All Forum Posts by: Stuart Udis

The investors who purport to acquire properties that meet the 2% rule are the investors who are completing "gut rehabs" for $25K…… Really all they are doing is slapping lipstick on a pig & making the properties look nice enough to move the least qualified tenants in. In theory they are signing a lease that meets the 2% rule but it's not sustainable because the properties then have endless cap ex and repairs to contend with. These are normally the same investors who purport to own "15 caps" where NOI is calculated as rent minus taxes & insurance :)

@Rashid Khalil I will start by saying I'm all for owning investment real estate in LLC's for business planning and to keep your personal name off the docket. Conflicts are inevitable, and if you own enough real estate you will be involved in disputes no matter how well run your operation is. It's the nature of the buisness but the types of disputes you are statistically most likely to encounter don't require the measures you propose.

The objectives as stated in your posts have evolved. There was no mentioning of probtate and tax efficiency. The theme of the thread was anonymity and asset protection (through the lens of liability protection as the owner of a 15 SFH portfolio). You are not alone in your pursuit of these objectives. Unfortunately the mechanics of litigation specific to the common real estate conflicts (premises liability, landlord/tenant/ contractual/payment disputes) are rarely understood. I believe if they were, far less money would be spent on unecessarily complex asset protection systems.

Like most investors who post about this topic on these message boards, you are focused on the measures you beleive will "protect" you when one of these conflicts arise. I urge all real estate investors to prioritize and be proactive in setting up systems that reduce the likelihood of these conflicts from arising in the first place. It's been a consistent theme of posts I've written over the past few years.

To respond to your request for a critique more generally, I go back to what I wrote earlier. In the event one of the common types of conflict arises, what stops an attorney or pro-se plaintiff (when allowed) from filing a claim against the deed holder (whether it is an entity or owned by you individually?) The answer is absolutely nothing. Even if you hire a PM, a defendant still has standing to file a claim against you, the owner. Not to mention, most PM contracts have language in their management contracts requiring the property owner to indeminify them, normally with exceptions for fraud, gross negligence etc.). If the PM is a management company you form (especially as an owner of 15 SFH's) there's no clearer example of an Alter Ego, a common legal theory. In most instances both the deed holder and management company will be named as defendant. In summary, the deed holder almost always gets named as a defendant and once named, only under very rare circmstances are you going to transfer liability to a management company.

Anonymity was already addressed by others.... If you have a loan on the property, someone can easily pull up the mortgage. From a practicailty stand point, if someone really wants to find you, they will. Operate your 15 SFH portfolio well and nobody will care who you are. As an owner of 15 single family homes there's truthfully no need for managment LLC, wyoming LLC's etc. etc. I will not comment on tax and estate planning. That should be reserved for tax and estate professionals, but from an anonymity and asset protction perspective what you are trying to accomplish is overkill.

My advice is to operate a well organized business with good contract management, pay your bills timely and avoid negligence (and certainly gross negligence). If you can consistently accomplish this, ordinary property and general liability insruance is all that's needed as an owner of a 15 SFH portfolio. If you are going to operate your business negligently and certainly gross neglgience, chances are you're going to get caught up in turmoil no matter how much you spend on asset protection.

@Rashid Khalil Believe what you want but write us when a premises liability claim, landlord/tenant claim or contractor dispute arises which are the three most likely types of disputes a landlord of 15 homes will encounter. My guess is the money you already or are going to spend trying to achieve anonymity won’t prevent a single claim that would fall under any of those common dispute categories and once a claim is filed, what purpose does the anonymity you hoped to achieve provide? Also, anonymity doesn’t prevent personal liability once a claim is filed or prevent judgements and liens against the deed holder which will show up on title searches and are still your responsibility if you ever want to sell or refinance your properties. 

@Jose Diaz In your initial post you mentioned you purchased the building turn key but what price point was this property/what was the monthly rent you were collecting. I’ll be able to explain the relevance once I know this information. 

@Stephanie Bacue & @Kelly Kunsman   Stephanie didn't find what she was looking for because any competent real estate attorney will at minimum advise their clients of risks and tecnhically a lender can call the loan which means you would have to come up with the payoff amount in order to cure the default. Advising you otherwise could be grounds for a malpractice claim against the attorney. 

While its certainly possible to complete a subject to transaction, when you say "sub2 friendly attorney" are you looking for someone to tell you there are no risks and it can be completed with no possible recourse? It doesn't sound like you found the Sub2 cheerleader attorney yet, but if you ever do, I would question whether you are recieving good represenation. Again, you can find attorneys to help with the paperwork but expect good attorneys to at least advise you of the risks but most will shy away from this type of representation because of the harm that can be done. Especially, knowing very few who pursue sub2 have the financial ability to resolve a techincal default.

 For most types of legal representation you can do a google search ...landlord tenant actions, lease/loan drafting, zoning, quiet title etc. etc and a ton of service providers will come up with detailed information on their website. Type in sub2 attorney and you get links to far fewer and most are offring guru style courses. That should tell you all you need to know.

@Jay Hinrichs You raise good points. Many fail to factor in transactionl costs (particularly on the sale side of the transaction) and assume prices only go up. I believe it hits harder when its an investor who BRRRR's their way to 100% recoup of their original capital and believes they have 20%+ equity in their property only to find out they were 95% levered all along and need to write a check to sell. Usually they begin writing checks to address cap ex before they even reach the point where they have to write the check to finally sell their mistake. Its not what they signed up for.

I believe this issue extends far beyond the fix and flip investors. Specifically the investors who decided to BRRRR their way into the C/D section 8 rental thousands of miles away based on social media gurus sensationalizing the concept. Many of these investors are upside down without even knowing it and are one cub trap or roof replacement away from understanding where they stand. You are already beginnig to hear rumblings on these boards from investors who "can't sell their property" where the real issue is their pricing expectations are not met by the market. There are a ton of investors out there with entirely out of place expectations based on paper equity who will be writing checks when it comes time to sell. I question if they have the funds to make that happen.

@Michaela Hayes Send me the details.

Section 8 housing is the one of the lowest barrier of entry property types. I can't speak specifically about this program but more generally I would caution you not to not pay a premium to acquire section 8 properties from a  turn key provider. You will likely be underwater from day one because the natural buyer is unlikely to pay retail when you sell and customarily the section 8  turn key providers are not seeking out neighborhoods with strong fundamentals that suggest meaningful appreciation will occur. They focus on neighborhoods where they can turn volume becasue they are working off of low margins.

@Henry Hsieh I wouldn’t listen to a thing the gurus preach. They make it seem as if you can go from owning single family homes to large multi-family buildings using entirely OPM which is laughable but it at least a gets novice investors interested enough to sign up for their expensive courses. 

SFH's are going to be inefficient to manage and with that comes headaches. Rarely is it a sustainable long term strategy, particularly at scale. Those who are successful ride the wave to the main appreciation event and then sell. In the interim good operations and contract management can certainly help.

I don't personally invest in SFH's at the moment besides the occasional flip. Not that I wouldn't, but haven't found the neighborhood that offered the right fundamentals to provide for attainable scale and quick appreciation. If I find it, I would certainly replicate my model from 10 years ago, just exit better now knowing the asset class better. But owning SFH's for long periods of time speculatively waiting for the neighborhood to change doesn't excite me.

To your point, distance complicates real estate management. Particularly smaller properties such as SFH's. This applies to both construction management as well as as property management. If you can find a neighborhood that can sustain scale with strong fundamentals it can make investing a lot easier, particularly if close to where you live. It sounds like your properties are in multiple states.

All of my properties are in Philadelphia. When I was reliant on 3rd party construction management I was spread throughout the city but when I decided to bring construction and property management in house I conscientiously decided to focus on one neighborhood to streamline both. I happened to find a neighborhood that had diverse housing stock and allows me to develop a wide array of property. It works for me because I can build million dollar townhomes, 700k condos, convert shuttered schools into $1500 1 bedrooms for young professionals, redevelop mix use properties where I can add amenity commercial tenants and a host of other types of projects all within a 5 minute drive radius. I can achieve scale without developing redundant inventory. I’m sure there are similar neighborhoods across the country that offer the same qualities.