All Forum Posts by: Stuart Udis

I still struggle with the practacility of these strategies as it pertains to real estate operators. Particularly those buying the properties most commonly acquired by BP members. First, with respect to anonymity very few people purchase real estate where they are not originating a loan where they are the personal guarantor. This is a recorded document that's avaialble for anyone to review bearing the name and signatur of the borrower.

As far as judgments against the LLC member, the examples you provide only come into play if the plaintiff/creditor is able to pierce the entity which is very rare and rarely even a desired outcome. Given 99.9% of claims involve landlord/tenant disputes, a premises liability claim or a payment dispute lets walk through each:

Landlord/Tenant dispute: Small claims/landlord tenant court will be where these cases are heard if not settled. These judges are not piercing entities but even if they did, these are  usually nuisance amounts, hardly worth the effort and costs of complex entity structures.

Premises Liability Claims: Plaintiff will retain counsel and will be given option of proceding on contingent basis or billed hourly if case has merit. Very few plaintiffs will want (or can afford) to front these costs and plaintiff's attorneys are going to strategize to maximize insurance proceeds because they aren't in the business of working on a contingent basis where no insurance money is available. In fact, even if the fact pattern suggests the type of gross negligence may exist where piercing the entity might be plausible, most plaintiff's attorneys will ignore those facts and/or frame the legal argument to impove the odds insurance carrier picks up coverage thus ensuring insurance proceeds are captured.

Payment disputes: Most contractors or service providers who are on the right side of a payment dispute will place a lien on the real estate. This is far more secure and the property owner cannot refinance or sell without clearing this debt. Why would the service provider opt to go after the LLC member?

In summary, the fact pattern is unlikely to surface where the member of the LLC is protected by a WY LLC and there is no anonymity when there's a mortgage (which is almost always the case). I am an advocate for owning investment real estate in LLC's but not in such a complexed fashion. Investors are going to generate a far greater ROI investing their savings back into real estate than on unecessary asset protection strategies or spend the money on proactively operating their real estate well so they can avoid conflict.

The sound & practical advice @Aristotle Kumpis references boils down to venue and choice of law. Let’s use @Victor N. as a case study. He lives on the east coast, is purchasing a property in AL and decides to form a Wyoming LLC (either to be title owner or really gets swept up in the asset protection lunacy and the Wyoming LLC is formed to be a member LLC for one of the many misguided reasons investors are advised to spend money unnecessarily).

In almost every scenario imaginable where a conflict will arise involving Victor’s AL property the appropriate venue and choice of law will be AL. Wyoming law will not apply and Wyoming will not be the appropriate venue.  Landlord/Tenant dispute? Will be decided by an AL court with AL laws applied. Premises liability claim? Same thing. Contractor dispute? Same thing. Mechanic lien? Again, AL court and AL Laws. I just ran through 99.9% of the likely disputes Victor will encounter as the owner of AL real estate and Wyoming laws will not apply and the dispute will not be resolved in a Wyoming court. 

In addition, if there’s a mortgage any supposed additional anonymity that many who incorporate in states like WY are chasing is meaningless because their identity  can easily be obtained by reviewing the publicly recorded mortgage information that will bear the owners name on the signature line (or a host of other methods easily available to ordinary folks that requires zero level of sophistication).  

I believe 99% of investors who spend extra on filings and registrations for LLC's in states other than the state where the property is located or in some instances where they live would not spend the money if they understood the mechanics of litigation and how the law is applied. It truly amazes me time and time again how much money and effort is spent on asset protection with zero understanding of how these systems that are pitched will actually help.

@Saheed Alam Never heard from you and you appear to be a continuation of a long line of BP members who write posts endorsing RTR without contributing to the message boards in any other capacity. Makes me wonder if there is some discount or incentive that's offered to RTR clients in return for posting these endorsement. There's simply too many like kind posts that continue to surface. 

@Jaycee Greene Congrats, sounds like a good outcome but surprised the blanket loan doesn’t have release prices or the ability to accelerate down a portion of the loan with the sale or refi of individual properties. Perhaps I misunderstood your response to @Joe S. but having  to bring new collateral to the table in order to sell/release properties is not ideal. You should clarify this with the lender. Seems very odd to have this term in the loan docs. Wouldn’t be surprised if more flexibility existed. 

@Fillip Nelson When I read investors write they have tight budgets and are completing a BRRRR I automatically assume they have to keep their construction costs below a certain amount because they are keenly aware of the max valuation and know they won't get their cash out on the refinance unless they keep their costs down. It's one of the biggest mistakes an investor can make and why so many pursuing BRRRR's fail in this business. Don't sacrifice doing things correctly for the sake of a cash out on a refinance that will only lead to more costly issues to resolve in the future. Wire the property correctly and address other defects now even if it means you are leaving money in the deal. Otherwise, you are likely doing nothing but acquiring paper equity you will never realize.

@Anna Cerda Why seek advice from gurus? Particularly when it comes to something as critical to your financial wellbeing as your mortgage payments.

@Wyatt Nauman "It seems like all these influencer-investors nowadays are talking about boutique hotels or trying to sell you into another one of their mentorship programs, which I’d rather not have to pay for …"

Why on earth would you pursue an investment strategy influencers are peddling regardless of whether you have to pay for their misguided education?

@Ilana Shalev Philadelphia is far more nuanced than that (with some zip codes more so than others). You will undoubtedly make bad investment decisions relying on statistics broken down by zip code. You really have to spend time in these neighborhoods or work with sales agent who already has and understands the market on a more granular level. Philadelphia is a market where investors can perform quite well with proper market understanding but can also be a market where investors suffer big losses relying on bad data.

@Kristi Perrotta I am concerned you are looking to save money in the wrong areas of your business. Not all sales agents are created equally, but data suggests the top tier sales agents will achieve a result that exceeds the few percentage points of commission savings you are looking to pocket. You are better served spending the time and resources you are currently allocating to your own FSBO preparation researching and interviewing the top sales agents in your market and ultimately hiring one of them. It will be a much better ROI.

It's great that you are willing to grind, this business requires that type of commitment. However I recommend grinding in other areas of your business such as networking, market research, pursuing acquisition leads etc. Not selling your own home.

@Ari Dandridge As others noted there’s very little that separates the services and offerings banks provide for depository relationships. Since your post raised  concern around moving large sums this suggests you’re looking at maintaining substantial depository relationships. If thats the case, you’re looking at banking entirely wrong. Focus on the banks you want to bank with from a real estate (or any other business venture you’re interested in pursuing). Depository relationships have become increasingly important. Many banks now require this in order to fund real estate loans beyond the basic operating account. Use this as leverage to get something more substantial in return.