All Forum Posts by: Christopher Telles

Congrats on building a sustainable real estate enterprise. Thats some impressive volume.

When I was operating a development company the structure we used was bifurcated. We operated the construction side of the business through a corporation, and held properties in single asset LLC's.

The logic behind this structure was to limit liability in the short term and also the long term. We were working on developing small building business parks throughout California, and the single LLC allowed us to have different equity partners in individual deals.

Through operating agreements the LLC's hired the corporation to oversee and complete construction, for a fee, and the LLC's structured a capital stack that allowed for a development fee that was passed onto the corporation while retaining liability for the asset being financed through a construction loan.

The corporation then contracted for work performed on the project from various professionals and the GC's.

In your case I think it all depends on how you finance your projects. You didn't mention that aspect so its hard to determine what structure would work best for you. There are some really good real estate attorneys who do considerable work with real estate developers that might be able to offer you some really valuable advise as to the best structure to meet your needs. I would also encourage you to equally seek out a good accounting firm that also does considerable work with real estate developers. A good accountant is worth its weight in gold when it comes to development.

Kudos!

Educators for some reason tend to do really well in the real estate world, and your actions support this view.

Busy closing and working on deals is a good thing, as crazy as it might be.

fyi, I'm originally from the other Whittier; Whittier, CA!

I would say that you should always disclose you are a licensed individual in all offers vis a vie a paragraph in an addendum. As a brokerage company entrepreneur I've always instituted a mandatory indemnity paragraph requirement for all of our agents. We use a standardized disclosure template that is attached to all sale and lease offers as a disclosure addendum.

As a licensed salesperson in CA you cannot conduct business unless your license is hanging with a broker. However, its not whether you can or cannot conduct business as a real estate professional that could or would cause a problem rather its that you have been deemed to 'be' and have been trained to conduct your affairs as a real estate professional that would come into question should you encounter a sue happy seller or buyer.

The disclosure removes any question of an ethics violation from later being used by someone in a court of law. 

Concerning the advertising of investment activities, if your license isn't hanging with a brokerage then I would not consider it a violating offense by not having your license listed on any collateral material. If you intend on wholesaling deals I would then advise you to include license information in any and all advertisements.

Frankly, I'm not fully informed on court cases surrounding wholesaling. While I'm not opposed to wholesaling in general I do think that a licensed individual operating in the capacity of a principal that assigns a contract could potentially be viewed by a court of law to have brokered a transaction instead of having been the principal since they didn't actually go on title. 

An issue might only arise where a problem existed, and they are common in real estate transactions, and the party feeling pain is looking for some recourse. As a licensed individual should you not have disclosed it might give the OP's attorney a wedge to substantiate some of their other claims, and foster the view that the non disclosure is/was a precedent to you withholding actual facts concerning the property/transaction.

I would highly recommend a licensed individual consider including a disclosure of the license in any offers, and if wholesaling in any wholesaling offering.

I think that all depends on the volume of business your moving through your business every year.

When I was running my development company it made more sense to remain smaller and agile which allowed for shifts and changes that can acure quickly in markets. Remaining agile is much more difficult when you have a bloated payroll to make each week.

We contacted everything out except for deal sourcing, financial analysis, and capital stack strategies. Everything from architecture to cleanup was subcontracted.

Would it be easier to have a full time crew to work your projects, yeah I imagine at times it would. However, it could also cause more trouble as you expand your business.

Where most small developments incite the greatest challenge is in managing projects. And that's perhaps where you might want to hire someone. A good project manager will eleviate the struggles and challenges of physically managing each project and free up the time needed by an I veto to source new deals, over see marketing of current deals, and manage the enterprise.

Successful Development is more about managing the individual processes involved in the developments as I opposed to actually managing all of the people involved in those individual processes. Hiring good capable people to manage those individual processes might be the "vertical" end goal your are seeking.

@Matthew Petersonis correct. The agent may have instructions from their broker to use "only" CAR forms, but their fiduciary duty is to present all offers to the seller regardless of offer form type.

I just recently made an offer on a small REO office building that was listed by the "commercial" division of an otherwise residential brokerage. As a long time CRE investor and professional I rely on LOI's for less formal offers; and AIR PSA's for more formal and binding offers. I submitted my original offer on and AIR form and received pushback from the listing broker.

They didn't have an issue with us representing our sleeves but did request we resubmit the offer on the commercial CAR form.

After multiple email exchanges I picked up the phone and essentially told them the buyer, and entity I control, had made an offer on the form of their choice and it was within the scope of their fiduciary duty to present that offer to the seller, in this case a local bank.

I was told they could only work on CAR forms because it was a mandate from their principal broker, and "require by their E&O insurance carrier".

I simply informed them that their broker did not have the option to mandate the type of offer a buyer could make, and E&O insurance doesn't cover contract type rather it covers professional conduct.

Reluctantly they submitted to the bank. It was rejected as insufficient in price. Ironically the building burned down and the bank now has the land on the market for a price close to my offer.

I'd also have interest in viewing/reviewing your site upon its launch. Please send me an invitation when you're going out in beta.

 Often you will find the assessor parcel numbers for government owned property begins with a certain prefix (900-xx-xxx) which will identify the parcel as state, county, or city owned. You need to know what these are for your local area, ask a realtor or your title company, to be able to identify who owns the property.

You might call/visit the local government building or planning department to find out two things; 1) Who owns that parcel and 2) what covenants/operating and use agreements, if any, are in place that control the use and maintenance of the property.

 Since you are working with a buyers agent, and I assume s/he is assisting with some of the sourcing of deals, you might consider this situation a learning experience as what to expect when you get into competitive buying situations.

Depending on the price of property it might be advantageous to reach an agreement in advance with your buyers agent to pay them a fixed fee or % of the agreed to price when a similar situation arises. By having this agreement in place prior to, and given the buyers agent can retract their commission, it may be less expensive to pay your buyers agent through the closing instead of raising the price by an amount you might have otherwise have agreed to go.

In the situation you described, if the actual fact is the listing broker is attempting to double end the deal to their own buyer client but the two offers are similar it may have saved you a couple/several thousands of dollars had you agreed to pay your buyers agent a fee/% in exchange for retracting their rights to a commission and raised your offer by x  dollars.

In the past when working CRE brokerage exclusively, I would propose this to my buying clients when a competitive buying situation arose, but with the added caviot that my fee went into the deal on a pare pasu equity basis and I also got the management/brokerage work for the project.

 You didn't specify the upside nor speak of a value add play in the deal so it's a little difficult to speculate how to best structure a creative financing package.

Assuming it's a value add play with good risk adjusted gains at the end of the process then maybe the safest route is to negotiate a wrap transaction with the seller, and if your are concerned about a due on sale clause make it contingent on the lenders approval.

The seller will confront these same financing scenario issues with all other buyers so if they want to sell the property then they can either deal with the issue with a reset and able buyer, you, or kick the can down the line looking for another buyer who maybe willing to assume a less than stellar financing package.

As the buyer though your only concern should be the financing package that delivers you title, assuming you plan on making extensive improvements to the property, and allows you to earn what you determine is a reasonable cash flow from the project.

Options aren't bankable. There are too many potential pit falls that can happen prior to your exercise of the option. You cannot refinance the option later should you need or want to maximize cash flow or pull out equity. Yes, you can exercise the option but that also brings up my original point on options, to many other potential issues can prevent you from acquiring title e.g. seller bankruptcy, liens, additional borrowings, etc., and yes you have legal recourse to mitigate these issues but that doesn't necessarily mean the financial means will be available to cure whatever the issues are that may arise.

My suggestion would be to seriously consider an acquisition of this magnitude where you acquire fee simple title. Anything else means you are relying on others to perform as prescribed. Bad things happen to good people so even if it's not intentional should the property or the seller become engulfed in an unavoidable situation without title it'll subject your capital to additional risks and have the potential to make an otherwise stellar investment one of ruinous concequences.

 Shawn, we have quite a few homes in So Cal with concrete foundations. I'm relatively new to the fixNflip channel in real estate, although have extensive experience in the commercial realm, and have never heard the term "tension line". What are you referring to? Thx