All Forum Posts by: Tom Meade

You can set up an operating company that acts as the operating partner of all the property level entities. The operating company can collect rents, pay contractors etc. do a little research and find a good real estate/business attorney in your area. Once you start to scale up and create real equity, you'll need to have a good attorney and accountant in your team. Both can help you figure out the best structure for holdings.

here's a link to a related forum discussion:

http://www.biggerpockets.com/forums/109/topics/109553-entity-needed-or-not

@Mike Parks

you're on the right track when you mention the value of an LLC increasing as you put more assets into it. This has been debated in other posts, but to summarize, if you keep each asset in its own entity (LLC, trust, LP etc) you protect that asset from any other assets you own. The typical example is a slip and fall. Lets say I own two duplexes. Why would I ever own them both in one entity? If someone takes a slip and fall at Duplex A, I expose the equity I have in Duplex B to collection for a judgment won in a suit involving the other property?

You'll hear people talk about insurance policies, but I'm sure you can find posts or stories about the nightmares involved in liability suits and insurance agencies.

When it comes to larger commercial properties, this isn't even a question. I work for a national commercial lender, and its a very rare exception (if ever?) that we would make a loan on a property that wasn't held in a single asset entity.

Hi @Logan Hampshire

Welcome to the wonderful world of NPN investing. I had some good success "flipping" NPN's back in 2008-2010. I was buying small balance commercial loans, so if you're looking at single family residential, realize there are likely some differences (especially when it comes to foreclosure, eviction and restructruing processes), but the investment thesis is the same: Buy the NPN at a discount, sell it to another investor for a "smaller" discount. In some cases, I made offers on mini-pools and then sold off individual notes. Other times were one-off purchases and I double closed (the selling banks wouldn't allow contract assignments) - maybe buying for 30 cents on the dollar and selling for 40 or 50. Even though my main exit strategy was to the sell the note, sometimes you end up either doing a work out (restructuring) with the existing borrower or completing a foreclosure. Every note I purchased I made sure I would be comfortable owning the real estate. I had to know that my purchase price, plus potential costs to foreclose would still be less than the quick sale value of the collateral. Don't get stuck on what you're paying for the note in relation to the principal balance (like 30 or 40 cents on the dollar). Do your homework: figure out the quick sale value of the collateral and estimate the costs of the worst case scenario - having to complete a foreclsoure. Then buy the note for less than that. I started to get a little cute once I had good access to dealflow and a list of solid buyers, and almost got burned. I thought if I can just buy it for cheaper than someone else will pay, I'm good. But if the buyer backs out, and I have to close, I better be OK taking the thing through foreclosure and owning it.

Of the notes I purchased, I probably flipped 70%, took title to the property on 20% and did some sort of workout with the borrower on 10%.

It's definitely trickier than straight real estate investing, but there can be nice profits. Good luck!

Really need more details. I have a two-family under contract right now for $230k, it's gutted to the studs and needs about $150k rehab. ARV somewhere north of $475k and the rents will be around $1800 per unit. Gotta love RE investing in greater Boston!

Hi Ron--it may just be semantics but there's a difference between a private money lender and an investor. If you're talking about a hard money lender (who may prefer to be called private money lender), they will lend the money into the LLC once the deal has been reviewed and approved, taking a security interest in the property (mortgage or deed of trust), and most likely a personal guarantee from at least one partner in the LLC.

if you're talking about actually taking on an investor partner in a deal, then they would be a member of the LLC and how the money comes into the partnership would be negotiated up front and dealt with in the partnership agreement. hope that helps.

Sounds like you're not too comfortable with the "I'll probably be fine with a quit claim deed after the fact" approach. I'm with you there.

I like @Darrell Shepherd 's approach...I'm doing a somewhat similar deal, where the money guys put up the equity and as the GP, I'm actually signing for a hard money loan to fund the remainder of the project. Equity gets a preferred return of 8%, then I get a developer fee of 6% of costs, then all add'l upside is split 50/50. Property is owned in an LLC (single asset entity, formed just for this deal), LLC is the borrower, property AND my interest in the LLC secure the loan. This is obviously risker to the partnership, but we have enough equity in the deal that we're not concerned about getting upside down. In your case, if the money guy needs a mortgage to fund his contribution, you may have to ask yourself if the splits should be re-worked. If the mortgage must be secured by the property (e.g. not a line of credit secured by another property that the money guy owns), then a single asset entity borrower, with him as the guarantor and a tight operating agreement is probably your cleanest execution.

I totally agree with @Brian Mathews - getting a job in the industry is invaluable. Also, I love to share this post I saw on LinkedIn:

http://www.linkedin.com/today/post/article/20131101150259-658789-pay-it-forward-give-and-ye-shall-receive (not sure if this violates any TOS or etiquette, if so, sorry)

Great food for thought for all of us-- newbies, gurus and everyone in between would do well to take this approach: "Create more value than you capture"

I can't opine on TOPA (started reading up on it when we were sizing a deal for a client in DC, but that was one deal I didn't mind losing) but as it relates to the Section 8 tenant, there seems to be a little confusion, although it might just be syntax... There are basically two types of Section 8 - project based and portable vouchers. Project based Section 8 are just that - based on the actual property. For example a 60 unit "project" might have a Section 8 contract for 40 of the 60 units. This means 40 of the units must be rented to tenants who qualify subject to the details of the project based contract. Vouchers are a different story. Administered by the local housing authority, vouchers are granted to individuals who can use the voucher at any property that accepts Section 8. That's a really long winded way to say that if you get the seller to deliver the unit vacant, you are out from under DCHA and HUD (at least as it relates to Section 8). There's really no such thing as removing the unit from the voucher program - once the Section 8 voucher holder moves out, you are free to rent to a market rate tenant (subject of course to Fair Housing regs). Hope that helps.

@Ryan Ong I just took a quick look on REIS, and was surprised to see Cap Rates in the 6-6.5% range in Kings County. Didn't break out submarkets, but there are a lot of transactions in there, and I'm pretty surprised to see it that high.