one of the key things that needs to change. 

But anyway, overall, Baltimore has so many assets. It pains me to see a city with such potential being held back from what it can be.