All Forum Posts by: Scott French

This investor is a good friend and this is a very solid property. Knowing my business and that there are no liens etc, I would feel comfortable selling in an equity deal. The purchase price would be adjusted to account for his "new" basis in the asset. If there are instances where I could be dragged into a lawsuit based on his negligence, that would change my opinion on doing the sale this way. 

We would probably use a closing attorney instead of a realtor anyhow, so that benefit is a wash. 

He is a strong borrower, and I use a small regional bank who I have a great relationship with. I have no doubt that they would accommodate us and probably allow the note to transfer.

Still thinking of an equity sale as on option, but leaning toward offering him the property and winding up the company after the sale.

Has anyone ever done an equity sale when selling an investment property? 

I would like to sell the entire company that owns an apartment building, to an investor that I know. the advantages to the buyer may include stepping into attractive debt (i would hold a note for the difference unless my bank would give him a second or refi the property to the new value), no reassessment of a property that has appreciated over the past 5 years, no estoppels, no need to contract new utilities, avoid using a realtor, and the company has a strong track record. I may be missing some advantages or overlooking some things that would eliminate the above advantages to him.

Thoughts?

They seem to have closed just about every conceivable loophole, which leads me back to trying to get licensed, rather than operating on the fringes of the law which could be changed at any time.  I haven't given up on going with another option if I can't get licensed though.  Any other input from licensed salepersons or real estate attorneys in Arizona would be appreciated.

Ryan - As far as I understand, what you described would be illegal under Arizona law, assuming no real estate license.  You can self manage your properties, even with other investors involved, however, once you get into generating extra fees over and above your share of the equity, then you start to run into issues.  This would be classified as a "property management activity" and regulated by the Arizona DRE.

Apparently they are taking it pretty seriously (operating without a license, and just general dishonest property management practices):

http://www.azcentral.com/story/money/real-estate/2...

Here is some extra reading from an Arizona attorney on the subject. There is some grey area and some exemptions to the rules, but not enough that I would risk what evidently is a class 6 FELONY!? 

http://dioguardiflynn.com/arizonas-real-estate-bro...

If I am unable to get a license, this could be a dealbreaker for moving to Arizona.  I want to relocate and move my multifamily investment business from another state to Arizona.  I am not looking to manage other peoples 3rd party properties as a business, I partner with my own equity investors and generate fees, and also cash flow distributions based on my equity percentage.  The issue is that without a license I couldn't charge property management fees, and could only generate income based on my ownership percentage in the property. (I would have to have ownership or else couldn't manage the properties due to the Arizona restrictions and me not having a license.) 

It sounds like the major issue is with leasing, and generating property management fees.

After reading the statutes, I have come up with the following:

Best alternative:

1. Source equity, use agent for leasing and I collect my fees for placing the equity in properties, which are owned by other entities. Based on what I have read, I haven't seen anything specifically saying this would be illegal.

Other alternatives:

2. Stop sourcing equity and source debt only, so that I could keep all of the cash flow. This is the most feasible but worst option for several reasons.

3. Source equity, but only take my percentage based on ownership. I would be doing 100% of the work and receiving about 25% of the cash flow. Also a bad option.

4. Become on-site manager and just pay myself a salary. Drawback is that I could only do one property at a time due to the statutes.

5. Partner with someone who has a real estate license, and have them generate property management fees for us which are then used to pay our salaries.  Sounds legal but would waste a ton of money paying an agent just so I would be in compliance.

What do you guys think?

It seems that the requirements would preclude me from obtaining a license. Is this rule barring misdemeanor convictions set in stone or will the commission judge on a case by case basis? Please advise

The conversation didnt change because even though the property is owned by your LLC, you will still personally guarantee the loan.

Also, how much debt are you carrying from school? May be a better place to put your cash at this point in time.

DONT BUY USED APPLIANCES. EVER. SPEAKING FROM EXPERIENCE.

Most of the used appliance dealers are fly by night, won't return phone calls when they break down, the appliances could have roaches, ants etc. And if you buy a $200 appliance, it breaks within the "warranty" period and they don't return your calls, what recourse do you have? Are you going to waste a bunch of time and money chasing the guy around and dragging him to court? And if you get a judgment against him, what if he doesn't pay? And in the mean time your tenant has no fridge and their food is spoiling? And now the tenant is even more aggravated with you? And then you have to go and buy another appliance anyway?

Just buy something new, a cheap rental grade model. Your tenant will appreciate it, it will depreciate over 5 years, and it will be one less issue to worry about.

PENNY WISE - POUND FOOLISH!