All Forum Posts by: Stuart Udis

@Lakshmi Kotagiri You are confusing anonymity with asset protection. Two distinctly different subjects. It's normally the real estate investors who confuse the two and who obsess over anonymity who overspend on asset protection. I recommend first educating yourself on both otherwise you are ripe for the taking by a fear mongering attorney.

@Rashid Khalil  Most claims that arise with respect to investment property owners are premises liability claims and landlord/tenant claims (the latter are generally minor and resolved in the landlord tenant court/small claim courts).... Has the attorney who prepared #1 & #3 shared with you precisely how the costs you incurred setting up your asset protection structure will actually protect against the most likely claims  from occurring or the likelihood of you personally being liable? I  assume th answer is no, because what you have is absolutely overkill for your personal portfolio.

I used to work in-house for a real estate/hotel company that owned a portfolio that was valued well over $1B and  didn't feel the need to use the structures you use as the owner of a  15 single family home portfolio. Doesn't that make you wonder.....Hate to say it but you were taken advantage of by a fear mongering attorney. 

@Rashid Khalil It appears like many others you are wrongly associating anonymity with asset protection. Those who create asset protction plans with a focus on anonymity are generally spending  on unnecessarily complexed entity structures with some of the entites absolutely worthless, make borrowing money more difficult due to the work lenders must complete to understand who the key members and guarantors are, make litigation in the event of an actual claim more complexed and potentially more expensive and provide your insurance carrier avenues to deny claims. This of course is not the story the predatory asset protection law firms share and who take avantage of individuals who don't understand the mechanics of litigation and the safeguards that can actualy prevent liability.

As @Chris Seveney accurately noted, if there's a loan on the property anyone can review the public records and see your signature line on the recorded instruments. So there goes the anonymity. Next, as someone who owns 15 properties 99.9% of claims that are brought whether be legitimate or frivilous will be brought by an attorney who does not care who you are. In fact most attorneys wont even bother spending the time to identify who is behind the LLC before filing a claim. They care more about the insurance proceeds that may be availalbe and know they can obtain your identiy through discovery. Why even bother given its not a requirement to start a claim? Remember these are usually contingent fee attorneys so why would they spend a second more on the claim than that's absolutely necessary?

If you dont want to recieve phone calls from a tenant about repairs then hire a PM, but beyond that everything you are considering may make it a little more difficult to identify but by no menas makes you anonymous and provides zero actual protection.

I believe there are other aspects to selecting your LLC name that can become more consequental than whether the LLC's name is "lender friendly". I've never heard of a lender adjusting terms such as rate, leverage or line of credit limits based on the name of the LLC. I posted about entity name selections previously in a separate forum but to reiterate, the name you select may seem minor but it matters for bank paperwork, claims that are brought, lien filings, deed recordings etc. Save yourself a lot of hassle and avoid these common pitfalls no matter how much you like the name or "professional" you believe the entities may appear. Here's a few tips:

1. When selecting your name, don't include a Comma. No Comma's No Drama

2. Avoid ordering your LLC's sequentially or naming your LLC's similarly.

There is a PA License but not required in many municipalities/cities. Most have their own licensing requirements. For instance in Philadelphia there is a city specific license and all that's required is OSHA 30 Hours, insurance and being up to date on city taxes. A fairly low barrier to meet and nothing to indicate the ability to proficiently or financially oversee a construction project.

Ground up construction is more capital intensive. It's why buying existing buildings in any condition, particularly in what's percieved to be low barrier of entry price points are competitive.  Those purchases are often less risky, even if you over pay by a small amount.   On the other hand entry level new construction has a great deal of risk. Particularly in the smaller in fill projects you would expect an investor to jump into. The likihood of huge financial loss is certainly higher when you get into new construction.

Unless the investor plans to  self perfrom the construction (which few are qualified to do), the hired  GC must have two qualities: (1) Financial Means & (2) Wherwithal. It's extremely difficult to find both qualities in a GC looking to build a small in-fill project. Most who possess both qualities  recognize its more profitable to simply build for themselves meaning you often have to skip to larger GC's to get  both qualities and they have to be incentivized financially to take on smaller projects. Their overhead, staffing etc. is suited for larger and more complexed projects so those overhead costs are passed along. 

If the numbers work, thats great but construction defects on new construction can also be far more complicated and costly to resolve than in existing rehabs and its very difficult to hold the builder accountable unless they have a long standing track record and reputation (usually the means and wherewithal types). The timing of new development projects can also cause huge swings in material costs and changes in market conditions so its not a process anyone should jump into.

I personally relied on 3rd party GC's to build singles up to 10 unit buildings and it was a nightmarish experience. I basically had to become the GC's bank and began paying subs directly and there were a ton of errors along the way. It simply was impossible to make the numbers pencil using larger GC firms. Thats' why I made the decision to self perform construction last year. All of my projcts are sub 20 well within my comfort zone but should I get involved in a larger project than that I would feel more comfortable with an outside GC but that's ok because the project is large enough to support the overhead and pricing of the more established firm.

If you are an investor who wants to try their hand at new constriucton, I can't emphasize enough the importance of staffing. Get to know the GC well, understand their sub contractor relationships and research them.  Select a good architect. The cheapest architects often prepare the most basic set of plans the municipality allows. This often leads to confusion on the job site. Spending a little more makes the project run smoother with less risk of change orders. Lastly, make sure you are working with a bank who has  great construction administration processes. **** happens, that's just the reality of new construction and having a bank who can help you navigate those issues is incredibly valuable. Along the same lines, healthy contingency and interest reserves are important. 

@Sal Zafar It sounds like yuo are most in need of someone who can help get your active construction project to the finish line.  Building is very local from permitting to building codes to sub relationships. if you are stuck in mud find someone local to assist. It's surprising your current mentor is not helping and is allowing this project to stretch 2-3x as long as anticipated, especially as a co-guarantor since their credit is at risk. 

Wholesaling is extremely competitive because there are no barriers of entry and anyone can participate. 

@Nicholas A. Most who are chasing cash flow and buying based off of landlord laws are also buying in the least expensive markets because that's what they can afford. In many cases these are low barrier markets with limited upside unless the underlying market fundamentals are understood (they rarey are).  The landlord laws rarely matter when you are purchasing real estate in the better neighborhoods as its usually the tenants occupying the lowest tier real estate who are looking to take advantage. These are rarely sustainable investments, particularly when thse properties are purchased  remotely reliant on 3rd parties as many of these properties require a hands on approach. Scale is often necceassary to achieve the efficiencies to make this model work. Very few get there.

@Mark Delosreyes The biggest misconception many make with SFR's is the belief they are investing in cash flow. Those who are most successful understand appreciation is where the real wealth is made in SFR's and cash flow that covers carrying costs with healthy reserves for cap ex to ensure the homes continue to operate sustainaby is the key. The best performers are those that experience substantial appreciation within a short period of time of ownership. Being able to indentify market fundamentals is the key there. However, even if the appreciation takes longer, it can still be worthwhile. I am not saying flipping homes is a bad decision, a balanced appraoch is normally the healthiest investment strategy because cash flow is important and flipping homes can provide that. However you should also be mindful of tax consequenes. The profits from a home that's purchased as a rental and appreciates significantly recieves far better tax treatment than the home you flip. When looking at the after tax dollars,. thre's a meaningful diffrence.