All Forum Posts by: Jeff Takle

I don't think it's a problem at all to live in one state and operate rentals in another -- I've been doing it for years. Either build a system or build a team that can support it. It's very easy and getting over the non-existent mental hurdle of "it can't be done" or "it's hard to do" will open up your potential investment portfolio to "the best investments", instead of "the best investments right by me."

I do, though, absolutely agree that you don't want to open an LLC in each state. Aside from the hideous amount of paperwork you will incur (city, state, and federal tax, license, reporting, and certificate requirements), it will take Herculean efforts to make them operate like fully functional businesses enough to prevent courts from "piercing the corporate veil" if ever sued. Plus, each one has to establish its own credit if you intend to buy through the LLC; not easy to do if you're starting from scratch. Ask yourself this: how many successful business owners simultaneously run 8 large and successful businesses? None, right? There's a reason. Just get one company up and running and do it well.

You can invest in multiple states, but they do have requirements, especially if you're buying yourself (license requirements if you are agent). Also, some states have licensing requirements for property management companies. Not a problem if the company owns the property AND does the management, but could be a problem if you bought the property and the company does the maintenance...or if company A buys and company B provides...And, each state taxes these operations differently.

My suggestion: Start looking for deals. If you find one in another state that's a great buy, then figure out how best to make that purchase--whether through a company or buy it yourself and later sell to company...

I went to the one in Boston on December 3-4. The novelty factor of seeing George Foreman, Robert Kiyosaki, Donald Trump and others speak was fun but you don't get anything concrete to walk away with other than a sales pitch. Also, there were a lot of different sidebar "classes" and I use the term loosely. Anyone who's been around this industry long knows that almost every "class" is a thinly disguised sales pitch. Most of these took "thinly disguised" to a new level. I felt the sales pitch was full on, all the time.

That said, as always, I picked up a VERY few nuggets and made a few contacts which were my objectives for the weekend. I suggest, though, that nobody will walk away having learned anything substantial without "coming to my weekend seminar for $x,xxx..."

Also, and this was an unexpected relief as my company almost bought a booth...the exibition hall of vendors was pathetic in terms of scope and size. I think there were about 30 vendors total and 80% of them were "Buying Real Estate in my hyper-awesome --insert town in FLA-- Back Yard". I made connections with a rehab financier, a security systems company, and one tenant screening company but they were the exceptions. Having been to many trade shows, this was probably the worst in terms of number and breadth of vendors on the floor.

Finally <ahem> if you're going to go, bring some business cards and don't pay full price. Whatever you do, I cannot suggest you buy the VIP tickets. You get to sit about 9' closer to the guests than general admission (no exaggeration) and the "VIP" dining area was a dirty roped off corner of the sub-standard cafeteria hall. The only thing separating them from the commoners was a 2" gnarled rope. Nothing VIP about it. The Learning Annex will run a lot of promotions running up to the event and if you listen to the radio or TV at all you should get tickets for $99 instead of $179 if not better.

Have fun! :kewl:

I think one more year is just about right. On a less objective level, I think seller psychology has transitioned from "We can get any price we want" to "We can get 5-10% more than what our neighbor's house just sold for" to "Holy crap, I can't believe no buyers see the value in my house and will pay that amount!!!" this past summer. I saw sellers holding out for absurd prices and their properties just sat. They, however, held onto this hope that the market would somehow surge back upwards. About a year from now, seller's will have...in the nicest possible way..."Given Up Hope". When that spirit is broken, good deals will abound and the people who have to get rid of their properties will do so under more realistic (aka desperate) terms.

When those ARMs come due and refinancing rates are significantly higher than when they bought in 2001-2002, when they have kids, get divorced, quit their jobs or get laid off...you name it. Cash flows dry up and they'll no longer see themselves as able to ride out the storm because they've given up hope of a quick turnaround in the market. That lovely fear will help everyone buying next spring and summer.

If you have properties in that kind of market, now is the time to rent them out if you can handle the cash flows. Rents rose 4-5% last year and are forecasted to do the same this year. That's good times at last for rentals.

-Jeff

Ha, that's a pretty good metric Wesley. Don't do it. There are approximately 100,000,000 renters in the U.S. Don't pick one of the fifty relatives you've got.

I once arranged to rent a house to close relative but that was a unique situation where they needed some cash but didn't want to move. Deal was that I bought their home at fair market value -- they pocket the $270,000 equity and then pay me rent IN ADVANCE for a period of 5 years at a rate equalt to my mortgage payments plus 10% and they hand it over at the closing table just after the close. This solved everyone's problems: their cash need and desire to stay in the house (for five years), and my need to insure against the risk I would assume. Still, this has potential to get sticky. Maybe they decide they don't want to move after the five years or, worse, they blow all the money from the closing...then what?

Gut instinct is to avoid the very situation that I got myself into. I told a friend that "helping family is giving them a couch to sleep on until they got back on their feet; not assuming a half million dollar debt on their behalf." Then...well...I pretty much did it.

Jeff. :crazed:

CvilleCPM has a pretty aggressive approach and I've butted heads a bit with him over this board. However, I will offer that I suspect the tenants in the properties he manages really like him and feel like he is attentive to their needs. Happy tenants translates into fewer problems. Which in turn translates into happy property owners.

While the personality fit isn't a good one for me, I respect that his approach probably does quite a bit to counter cheapskate or dangerous landlords out there. To add real value to the rental market, someone has to be responsible and professional to the tenants -- sometimes that pendulum swings towards the property owner and sometimes towards the management mechanism.

One of the overall points one can draw from this thread is that it's difficult to find a PM company that fits your personality and performs as expected. There are no magic pills to solve the problem as far as I know. Either keep trying until you find a company you can work with and trust, or do it yourself.

Yes, it appears that the main 3 agencies are changing their policies in this regard. The inspection (what you pay $100 for) is done by an independent contractor hired by Experian, equifax, or trans union and their assessment is, in my humble opinion, very subjective. It takes about 10 minutes and they take some photos, do an interview, and may look through some of your records. As long as you run a clean shop that looks and feels like an office space -- even if it is in your home -- you should be good. However, you do have to pay the fee in that case.

The good news is that the fee is a one time deal and the inspection is nothing to worry about. The bad news is that there is a fee.

There are still many, many places out there on the internet that will run your credit for you, but as these new policies trickle down, I would expect to see many of these shops get closed. The rules for securing information and the disclosure of the reports is getting increased pressure because of all the identity fraud publicity (and reality). This problem will get worse for the individual landlord over time; not better.

Places like AMS Ties and Mr. Landlord I would expect to be among those who undergo policy changes in the next year. There are larger, more comprehensive tenant screening solutions that cost more but provide much more useful information than just a FICO score or criminal / landlord registry file. Several will make the verification phone calls for you on employment, last residence, etc. Two I know are:

RentGrow, www.RentGrow.com
Safe Places Inc. http://www.saferplacesinc.com/

Just some options.

There are a couple of other excellent posts around this question too. Not to deflect you to them, but if you do a "Search" at the top of the screen for LLC vs corporation, you will find a number of good responses.

Also, you are not taxed heavily by taking a salary from an LLC. You are taxed normal income tax only. If you are paid from a corporation you are double taxed -- the company is taxed, and you are also taxed personal income tax. That's the disadvantage to corporations.

The basic reason most people who put properties in an LLC or company do so is to provide liability protection in the event that they (the person) are sued. The concept is to make your large assets owned by someone else so that they cannot be "attached" in a judgment / suit against you. However, I usually advise just to get a really good (and large) umbrella insurance policy on the property instead. It's much cheaper, basically no paperwork, and provides better coverage in almost all instances.

Plus, a local driver's license, old mail, etc. Keep a few of those around in case you ever get audited. You should have no cap gains exposure. Enjoy the money and happy retirement!

Buyer's happiness is where reality meets expectations. If they contact you thinking the price is $110,000 (his price -their expectation) and you tell them that you'll sell it for $100,000 (your price=better than their expectation), there aren't too many buyers who will get mad at that!

Also, by doing so (lowering the price to your rate) you've cut their knees out in terms of negotiating. It's much harder for them to come back and say $80k b/c they were interested enough at 110 and you've already offered them a discount. If you've valued your house at 100 and are willing to get rid of it at that price point, then focus on getting rid of it at that price point and move on the to the next project. Let this other guy advertise for you and people will only be happier when they call you and find out you'll sell for even less. You have real problems if this other guy is advertising your properties for LESS than what you'll sell for. Then, find a lawyer and squash it fast.

The only problem with trying to capitalize on his higher price (someone calls in on the 110K ad and you try to sell it at 110k) is that it's tough to find out where people saw your ad and, after you've started negotiations, if they see "your" ad listed for 10k less, it's another bag of worms...

If you sell in under 1 year it's categorized as "short term capital gains" and will be taxed at your current income tax rate; let's say 28%. If you hold it for >12 months it will be "long term cap gains" and taxed at a lower 15% cap gains tax instead. There can be significant benefit to renting it out or just holding until the 1 year mark if you can. Run the numbers to make sure; you might squeeze out another few thousand $$$ by holding a few more months. Plus if the market sucks now, wait at least until spring when people start moving again and selling prices have a higher likelihood of popping back up a bit--not much sells in winter.

As for the LLC, an LLC is a "pass through" entity, meaning anything left over that isn't spent (expenses), or turned into assets is taxed in the current year. Those taxes are passed immediately through to the LLC members in proportion to the shares they own (or %) in the LLC and taxed at each member's income tax rate. In effect, this is the same situation you face if you don't use an LLC; anything left after expenses are taxed as short term cap gains, at your personal income tax rate. I don't know how you could use an LLC to help.

Here's the bottom line: Pay the $210 and talk with a CPA. Seriously, if you're going to make even $5,000 off this deal, taxes are the fastest way for you to gain (or lose) margin on the sale. There's only so much you can rehab, and only so much you can get for a sales price, but using a smart tax strategy can gain you 20% or more in retained profits. It's a VERY smart investment to get good tax advice. (I'm neither a lawyer nor an accountant).

Each year, I do all the grunt work of tax preparation and then assemble my long list of questions. I meet with an accountant 1-2 hours each year to run through my list of specific questions and keep him on task by being brisk and to the point. I pay about $400/year for tax advice and have saved tens of thousands in the last few years alone just in smart tax strategy.