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So glad this thread is still alive. I am up to 300+ units,  A 50 unit apartment building, and 200+ units simple walking distance from my back door.  Quality infrastructure, although I am losing m

I've had numerous realtors call me to ask if I'm selling anything.  We just had a long term tenant move out of a 3/2 sfh, I'm tempted to sell.  We should get about 6-7x what we paid for it 9 years ago

best worst humble brag of the year nomination.  

:thumbup:They should be teaching this stuff in HS. :)So you literally sign a contract or check as "10th & Madison LLC"?

While I love the competitive advantage this gives me / us "in the game" , I agree.Money management / financial responsibility should be taught. My kids will learn it.
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Realistically speaking... assuming that this building is in a good enough area to sustain it... how much would it cost to completely renovate this building with a contractor in a worst case scenario? The company that owns this is paying $1k in taxes just to have an eyesore. Maybe they are getting fined out the ### for it also? My coworker's father works for the city for the inspections & codes department. Maybe he could provide me some useful information?

I'm going to drive around that area again when I get a chance to, but my initial impression of that neighborhood is that it isn't a neighborhood. It's basically that and small industrial/commercial businesses in the area. At least it's not in a war zone.

They bought it for $60k in 1997, not sure why they think it's worth MORE now. For some reason, I can't get this place off my mind. Scare me away Mike. :) All I can think of is six units bringing in $400-$500 each...

Okay drove by the place again just to really get an idea of the neighborhood. It's all businesses. It's next to the railroad tracks, which do get busy near downtown.

In one direction, about two blocks down is a huge car dealership. I forget what kind of dealership offhand. About two blocks the other way is the hospital and everything you'd expect to see near a hospital. There is nothing residential within blocks of this place, except for directly across the street, there is a row of like 2-3 shotgun homes that are pretty run down. Not sure if anyone even lives there. Everything else is basically small businesses.

One street over is Veterans Parkway which is basically the carotid artery of the city. It connects the NE part of the city to downtown and ends at the Civic Center.

Of course, the only possible way this would work financially is if:

a) We got the property for a song

b) Got the city behind us so they don't show up and tear the place down

c) Were able to get a good ARV appraisal to use for a construction loan

d) Get tenants in there

Even if it cost upwards of $80,000 total for repair and purchase, 6 units renting out should be able to cover the bills. If the loan can be deferred 3-6 months, it would be a slam dunk on actual out of pocket cost.

I really should stop thinking about this though. Why hasn't someone else done it, right?

Ok,

Time to do what I do - think out of the box.

Check the zoning of the property and see what COULD be there rather than what IS.

Is there a better use of the property?

Seems like there's no good reason to keep this an apt. building if there's another usage.

Step 1 - Call the county / city and ask what the current zoning is on the property.

Step 2 - Ask for the applicable zoning code to see what is permitted for usage in that zoning.

Step 3 - Post here. ;) .

My mind goes to the same place. Is there a good commercial application? It will be tough to get good tenants in a brown out area.
If you are a short walk to the hospital, I'd sure consider re-doing the apartments and either gear them mid-upper end for the professional staff at the hospital or mid-lower for the hourly staff. You have built-in residents with little/no area competition...
Or "Assisted Living Facility".....
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So you literally sign a contract or check as "10th & Madison LLC"?

Yes. Your actual signature block would be:10th & Madison LLCBy: GLOBAL LLCIts: MemberBy: your name, its MemberIf you form an entity to hold title to your property (or if you have an entity for your business) you MUST follow that rule on every document you sign -- even if you have to hand write it in on a preprinted form. If you don't do that, you run the risk of someone using that fact against you if they ever try and sue you personally for the liabilities of the company (i.e. piercing the corporate veil - which applies equally to LLCs).Briefly, piercing the corporate veil is the term used in law to attach personal liability to the shareholders of a corporation (or members of an LLC) for the liabilities of the corporation (or LLC). The argument by the plaintiff is that they were really dealing directly with the shareholder as an individual, and not dealing with the corporation. They support the argument in many ways -- one of which is showing that the shareholder never signed documents in the name of the corporation, but instead just signed documents with their own name (i.e. not as President of the corporation). While that alone may not be enough to pierce the corporate veil, when combined with other factors (such as whether the entity had enough funding for its anticipated business venture, whether corporate formalities were followed, etc.) it could lead to a shareholder becoming personally liable when they thought they had the liability protection of a corporation -- and that really sucks for them.
Great stuff Marshall.Ever run into refinancing issues? Many lenders HATE LLC lending.
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We drove by a few houses that were for sale today. Just getting in the habit of paying attention, even if it's not a "go" yet.There's this one house that we always drive by that my GF said she always liked and wanted to live in. It was sold last year for $89.5k and it's a corner lot. Overall I'd say the neighborhood is pretty nice. Definitely more nicer areas than bad, and the neighborhood is probably on it's way up. Anyway, right across the street at the other corner lot, a house is for sale. Looks like it hasn't been lived in for a while. Tall grass, and could probably use some new paint and windows. That type of deal. I checked the property tax records and it's owned by the mortgage company. I'd assume that got foreclosed on at some point?

Yes.Contact the mortgage company and ask for their REO department.Or post here and maybe we can find you a link.
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Wow, that's a cheesy yahoo icon there, rpreswood, lol.

Let's get to your questions.

Jeff, Mike, and anyone else that wants to chime in,

What are your experiences in buying foreclosures at courthouse auction? I know there can be alot of risk doing this so I wanted to hear what your opinion is.

Mike has probably done this, I only know the process. I've been at auctions but haven't bought anything (no deals).

Risk is high since you usually can't get inside the house beforehand, and you may have to evict the former owner. No telling what the place is like.

How difficult can it be to obtain a clear title on the property?

Often the auction has the condition of clear title - so no worries.

Can any other liens be placed on the property after auction and prior to close?

Liens - you have to know the pecking order. I'm not an expert on the order, but it is roughly:

1. Federal Gov't (IRS lien)

2. State Gov't (Back Taxes)

3. County / City Gov't (Taxes, maybe utilities ?? )

4. First Mortgage

5. Second....third....etc. mortgages

6. Liens and Judgements.

IDK if more can come to the property during the closing process. Ask a title company.

IF a particular property interests you, ask a title attorney to check the title. Even if he charges some $$ (under 100 for sure), it is better now than later.

Is the winning bid amount all that you have to pay for the property? What other costs are there?

If it is a foreclosure, you pay the auction amount and anything in front of whatever is foreclosing. That is, if a 1st is foreclosuring, you bid on that and then you have to take care of anything above on the pecking order (taxes, IRS, etc.). Many assume that a 1st is it - sometimes this is FALSE - so check the title.

Do you guys prefer this method or letting the bank deal with the title issues then try to aquire the property from them?

Banks had not offered much of any deals the past few years, selling for way over what they should for an investor, yet they sold. With the market cooling in some areas, that will change as more properties go to banks.

Thanks for all the advice so far.

You're welcome.

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Just going to throw some random thoughts down for what I've gotten out of this thread. I've learned a LOT of terminology and abbreviations, and that's great in and of itself.

Three types of business models:

A) Buy and hold. You are a landlord.

C-corp as the "main" seasoned company and LLCs for one or groups of rental properties OR

One LLC or multi LLCs (depending on costs) for one or groups of rental properties OR

Buy in your own name with a big umbrella policy. Mold/lead insurance is extra.

1% rule

Questions:

What about doing a || b combined with c? The goal is to get a company that is approved for it's own credit without a personal guarantee. The benefits are if the business fails, you aren't on the hook personally for lots of money and a FUBAR FICO score. Drawbacks would be increased costs.

Are any of you guys setting up your biz to have a duns and bradstreet credit file?

Would buying a shelf corporation take care of the seasoning issue?

B) Buy and re-sell quickly (flipper or rehabber)

C or S-Corp (why?)

Total costs are 70% of ARV.

15% profit, 10% closing costs, 5% #### hits the fan cushion.

Find a portfolio lender who understands investment property.

C) Short term holder

Setup initially as a landlord as an LLC.

Sell the entire LLC after 1 or 2 years.

Questions:

How do due on sale clauses effect people who are into B) or C)?

I'll add more as I think of it.

VALUE = Net Operating Income (NOI)/Cap Rate%
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Just going to throw some random thoughts down for what I've gotten out of this thread. I've learned a LOT of terminology and abbreviations, and that's great in and of itself.

Three types of business models:

A) Buy and hold. You are a landlord.

C-corp as the "main" seasoned company and LLCs for one or groups of rental properties OR

One LLC or multi LLCs (depending on costs) for one or groups of rental properties OR

Buy in your own name with a big umbrella policy. Mold/lead insurance is extra.

1% rule

Questions:

What about doing a || b combined with c? The goal is to get a company that is approved for it's own credit without a personal guarantee. The benefits are if the business fails, you aren't on the hook personally for lots of money and a FUBAR FICO score. Drawbacks would be increased costs.

Are any of you guys setting up your biz to have a duns and bradstreet credit file?

Would buying a shelf corporation take care of the seasoning issue?

B) Buy and re-sell quickly (flipper or rehabber)

C or S-Corp (why?)

Total costs are 70% of ARV.

15% profit, 10% closing costs, 5% #### hits the fan cushion.

Find a portfolio lender who understands investment property.

C) Short term holder

Setup initially as a landlord as an LLC.

Sell the entire LLC after 1 or 2 years.

Questions:

How do due on sale clauses effect people who are into B) or C)?

I'll add more as I think of it.

VALUE = Net Operating Income (NOI)/Cap Rate%
Building up a FAQ? Cool.
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Here's one.

3 ways to eval commercial.

1. GRM - Gross Rent Multiplier - Monthly rent x N, where N is 78-110. (Often 100). Weakest way.

2. Comps - hardest way. May be few / not similar.

3. Cap rate / NOI / income - Best Way. Use Cap Rate and NOI to get value.

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one more (ok 2)

ROI - Return on Investment (How much $$ do I get back on my $$ per year). Akin to yield, or rate of return.

Cash on Cash - The return / ROI based on how much cash you put into the deal. If you buy for $100K and make $10K a year, on the surface you make 10%. However, if you got a $80K loan and put $20K down and still get $10K a year, your Cash on Cash is 50% (10k/20k).

As for IRR (Internal Rate of Return) - I suck at that one. :shrug:

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Wow, that's a cheesy yahoo icon there, rpreswood, lol.

Let's get to your questions.

Jeff, Mike, and anyone else that wants to chime in,

What are your experiences in buying foreclosures at courthouse auction? I know there can be alot of risk doing this so I wanted to hear what your opinion is.

Mike has probably done this, I only know the process. I've been at auctions but haven't bought anything (no deals).

Risk is high since you usually can't get inside the house beforehand, and you may have to evict the former owner. No telling what the place is like.

How difficult can it be to obtain a clear title on the property?

Often the auction has the condition of clear title - so no worries.

Can any other liens be placed on the property after auction and prior to close?

Liens - you have to know the pecking order. I'm not an expert on the order, but it is roughly:

1. Federal Gov't (IRS lien)

2. State Gov't (Back Taxes)

3. County / City Gov't (Taxes, maybe utilities ?? )

4. First Mortgage

5. Second....third....etc. mortgages

6. Liens and Judgements.

IDK if more can come to the property during the closing process. Ask a title company.

IF a particular property interests you, ask a title attorney to check the title. Even if he charges some $$ (under 100 for sure), it is better now than later.

Is the winning bid amount all that you have to pay for the property? What other costs are there?

If it is a foreclosure, you pay the auction amount and anything in front of whatever is foreclosing. That is, if a 1st is foreclosuring, you bid on that and then you have to take care of anything above on the pecking order (taxes, IRS, etc.). Many assume that a 1st is it - sometimes this is FALSE - so check the title.

Do you guys prefer this method or letting the bank deal with the title issues then try to aquire the property from them?

Banks had not offered much of any deals the past few years, selling for way over what they should for an investor, yet they sold. With the market cooling in some areas, that will change as more properties go to banks.

Thanks for all the advice so far.

You're welcome.

Thanks Jeff,

Have you had any luck with approaching owners and working out a sale prior to foreclosure?

What do you feel has been your most successful way to find and acquire properties?

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Wow, that's a cheesy yahoo icon there, rpreswood, lol.

Let's get to your questions.

Jeff, Mike, and anyone else that wants to chime in,

What are your experiences in buying foreclosures at courthouse auction? I know there can be alot of risk doing this so I wanted to hear what your opinion is.

Mike has probably done this, I only know the process. I've been at auctions but haven't bought anything (no deals).

Risk is high since you usually can't get inside the house beforehand, and you may have to evict the former owner. No telling what the place is like.

How difficult can it be to obtain a clear title on the property?

Often the auction has the condition of clear title - so no worries.

Can any other liens be placed on the property after auction and prior to close?

Liens - you have to know the pecking order. I'm not an expert on the order, but it is roughly:

1. Federal Gov't (IRS lien)

2. State Gov't (Back Taxes)

3. County / City Gov't (Taxes, maybe utilities ?? )

4. First Mortgage

5. Second....third....etc. mortgages

6. Liens and Judgements.

IDK if more can come to the property during the closing process. Ask a title company.

IF a particular property interests you, ask a title attorney to check the title. Even if he charges some $$ (under 100 for sure), it is better now than later.

Is the winning bid amount all that you have to pay for the property? What other costs are there?

If it is a foreclosure, you pay the auction amount and anything in front of whatever is foreclosing. That is, if a 1st is foreclosuring, you bid on that and then you have to take care of anything above on the pecking order (taxes, IRS, etc.). Many assume that a 1st is it - sometimes this is FALSE - so check the title.

Do you guys prefer this method or letting the bank deal with the title issues then try to aquire the property from them?

Banks had not offered much of any deals the past few years, selling for way over what they should for an investor, yet they sold. With the market cooling in some areas, that will change as more properties go to banks.

Thanks for all the advice so far.

You're welcome.

Thanks Jeff,

Have you had any luck with approaching owners and working out a sale prior to foreclosure?

What do you feel has been your most successful way to find and acquire properties?

1. Prior to foreclosure - depends on local laws. They passed a rather stupid law in Maryland that won't allow anyone that approaches someone in foreclosure to also buy it. It's complicated, but it can burn you. Long story short, some jerks were raking people for their houses, making it worse for all, and they over-legislated.

So - know the law.

You can still work with these people and help, but you have to do the right steps (which are now more complicated).

2. Advertise. Let people know you buy houses. Set up $$ sources or know Hard Money Lenders / Private Lenders. Go to real estate clubs. Network.

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Cash on Cash - The return / ROI based on how much cash you put into the deal. If you buy for $100K and make $10K a year, on the surface you make 10%. However, if you got a $80K loan and put $20K down and still get $10K a year, your Cash on Cash is 50% (10k/20k).

Is that 10k net after loan payments or gross? Edited by KnowledgeReignsSupreme
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Jeff,

I did not go through the entire thread to see if this type of question has been answered, but it has to do with an appraisal. Doing a streamline refinance of my house. The appraised value needs to come in about 4-5% more than it did two years when I bought the house. We have made no major repairs or improvement to the property. The area here has been ok and probably should carry the value of the house on its own, but I wanted to know if there are any small things to do that can help the appraisal come up to the level needed.

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Cash on Cash - The return / ROI based on how much cash you put into the deal. If you buy for $100K and make $10K a year, on the surface you make 10%. However, if you got a $80K loan and put $20K down and still get $10K a year, your Cash on Cash is 50% (10k/20k).

Is that 10k net after loan payments or gross?
$10K in your pocket, so net.
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Jeff, I did not go through the entire thread to see if this type of question has been answered, but it has to do with an appraisal. Doing a streamline refinance of my house. The appraised value needs to come in about 4-5% more than it did two years when I bought the house. We have made no major repairs or improvement to the property. The area here has been ok and probably should carry the value of the house on its own, but I wanted to know if there are any small things to do that can help the appraisal come up to the level needed.

Tough one - I think we have some appraisers in this thread.Search "appraiser" in the thread.
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Jeff, I did not go through the entire thread to see if this type of question has been answered, but it has to do with an appraisal. Doing a streamline refinance of my house. The appraised value needs to come in about 4-5% more than it did two years when I bought the house. We have made no major repairs or improvement to the property. The area here has been ok and probably should carry the value of the house on its own, but I wanted to know if there are any small things to do that can help the appraisal come up to the level needed.

Actually, I just got our place reappraised a few months back to open a HELOC. Anyway, I knew what number I wanted and the first thing the appraiser said when he came over was "do you know what you need the appraisal to come in at". I gave him a range and he was in it.
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Jeff, I did not go through the entire thread to see if this type of question has been answered, but it has to do with an appraisal. Doing a streamline refinance of my house. The appraised value needs to come in about 4-5% more than it did two years when I bought the house. We have made no major repairs or improvement to the property. The area here has been ok and probably should carry the value of the house on its own, but I wanted to know if there are any small things to do that can help the appraisal come up to the level needed.

Actually, I just got our place reappraised a few months back to open a HELOC. Anyway, I knew what number I wanted and the first thing the appraiser said when he came over was "do you know what you need the appraisal to come in at". I gave him a range and he was in it.
GB professional ethics.
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Jeff, I did not go through the entire thread to see if this type of question has been answered, but it has to do with an appraisal. Doing a streamline refinance of my house. The appraised value needs to come in about 4-5% more than it did two years when I bought the house. We have made no major repairs or improvement to the property. The area here has been ok and probably should carry the value of the house on its own, but I wanted to know if there are any small things to do that can help the appraisal come up to the level needed.

Actually, I just got our place reappraised a few months back to open a HELOC. Anyway, I knew what number I wanted and the first thing the appraiser said when he came over was "do you know what you need the appraisal to come in at". I gave him a range and he was in it.
so does your appraiser work in Texas?
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So you literally sign a contract or check as "10th & Madison LLC"?

Yes. Your actual signature block would be:10th & Madison LLCBy: GLOBAL LLCIts: MemberBy: your name, its MemberIf you form an entity to hold title to your property (or if you have an entity for your business) you MUST follow that rule on every document you sign -- even if you have to hand write it in on a preprinted form. If you don't do that, you run the risk of someone using that fact against you if they ever try and sue you personally for the liabilities of the company (i.e. piercing the corporate veil - which applies equally to LLCs).Briefly, piercing the corporate veil is the term used in law to attach personal liability to the shareholders of a corporation (or members of an LLC) for the liabilities of the corporation (or LLC). The argument by the plaintiff is that they were really dealing directly with the shareholder as an individual, and not dealing with the corporation. They support the argument in many ways -- one of which is showing that the shareholder never signed documents in the name of the corporation, but instead just signed documents with their own name (i.e. not as President of the corporation). While that alone may not be enough to pierce the corporate veil, when combined with other factors (such as whether the entity had enough funding for its anticipated business venture, whether corporate formalities were followed, etc.) it could lead to a shareholder becoming personally liable when they thought they had the liability protection of a corporation -- and that really sucks for them.
Great stuff Marshall.Ever run into refinancing issues? Many lenders HATE LLC lending.
I know that on smaller, residential loans some lenders may balk at having an LLC as the borrower -- and may try and add some points to the rate because of that fact. If that happens, I would just try and reason with the loan officer, or get their manager to change that policy. Since you will be personally guarantying the loan anyway, it shouldn't matter to them (and, in fact, is beneficial to them) to have the property in a single asset entity. If they won't budge, look elsewhere. Money is easy to get these days and some lender will be happy to loan you the money with an LLC structure.As far as my personal experience, I mostly deal with large commercial transactions, where single asset entities are required by the lender (so there is almost always a LLC as the borrower).
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one more (ok 2)

ROI - Return on Investment (How much $$ do I get back on my $$ per year). Akin to yield, or rate of return.

Cash on Cash - The return / ROI based on how much cash you put into the deal. If you buy for $100K and make $10K a year, on the surface you make 10%. However, if you got a $80K loan and put $20K down and still get $10K a year, your Cash on Cash is 50% (10k/20k).

As for IRR (Internal Rate of Return) - I suck at that one. :shrug:

Cash on Cash - The before-tax cash flow divided by the capital invested in the property.

Cash Flow - the spendable income fron an investment after deducting from gross income all operating and fixed expenses, including principal and interest.

IRR - A rate of discount at which the present worth of future cash flows is exactly equal to the initial capital investment. Determining the IRR is supposed to allow you to compare the investment in real property to other investments, such as stocks and bonds. IRR is widely used (and is taught to commercial brokers), but most people don't know what they're doing and usually screw it up. A particular problem with using IRR is that the formula used to calculate IRR requires the assumption that the investments being analyzed have similar risk factors, and the projected cash flows used as measurements are only as good as the person preparing the projections. IMO opinion, most real estate sales persons are not skilled enough to accurately make these assumptions and, thus, their determination of IRR cannot be trusted.

For those interested in real estate investing, I highly recommend the book: Timing of the Real Estate Market by Craig Hall.

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What part of the country are you from?

Phoenix.
Good market.Love to talk to you about it.I know some investors out there.
Anytime. Keep in mind that I focus on commercial property -- mostly retail development. The only residential work I do is selling dirt to homebuilders, although other partners in my firm do represent home builders. There is very little legal work relating to residential home buying -- the title companies can handle most of the documentation, and people don't want to hire a lawyer because of the relatively small size of the deals.
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LLCs are usually best for holding property.S- and C-corps for renovations / quicker turns (I hate the term "flip" - still negative connotation to it).

Can you give me a general rundown on why?Standard "I am not a tax accountant/lawyer" disclaimer applies.
I'm so not an accountant - but mine told me this was the way to go.Something about taxes. :shrug:.
LLCs are best for holding property. I would even use LLCs for flips. LLCs offer the same liability protection as S and C corps, but are better because they do not require the corporate formalities (such as annual meetings and filing annual reports). Those formalities may seem trivial, but the failure to do them could result in personal liability to you (which is called "piercing the corporate veil").LLCs and S-Corps are similar with respect to taxes. Both are considered "pass-through entities" by the IRS, meaning that the income from the entity is simply passed through the entity level to the owners and taxed as gross income of the owner. In fact, when forming an S-corp now, you have an election on the formation documents to be taxed as a partnership, instead of a corporation. A C-corp is not a good idea for tax reasons. A C-corp will subject you to a double layer of taxes, since any money paid to shareholders is taxed as a dividend.The one tax advantage an S-Corp has over an LLC is with respect to employer taxes. I'm not sure of all of the details, but I believe that the taxes paid for employing persons under an S-Corp may be less than that of an LLC -- these laws have been changing quickly, however, and I wouldn't be surprised if they have now changed to eliminate this advantage. Ask an accountant.IMO, the best structure to hold real property is to have each property in a separate LLC, with the sole member of each such LLC to be a single holding company LLC, of which you (and any partners you have) are members. That way, you limit liabilty related to each property and also create an owning entity which enables the easy sale of the property.I have been a transactional real estate attorney for 14 years -- mostly commercial retail development. I'm glad I found this thread. I don't usually have much to offer re fantasy football -- so it's nice to have something to contribute.
Some thoughts here. I am NOT a Lawyer, consult yours.It's been a while since I researched the LLC, S-Corp, C-Corp deal. For holding rental property, the LLC was the hands down winner even just 2 years ago when I reviewed everything to see where I stood. It gave you the best balance of protection and profit. I couldn't possibly recreate all the work product involved. Just know that my research had the LLC as the hands down winner.I have LLCs in place, and if I had it all to do over, I would not have created it in the first place. First, I am 35 years old, and I plan on holding everything I own for another 30+ years. My area of the country cash flows nicely IF you know what to buy. I have a Profit ratio that I created for myself to help me buy. It's nothing I am telling you to use, just that it works for me. Given: Profit = Gross rent - (PITI + LL paid Utilities)Then I look for: Profit / (PITI + LL paid Utilities) > .50I've made a mint on everything I own that works this way. I seriously doubt that this would come close to working for most of the country, however, in the Midwest.... It's not earth shattering, and it's surely more complicated than it most likely needs to be, but it gets me researching all the little numbers.Anyway, that was a side note, and I didn't mean to distract from the point. But it does show why I use a 30 year fixed mortgage. I am going to be at this longer than 30 years, and I can cash flow with this product.The problem I have run into with LLC lending is that I can't find a lender willing to give my LLC a long term FIXED rate. Not even 15 year. Every product I can find is variable with an arm, or interest only, or some other such package I am not interested in. Even an Equity line is at a much higher rate and variable. I can find products that I can lock down, but they are so far over prime, it's not worth it to me.The product I want requires me to get the loan in my own name, and then move it to the LLC.Now moving it. As Bass has pointed out, there is this dastardly little clause called "Due on Sale". That is technically enforced when you Sell/change the title of the property. Legally, moving the property from your personal name to the LLC is a "sale", and requires you to pay the first mortgage in full, and refinance. I can't get the product I want as an LLC, so this sucks.As Jeff pointed out, No bank is going to call you on it. Well, I can't say never, but moving it from your name to the LLC and not telling the bank, and continuing to pay the mortgage happens each and every day, and no one is ever caught, I've never even heard of a single case. However, Jeff did post some material recently on this subject that although correct, I did want to comment on. It was an article where one of the comments was that the bank isn't going to call the loan as they want money, it's more expensive to call the loan than just accept payments, the works. Which is all correct.Jimmy Carter is still alive, so there is still a chance he can make a come back. If interest rates are up in the 18% range at some point in the future, I would suggest that it will then become PROFITABLE for banks to call loans that have been transfered, where you are still paying 7% and the going rate is 18%. There is very likely a huge industry based just on finding you in the future if the Great Depression of 2015 comes about, or interest rates climb up over 15%.To use your LLC early on, you have to transfer properties to it, and risk the Due on sale clause or get a IMHO bad product to get money out of it.Next, I am not a Lawyer, but I would suspect that 80-90% of the RE LLCs out there are worthless. If you have never run an LLC, it is a complete pain in the ###. I am as diligent as I can be, and my Lawyer is all over everything, and Honestly, I don't know if I am free of getting my corporate veil pierced. You are constantly updating your minutes, filling out paper work, meeting deadlines. Do one dumb thing like use the LLC Credit card for groceries on accident 3 years ago, and you could be entirely open to attack. If you aren't continually updating and including minutes, you LLC can be seen as a non entity, and be worthless. This isn't easy folks. MOST RE LLCs are worthless, give you no protection when you believe you are protected, and they are a complete pain in the rear to run. If you are going to do this, get a ton of professional advice. DON'T buy an LLC over the Internet for a low low price. It won't protect you. Find a good RE lawyer that will work with your good RE accountant if you are going to have an LLC.I know people that are all over the page here.Corp holding company that has an LLC for every property under it.LLC holding company that has an LLC for every property under it.LLC for every property, multiple LLCs for 5 properties each, just one LLC.I know a guy that has everything under an S-Corp.I know a number of people that have the LLC out of Nevada (This provides zero protection in my state as you must have the entity in the state you are doing business, RE ties you to the state as you are doing real business in Indiana)One of the most creative things starting to make the rounds now is to put your flip into a Corp, and then instead of selling the property, sell the Corp to the buyer. Tons of advantages being preached. I had it all laid out to me once, and it made a ton of sense, but I don't flip.However it works, You NEVER want a C-Corp for RE.There are a ton of ways to create your entity. There are a thousand more ways to effectively make it worthless and have zero protection when you believe you are covered.I will never personally create another Entity, or put anything new into the ones I have. Unless it changes in structure, (Never say never).I have been completely under insurance for new properties for a few years running now. I put the levels on each property at $500K/$1 Million, then bought an additional $2 million Umbrella over everything. At any time, I have up to $3 Million to fight with and State Farm Lawyers are going to represent me instead of paying a lawyer on my dime to fight in court. The $2 Million umbrella costs me $500.00 a year for every 50 properties. I paid extra for the Mold rider, and I follow Federal statues on Lead.NOT saying ditch the lawyer all together. A good Lawyer is a powerful weapon, and you NEED one. Just make sure he can work with your accountant. You don't need to be the middle man. They should be able to talk with each other, and figure out the best way to go without you running back and forth between offices. After they figure it out, then you can be presented with the strongest legal way to go, the strongest financial way to go, and what a good compromise of each is. Trust me, they will NEVER agree. ;)
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IMO, the best structure to hold real property is to have each property in a separate LLC, with the sole member of each such LLC to be a single holding company LLC, of which you (and any partners you have) are members. That way, you limit liabilty related to each property and also create an owning entity which enables the easy sale of the property.

Can you explain this a bit more?
You first form GLOBAL LLC, which is your holding company. If it is only your business, this is a single-member LLC -- thus no need for an Operating Agreement. If GLOBAL LLC will have more than one member, you will need an Operating Agreement (which is similar to by-laws of a corporation). Operating Agreements set forth the relationship between the members of an LLC -- how they will split profits and losses, who will be in charge of tax matters, how are day-to-day decisions made for the company, how are major decisions made, what are major decisions, how are deadlocks handled, etc.

Then, for each property you acquire, you form another LLC - such as 10th & Madison LLC, or whatever name you want. The sole member of 10th & Madison LLC is GLOBAL LLC. As you acquire properties, each one will be owned by a separate LLC, but all of those LLCs will be owned by GLOBAL LLC (which is owned by you).

This structure allows you to easily apply for loans and re-financing, since each of your assets is in a single-purpose entity (meaning the sole purpose of 10th & Madison LLC is to own the property located at 10th & Madison). Lenders now routinely require this single purpose entity status to avoid bankruptcy issues associated with multiple properties being owned by the same entity. This structure also allows you to easily peel off each asset in a sale, since you can either sell the asset (and be left with an LLC which owns nothing), or you could sell all of your membership interest in the LLC to another entity (instead of selling the real property). The latter method will sometimes enable you to work around due-on-sale clauses (but not many of them, since most of them now include change of ownership as an unpermitted transfer).

This structure insulates each of your properties from liabilities arising on another property. If a someone is injured at 10th & Madison, and a court finds that the owner is negligent, the recovery would be limited to the assets owned by 10th & Madison LLC -- which is the owner of that property. Since the only thing 10th & Madison owns is the property at 10th & Madison, then you don't subject all of the other properties you own. If you instead owned each of your properties under LLC, then all of your properties would be subject to the judgment imposed because of damages incurred at one property.

There are several other advantages to this structure, besides financing and exit strategies. This structure also allows you to more easily tinker with the ownership structure of particular properties (e.g. if you want to cut your kid into 10% of a property), or if you want to enter into different management or service agreements with different properties.

The goal, of course, is to NEVER have your personal name on anything to do with your properties. That goal is rarely possible since most lenders will require a personal guaranty -- but other than the personal guaranty (and possibly, an environmental indemnification which most lenders now require on commercial properties), you should not personally sign anything. Everything is signed either by the LLC which owns the property, or by GLOBAL LLC. And you should avoid signing things in the name of GLOBAL LLC, since that entity will own many assets (and you don't want to subject all of those assets to liability resulting from a breach of contract).

Excellent! :thumbup:

Up until now, I have been handling LLC questions, and really, doing a piss poor job of it. VERY nice to have a Barrister aboard! :thumbup:

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Jeff, Mike, and anyone else that wants to chime in,

What are your experiences in buying foreclosures at courthouse auction? I know there can be alot of risk doing this so I wanted to hear what your opinion is.

The biggest problem is that everyone is doing it now days. There was a time when the ONLY people at the courthouse were the city employee running the thing, the Bank, and me. That's when the steal were going down. Now everyone and his brother is out there thinking they are going to make a million bucks at the auction.

How difficult can it be to obtain a clear title on the property?

Depends. In my area, a Bank foreclosure can have anything on it, and it's a risk you take. This can all be researched at the records department. However, if you are at the Tax sale, the County erases any liens on the property, and sells a clean title in every way.

Can any other liens be placed on the property after auction and prior to close?

Once again, in a bank repo, in my area, yes, it's buyer beware. For example, the city could hit you for fees for mowing the yard before you owned it. You deal with whatever. In a Tax sale, the title is clean. You need to go down to City Hall, and just start asking questions.

Is the winning bid amount all that you have to pay for the property? What other costs are there?

In a Bank repo, around here, the cost is the cost, and the City fees are already built in. Around here in a Tax sale, you pay the Auction house on top of the sale price.

Do you guys prefer this method or letting the bank deal with the title issues then try to aquire the property from them?

If there is money in it, you won't beat the banks bid anyway. If not, you don't want it. The only way to really win here is when the Bank drops the ball, and doesn't bid thinking they get it by default. Many Banks drop the ball.

Thanks for all the advice so far.

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Jeff, I did not go through the entire thread to see if this type of question has been answered, but it has to do with an appraisal. Doing a streamline refinance of my house. The appraised value needs to come in about 4-5% more than it did two years when I bought the house. We have made no major repairs or improvement to the property. The area here has been ok and probably should carry the value of the house on its own, but I wanted to know if there are any small things to do that can help the appraisal come up to the level needed.

Actually, I just got our place reappraised a few months back to open a HELOC. Anyway, I knew what number I wanted and the first thing the appraiser said when he came over was "do you know what you need the appraisal to come in at". I gave him a range and he was in it.
Sorry to any appraisers, but they are about worthless.My entire career, the appraisal comes in at EXACTLY the purchase price. Exactly. If I need a refi, I tell the appraiser what I want, and it is ALWAYS that exact figure.One single time an Appraiser come in under, and it was like $17K under. I still drive business away from him.Appraisals can and will be anything in the world you need to make it happen.
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LLCs are usually best for holding property.S- and C-corps for renovations / quicker turns (I hate the term "flip" - still negative connotation to it).

Can you give me a general rundown on why?Standard "I am not a tax accountant/lawyer" disclaimer applies.
I'm so not an accountant - but mine told me this was the way to go.Something about taxes. :shrug:.
LLCs are best for holding property. I would even use LLCs for flips. LLCs offer the same liability protection as S and C corps, but are better because they do not require the corporate formalities (such as annual meetings and filing annual reports). Those formalities may seem trivial, but the failure to do them could result in personal liability to you (which is called "piercing the corporate veil").LLCs and S-Corps are similar with respect to taxes. Both are considered "pass-through entities" by the IRS, meaning that the income from the entity is simply passed through the entity level to the owners and taxed as gross income of the owner. In fact, when forming an S-corp now, you have an election on the formation documents to be taxed as a partnership, instead of a corporation. A C-corp is not a good idea for tax reasons. A C-corp will subject you to a double layer of taxes, since any money paid to shareholders is taxed as a dividend.The one tax advantage an S-Corp has over an LLC is with respect to employer taxes. I'm not sure of all of the details, but I believe that the taxes paid for employing persons under an S-Corp may be less than that of an LLC -- these laws have been changing quickly, however, and I wouldn't be surprised if they have now changed to eliminate this advantage. Ask an accountant.IMO, the best structure to hold real property is to have each property in a separate LLC, with the sole member of each such LLC to be a single holding company LLC, of which you (and any partners you have) are members. That way, you limit liabilty related to each property and also create an owning entity which enables the easy sale of the property.I have been a transactional real estate attorney for 14 years -- mostly commercial retail development. I'm glad I found this thread. I don't usually have much to offer re fantasy football -- so it's nice to have something to contribute.
Some thoughts here. I am NOT a Lawyer, consult yours.It's been a while since I researched the LLC, S-Corp, C-Corp deal. For holding rental property, the LLC was the hands down winner even just 2 years ago when I reviewed everything to see where I stood. It gave you the best balance of protection and profit. I couldn't possibly recreate all the work product involved. Just know that my research had the LLC as the hands down winner.I have LLCs in place, and if I had it all to do over, I would not have created it in the first place. First, I am 35 years old, and I plan on holding everything I own for another 30+ years. My area of the country cash flows nicely IF you know what to buy. I have a Profit ratio that I created for myself to help me buy. It's nothing I am telling you to use, just that it works for me. Given: Profit = Gross rent - (PITI + LL paid Utilities)Then I look for: Profit / (PITI + LL paid Utilities) > .50I've made a mint on everything I own that works this way. I seriously doubt that this would come close to working for most of the country, however, in the Midwest.... It's not earth shattering, and it's surely more complicated than it most likely needs to be, but it gets me researching all the little numbers.Anyway, that was a side note, and I didn't mean to distract from the point. But it does show why I use a 30 year fixed mortgage. I am going to be at this longer than 30 years, and I can cash flow with this product.The problem I have run into with LLC lending is that I can't find a lender willing to give my LLC a long term FIXED rate. Not even 15 year. Every product I can find is variable with an arm, or interest only, or some other such package I am not interested in. Even an Equity line is at a much higher rate and variable. I can find products that I can lock down, but they are so far over prime, it's not worth it to me.The product I want requires me to get the loan in my own name, and then move it to the LLC.Now moving it. As Bass has pointed out, there is this dastardly little clause called "Due on Sale". That is technically enforced when you Sell/change the title of the property. Legally, moving the property from your personal name to the LLC is a "sale", and requires you to pay the first mortgage in full, and refinance. I can't get the product I want as an LLC, so this sucks.As Jeff pointed out, No bank is going to call you on it. Well, I can't say never, but moving it from your name to the LLC and not telling the bank, and continuing to pay the mortgage happens each and every day, and no one is ever caught, I've never even heard of a single case. However, Jeff did post some material recently on this subject that although correct, I did want to comment on. It was an article where one of the comments was that the bank isn't going to call the loan as they want money, it's more expensive to call the loan than just accept payments, the works. Which is all correct.Jimmy Carter is still alive, so there is still a chance he can make a come back. If interest rates are up in the 18% range at some point in the future, I would suggest that it will then become PROFITABLE for banks to call loans that have been transfered, where you are still paying 7% and the going rate is 18%. There is very likely a huge industry based just on finding you in the future if the Great Depression of 2015 comes about, or interest rates climb up over 15%.To use your LLC early on, you have to transfer properties to it, and risk the Due on sale clause or get a IMHO bad product to get money out of it.Next, I am not a Lawyer, but I would suspect that 80-90% of the RE LLCs out there are worthless. If you have never run an LLC, it is a complete pain in the ###. I am as diligent as I can be, and my Lawyer is all over everything, and Honestly, I don't know if I am free of getting my corporate veil pierced. You are constantly updating your minutes, filling out paper work, meeting deadlines. Do one dumb thing like use the LLC Credit card for groceries on accident 3 years ago, and you could be entirely open to attack. If you aren't continually updating and including minutes, you LLC can be seen as a non entity, and be worthless. This isn't easy folks. MOST RE LLCs are worthless, give you no protection when you believe you are protected, and they are a complete pain in the rear to run. If you are going to do this, get a ton of professional advice. DON'T buy an LLC over the Internet for a low low price. It won't protect you. Find a good RE lawyer that will work with your good RE accountant if you are going to have an LLC.I know people that are all over the page here.Corp holding company that has an LLC for every property under it.LLC holding company that has an LLC for every property under it.LLC for every property, multiple LLCs for 5 properties each, just one LLC.I know a guy that has everything under an S-Corp.I know a number of people that have the LLC out of Nevada (This provides zero protection in my state as you must have the entity in the state you are doing business, RE ties you to the state as you are doing real business in Indiana)One of the most creative things starting to make the rounds now is to put your flip into a Corp, and then instead of selling the property, sell the Corp to the buyer. Tons of advantages being preached. I had it all laid out to me once, and it made a ton of sense, but I don't flip.However it works, You NEVER want a C-Corp for RE.There are a ton of ways to create your entity. There are a thousand more ways to effectively make it worthless and have zero protection when you believe you are covered.I will never personally create another Entity, or put anything new into the ones I have. Unless it changes in structure, (Never say never).I have been completely under insurance for new properties for a few years running now. I put the levels on each property at $500K/$1 Million, then bought an additional $2 million Umbrella over everything. At any time, I have up to $3 Million to fight with and State Farm Lawyers are going to represent me instead of paying a lawyer on my dime to fight in court. The $2 Million umbrella costs me $500.00 a year for every 50 properties. I paid extra for the Mold rider, and I follow Federal statues on Lead.NOT saying ditch the lawyer all together. A good Lawyer is a powerful weapon, and you NEED one. Just make sure he can work with your accountant. You don't need to be the middle man. They should be able to talk with each other, and figure out the best way to go without you running back and forth between offices. After they figure it out, then you can be presented with the strongest legal way to go, the strongest financial way to go, and what a good compromise of each is. Trust me, they will NEVER agree. ;)
I should add that one of the Huge contributing factors for me not going forward with LLCs is that the vast majority of any wealth I might have is tied up in RE. It's more valuable than my personal side, so the personal side doesn't entirely need the protection that the entity provides.
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Jeff, I did not go through the entire thread to see if this type of question has been answered, but it has to do with an appraisal. Doing a streamline refinance of my house. The appraised value needs to come in about 4-5% more than it did two years when I bought the house. We have made no major repairs or improvement to the property. The area here has been ok and probably should carry the value of the house on its own, but I wanted to know if there are any small things to do that can help the appraisal come up to the level needed.

Actually, I just got our place reappraised a few months back to open a HELOC. Anyway, I knew what number I wanted and the first thing the appraiser said when he came over was "do you know what you need the appraisal to come in at". I gave him a range and he was in it.
Sorry to any appraisers, but they are about worthless.My entire career, the appraisal comes in at EXACTLY the purchase price. Exactly. If I need a refi, I tell the appraiser what I want, and it is ALWAYS that exact figure.One single time an Appraiser come in under, and it was like $17K under. I still drive business away from him.Appraisals can and will be anything in the world you need to make it happen.
MAI appraisal = Made As Instructed.
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The problem I have run into with LLC lending is that I can't find a lender willing to give my LLC a long term FIXED rate. . . . The product I want requires me to get the loan in my own name, and then move it to the LLC.

If that's your real-world experience, then it certainly doesn't make sense to put the property into an LLC. This is mainly a commercial property concern, but putting the property into your own name, IMO, exposes you to too many risks. As you mentioned in your post, you can then transfer the property into an LLC (in violation of the transfer provisions of your mortgage), but that doesn't fully protect you (I'll discuss those transfers below). Even if such a transfer were permitted, by taking title to the property under your own name, you are now in the chain of title to that property. If there is any environmental or hazardous materials found on the property, as somebody in the chain of title, you will be named as a party liable for the clean-up (remediation) of that property under CERCLA (and most state laws relating to clean-up of hazardous materials). Even if you did not release the haz mat, you may end up paying the bill to clean it up -- especially if the other parties in the chain of title are no longer in existence or have no money.

Legally, moving the property from your personal name to the LLC is a "sale"

This is not true -- it depends on the language of your mortgage. Each mortgage (or deed of trust) will have a "transfer" provision -- basically stating that the loan is due upon a Transfer. The document will then define "Transfer." Most documents now broadly define Transfer to include the sale of any ownership interests in the borrower. That is how the due on sale clause is triggered in such event. If "Transfer" is not defined in that way (or if you negotiate an alternative definition), then such a transfer will not trigger the due on sale provision. On nearly every loan I negotiate, the lender will typically carve out certain allowable transfers (such as transfers to an LLC where the borrower owns a controlling interest, or transfers made solely for estate planning purposes, or transfers of less than 49% of the ownership interst in the borrower, etc.)Regarding transfers in violation of your mortgage -- I didn't read the previous posts (37 pages!), but I agree that generally these are forbidden under most mortgages (or deeds of trust). However, I also agree that with a timely payment history and no other defaults, it is unlikely that any lender would trigger an event of default for such matter. That liklihood, I believe, would increase the greater the size of the loan -- lenders (or their servicers) are more concerned with a $35M loan on a office building than a $200K loan on a house.I don't know if it has ever been tested in court -- and I doubt that you want to be the first one to try, but I'm not sure that a court would uphold that clause in the loan documents if there were no other defaults under the loan. From an equitable standpoint, the lender is receiving exactly what they bargained for -- that is the P & I payments, so where are they damaged? But, as I wrote before, I'm sure you don't want to be the pioneer who takes Countrywide to the Supreme Court (and pays the legal bills) in order to prove that point (although it would make lots of borrowers very happy if you won).

Next, I am not a Lawyer, but I would suspect that 80-90% of the RE LLCs out there are worthless. If you have never run an LLC, it is a complete pain in the ###. I am as diligent as I can be, and my Lawyer is all over everything, and Honestly, I don't know if I am free of getting my corporate veil pierced. You are constantly updating your minutes, filling out paper work, meeting deadlines. Do one dumb thing like use the LLC Credit card for groceries on accident 3 years ago, and you could be entirely open to attack. If you aren't continually updating and including minutes, you LLC can be seen as a non entity, and be worthless.This isn't easy folks. MOST RE LLCs are worthless, give you no protection when you believe you are protected, and they are a complete pain in the rear to run. If you are going to do this, get a ton of professional advice. DON'T buy an LLC over the Internet for a low low price. It won't protect you. Find a good RE lawyer that will work with your good RE accountant if you are going to have an LLC.

I disagree with your point above. RE LLCs are extremely valuable and that is why every single one of my clients uses them -- and believe me, my clients are sophisticated real estate investors. Also, there is very little to running an LLC -- as opposed to corporations (that is the LLC advantage). LLCs don't have minutes, don't have meeting requirements, and don't file annual reports. LLC owners do, sometimes, create resolutions from the members which authorize certain actions, but those can be very broad and are very short documents -- and they can cover actions which took place 3 years ago.Besides, what's the alternative to owning in an LLC? A corporation is more of a pain in the ### than LLCs. And owning the property in your own name exposes you to liability in excess of the value of the asset.

I know a number of people that have the LLC out of Nevada (This provides zero protection in my state as you must have the entity in the state you are doing business, RE ties you to the state as you are doing real business in Indiana)

I don't know Indiana law -- but I would check with a lawyer about this. I live in Arizona, and I deal with many LLCs formed in NV, DE and CA. In most states, any foreign LLC (meaning another state, not another country) can own property in that state -- because simply owning property in another state is not deemed to be transacting business in that state. Further, even if your a state's law says that owing property is deemed transacting busines in that state, every state will allow a foreign entity to transact business in their state -- all they require is that you complete an application to transact business as a foreign entity. These forms are usually available online with the state's Corporation Division or Secretary of State, and there is usually a small fee.

However it works, You NEVER want a C-Corp for RE.

I agree.

I have been completely under insurance for new properties for a few years running now. I put the levels on each property at $500K/$1 Million, then bought an additional $2 million Umbrella over everything.

The problem with this strategy is that liability related to one property can bring down your entire portfolio. If some kid gets killed because your roof collapses, you'll get sued. It's possible that a judgment against you could exceed your policy limits and then the plaintiff will be able to recover against any asset you own. If all of your properties are under your own name, then they are all at risk -- not to mention the fact that you will likely be in default under each and every loan you have taken on those properties.

I should add that one of the Huge contributing factors for me not going forward with LLCs is that the vast majority of any wealth I might have is tied up in RE. It's more valuable than my personal side, so the personal side doesn't entirely need the protection that the entity provides.

I don't understand this distinction. If your RE is in your own name, then it is part of your personal wealth. Any judgment against you would enable the party to file a judgment lien on any property you own (although there are some hurdles to jump through if the judgment is in a different state than the property - but they can be overcome) and foreclose on that lien.
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Working on a rental, notice a police car parked beside my truck. Figure I am getting a ticket, as I am parked somewhat in the alley. Head down, it's an officer that I have seen before, who was the reporting officer when my Van was stolen out of.

Turns out, he's "hiding" around the corner, and an unmarked Vice cop is on the street watching the crack house. He is just there as support.

We joke and talk for a bit, and then I tell him he has a new player that showed up 2 weeks ago that drives the flashy yellow sharp looking Pickup Truck that is parked out in front of my building. The guy wears dreads, and showed up a couple of weeks ago.

The officer walks around to the flashy Yellow truck, and writes down the VIN. Comes back and it turns out the Truck was stolen up in DeKalb county.

So they call out a Tow truck to get it, and here comes Dread boy running out of the Crack House yelling at the Cops about towing his Truck.

The mental giant got some nice handcuffs and a ride downtown as a parting gift.

After the last call to the Police, this was a nice change. I really need to do something for this officer.

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Working on a rental, notice a police car parked beside my truck. Figure I am getting a ticket, as I am parked somewhat in the alley. Head down, it's an officer that I have seen before, who was the reporting officer when my Van was stolen out of.Turns out, he's "hiding" around the corner, and an unmarked Vice cop is on the street watching the crack house. He is just there as support. We joke and talk for a bit, and then I tell him he has a new player that showed up 2 weeks ago that drives the flashy yellow sharp looking Pickup Truck that is parked out in front of my building. The guy wears dreads, and showed up a couple of weeks ago.The officer walks around to the flashy Yellow truck, and writes down the VIN. Comes back and it turns out the Truck was stolen up in DeKalb county.So they call out a Tow truck to get it, and here comes Dread boy running out of the Crack House yelling at the Cops about towing his Truck.The mental giant got some nice handcuffs and a ride downtown as a parting gift.After the last call to the Police, this was a nice change. I really need to do something for this officer.

If this is really your version of the "Mecca Of Civilization - Fort Wayne, Indiana", I'm glad I'm Christian.;)
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Is Earnest Money required when you make an offer?

if so, how much?

No. The amount you will deposit as earnest money is usually written in your offer. The amount is negotiable. Put enough down so that the Seller thinks you are a serious Buyer -- remember, the earnest money should be completely refundable in the event you are dissatisifed with the property for any reason (and give notice of such fact to Seller) prior to the expiration of your due diligence period. Just remember to calendar the date so that you don't let it slip by and, thus, your EM becomes non-refundable.
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Is Earnest Money required when you make an offer?if so, how much?

Seems like a regional question to honestly answer. When I purchased a 2 family in NYC I never even heard this word nor had to put anything down when I proposed an offer. Then again, in NYC, it's different. If you put an offer down and is accepted you have typically 60 days, if you are able to qualify for a loan from a lender but decide NOT to purchase the property for reasons that aren't legit (meaning the place is perfectly ok but you simply decide you don't want it) if you bail out, the seller can take you to court and by law you are supposed to buy the house but I don't know if people ever go this far.Now, when I moved to Texas recently, I was sort of suprised and thought Earnest Money concept was pretty lame. I didn't want to put down a penny, I wanted the house but felt like throwing down 3k on a house that I will end up buying for more than 600k was stupid. If I did and bailed, so what, they got 3k but would you be happy if you got 3k when someone tied you up for a month and potetially lost over 600k? I negotiated and got my realtor to front the amount then she got it on the backend.
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in NYC, it's different. If you put an offer down and is accepted you have typically 60 days, if you are able to qualify for a loan from a lender but decide NOT to purchase the property for reasons that aren't legit (meaning the place is perfectly ok but you simply decide you don't want it) if you bail out, the seller can take you to court and by law you are supposed to buy the house but I don't know if people ever go this far.

This is not a right granted by law, but by contract. It is an equitable remedy (as opposed to monetary damages) called specific performance. As a Buyer, you want the right of specific performance in the contract, thus allowing you to force the Seller to sell you the property, but you do not want to give Seller the right to specific performance. The language granting this right (or eliminating it) is usually found in the "default" or "remedies" section of the contract. From a Buyer's standpoint, the Seller's only remedy in the event of a Buyer default should be to keep and retain the earnest money and it should specifically state that the Seller waives any other remedy at law or in equity. That last part will probably need to be added to any pre-printed form you sign (that language is definitely not contained in the standard broker form for AZ and CA). Further, those pre-printed forms ususally state just the opposite -- that is that the non-defaulting party can pursue any remedy against the other party. That would include specific performance and you don't want that.

Now, when I moved to Texas recently, I was sort of suprised and thought Earnest Money concept was pretty lame. I didn't want to put down a penny, I wanted the house but felt like throwing down 3k on a house that I will end up buying for more than 600k was stupid. If I did and bailed, so what, they got 3k but would you be happy if you got 3k when someone tied you up for a month and potetially lost over 600k? I negotiated and got my realtor to front the amount then she got it on the backend.

If you can get your broker to front the EM, then great. Usually they won't, since the EM becomes non-refundable after the expiration of a due diligence period. Then, if you bailed on the deal, the broker has lost the money and its commission.The amount of the EM is negotiable. It is a form of liquidated damages and is meant as an agreement of the parties to compensate the Seller for the Buyer's default. Thus, if you are a Seller, you should set the amount at a value that you believe would compensate you for the time your property is off the market due to escrow with the Buyer. Edited by marshall88
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pics of the flip

kitchenBC

kitchenAB

Little update her for ya. The kitchen (pics above) has been totally demo'd. Cabinets gone, soffet gone, ect. We have to do a complete redesign. We were originally just going to put the stove on wall A (left wall when facing the window - glass cupboard doors) and fridge on wall C. Move wall cupboards accordingly, eliminating the glass door ones, simple solution.

But, the dishwasher door wouldn't open with the stove there. So we were going to move the dishwasher to the other side of the sink. Easy enough. But the cabinets are all one unit. We figured it would require too much work and look like a hack job to disassemble, cut, and attempt to reassemble so we took the wall measurements to HD/Lowes.

All new cupboards (stock, not custom) came back at $1200 for design 1. The arrangement is fridge on wall B in the AB corner, dw on wall B, other side of the sink, and stove in cutout on wall C. This leaves very little counter/cupboard space.

Design 2 was a little more, $1700 total, but utilized wall D (the one with the flashlight "thing") for the stove with countertops and cupboards around the stove. Wall A would be left empty (although we all thought about adding cupboards afterwards maybe another $200), dishwasher would be left where it is in the pics, and wall C would have fridge in the cutout. We all pretty much liked this layout better, with or without adding cupboards on wall A (not sure how this never got in the design, maybe there's a reason).

Wife is going to check out Menards today for designs/prices on their in stock stuff and we'll go from there.

Other notes:

We have grass comming up in the bare spots that were "patchmastered" (I love this stuff)

New tub and surround are in the downstairs bath

First floor is painted (except kitchen, one bedroom, and the bathroom) Ended up going with MAB with the paint because a friends mother in law runs the local one and is giving us the paint at a much better discount than our SW.

Powerwashed the house, deck and hottub. Amazing results.

Total money spent so far $1850. Includes:

$300 Tile for kitchen and bath and backerboard for bath.

$200 in paint

$800 bathroom (tub and surround, vanity, faucets, and plumbing)

$100 landscaping (patchmaster, hose, sprinkler, roundup)

And lots of misc stuff.

Still looks like we're going to keep it at/under 10K.

Time for another update. Hard to believe I made the above post a month ago. So much has happened since then.

We ended up going with Menards on the cupboards/countertops and wow, what a headache this has turned out to be. Our order came in a few weeks ago but one of the countertops was damaged so we sent it back. The cabinets were also a little rough (door screws missing/broken, drawer tracks were loose, doors hung on the wrong side, and some cabinets were actually physically damaged). I called the store and let them know we were sending a countertop piece back and that I would need the replacement asap. No problem, they reordered right away. I also let them know we were not very happy with the condition of the cabinets and that it took us alot of time to get them right.

Well the reordered countertop came in last weekend and it was the wrong piece. I was livid. We put off tiling the backsplash until the countertops get installed and now we have another week delay (at least). Ended up talking to the store manager, told him the whole story and he is going to completely refund our money on the countertops. I asked about the cupboards and he said I need to send in a complaint form (they mailed to me earlier) to get that taken care of because they have had many similar problems with their supplier. He assured me he would see that this was also made right.

So we have the floor tiled in the kitchen, cabinets up and still need to install the countertop and tile the backsplash to complete the kitchen. Main floor bathroom floor is tiled and the walls are also being tiled today (all the places formica was torn off the walls are being tiled). We've almost got the painting done upstairs but have yet to redo the bathroom upstairs (hopefully get to that this week). Most of the carpet/pad has been removed, deck has been stained (looks great!), and I'm guessing we're about 2 weeks from completion.

Total spent:

5,348.38

still looks like we're on pace for around $10k.

Mike, you had something to say about refinishing wood floors?

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Is Earnest Money required when you make an offer?if so, how much?

It is not required. Common thought is that you put down enough of your own money so that the seller feels good about the deal. REOs generally state what the required EM is.I put down either $500 or a Grand. Never more as I need cash on hand, and not tied up with some seller. Then again, I am buying cash producing properties, and I won't live in them. If I was buying my dream house, I could see putting down sizable EM. Never dealt with that scenario, so who really knows? The most important think you can do is have a ton of "weasel" clauses. Just what they are called around here. Basically, load up things that give you an out. I put in tons of them, and many times the seller has not come back at a higher price, but to drop clauses.Ask for the time for the home inspection even though I do my own.Ask for the time for termite inspection.Base it on "Partner" approval (So it turns out that your partner is your dog, and he just didn't want a blue house)You want time for a Lead inspection.Base everything on "acceptable" financing.You want time for a number of things, any of them can help you kill the deal.Remember that I am a Realtor (Not practicing), here is the one mistake in the offer that makes me cringe: On a standard off sheet there is a spot that says something along the lines of Interest rate. EVERY Realtor out there is just going to circle "Market Rate" instead of writing in a number. Don't do this. One for your protection, if the Interest jumps way up, you can get stuck in something you can't afford. This is a real situation if it takes a few months to close. Secondly, it's a good weasel clause. If you know you can get say 6.5% at best, write the offer with 6.25%. The seller will never notice it, and later when you can't get "Acceptable" financing, you can kill the deal. You can still take even 6.75% if you want to, but it's an out that the seller will never see coming.
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in NYC, it's different. If you put an offer down and is accepted you have typically 60 days, if you are able to qualify for a loan from a lender but decide NOT to purchase the property for reasons that aren't legit (meaning the place is perfectly ok but you simply decide you don't want it) if you bail out, the seller can take you to court and by law you are supposed to buy the house but I don't know if people ever go this far.

This is not a right granted by law, but by contract. It is an equitable remedy (as opposed to monetary damages) called specific performance. As a Buyer, you want the right of specific performance in the contract, thus allowing you to force the Seller to sell you the property, but you do not want to give Seller the right to specific performance. The language granting this right (or eliminating it) is usually found in the "default" or "remedies" section of the contract. From a Buyer's standpoint, the Seller's only remedy in the event of a Buyer default should be to keep and retain the earnest money and it should specifically state that the Seller waives any other remedy at law or in equity. That last part will probably need to be added to any pre-printed form you sign (that language is definitely not contained in the standard broker form for AZ and CA). Further, those pre-printed forms ususally state just the opposite -- that is that the non-defaulting party can pursue any remedy against the other party. That would include specific performance and you don't want that.

Now, when I moved to Texas recently, I was sort of suprised and thought Earnest Money concept was pretty lame. I didn't want to put down a penny, I wanted the house but felt like throwing down 3k on a house that I will end up buying for more than 600k was stupid. If I did and bailed, so what, they got 3k but would you be happy if you got 3k when someone tied you up for a month and potetially lost over 600k? I negotiated and got my realtor to front the amount then she got it on the backend.

If you can get your broker to front the EM, then great. Usually they won't, since the EM becomes non-refundable after the expiration of a due diligence period. Then, if you bailed on the deal, the broker has lost the money and its commission.The amount of the EM is negotiable. It is a form of liquidated damages and is meant as an agreement of the parties to compensate the Seller for the Buyer's default. Thus, if you are a Seller, you should set the amount at a value that you believe would compensate you for the time your property is off the market due to escrow with the Buyer.
I went through the specific performance process once. After 8 months and way too much spent on Lawyer fees, it really wasn't worth it outside of the satisfaction of sticking it to the seller. In the end, it settled, I didn't get the house, I did get monetary damages and legal fees covered.
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What is the best way to search for a mortgage lender with the lowest rates and the lowest fees?

It seems like the Chase Banks and Bank of Americas have the highest rates.

How can I find the best deal on a loan?

Thanks in advance for your help.

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What is the best way to search for a mortgage lender with the lowest rates and the lowest fees?It seems like the Chase Banks and Bank of Americas have the highest rates.How can I find the best deal on a loan?Thanks in advance for your help.

www.countrywide.com
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What is the best way to search for a mortgage lender with the lowest rates and the lowest fees?It seems like the Chase Banks and Bank of Americas have the highest rates.How can I find the best deal on a loan?Thanks in advance for your help.

www.countrywide.com
how is that a search?or do they really have the best rates?
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Also, there is very little to running an LLC -- as opposed to corporations (that is the LLC advantage). LLCs don't have minutes, don't have meeting requirements, and don't file annual reports.

I have to question this. I believe in NC an annual report is required and there's a $250 filing fee. $250 buys a bunch of insurance. My understanding is that the annual filing fee was put into place because so many investors were taking out single property LLCs.
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Also, there is very little to running an LLC -- as opposed to corporations (that is the LLC advantage). LLCs don't have minutes, don't have meeting requirements, and don't file annual reports.

I have to question this. I believe in NC an annual report is required and there's a $250 filing fee. $250 buys a bunch of insurance. My understanding is that the annual filing fee was put into place because so many investors were taking out single property LLCs.
You are right, NC does require an annual report for LLCs. It is $200.

I have never worked with a NC LLC before. I haven't worked with the majority of states in the country, but I do know that AZ, CA and DE do not require them. I guess some states are deciding to add that as a requirement in order get annual fees.

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The problem I have run into with LLC lending is that I can't find a lender willing to give my LLC a long term FIXED rate. . . . The product I want requires me to get the loan in my own name, and then move it to the LLC.

If that's your real-world experience, then it certainly doesn't make sense to put the property into an LLC. This is mainly a commercial property concern, but putting the property into your own name, IMO, exposes you to too many risks. As you mentioned in your post, you can then transfer the property into an LLC (in violation of the transfer provisions of your mortgage), but that doesn't fully protect you (I'll discuss those transfers below). Even if such a transfer were permitted, by taking title to the property under your own name, you are now in the chain of title to that property. If there is any environmental or hazardous materials found on the property, as somebody in the chain of title, you will be named as a party liable for the clean-up (remediation) of that property under CERCLA (and most state laws relating to clean-up of hazardous materials). Even if you did not release the haz mat, you may end up paying the bill to clean it up -- especially if the other parties in the chain of title are no longer in existence or have no money.

Legally, moving the property from your personal name to the LLC is a "sale"

This is not true -- it depends on the language of your mortgage. Each mortgage (or deed of trust) will have a "transfer" provision -- basically stating that the loan is due upon a Transfer. The document will then define "Transfer." Most documents now broadly define Transfer to include the sale of any ownership interests in the borrower. That is how the due on sale clause is triggered in such event. If "Transfer" is not defined in that way (or if you negotiate an alternative definition), then such a transfer will not trigger the due on sale provision. On nearly every loan I negotiate, the lender will typically carve out certain allowable transfers (such as transfers to an LLC where the borrower owns a controlling interest, or transfers made solely for estate planning purposes, or transfers of less than 49% of the ownership interst in the borrower, etc.)Regarding transfers in violation of your mortgage -- I didn't read the previous posts (37 pages!), but I agree that generally these are forbidden under most mortgages (or deeds of trust). However, I also agree that with a timely payment history and no other defaults, it is unlikely that any lender would trigger an event of default for such matter. That liklihood, I believe, would increase the greater the size of the loan -- lenders (or their servicers) are more concerned with a $35M loan on a office building than a $200K loan on a house.I don't know if it has ever been tested in court -- and I doubt that you want to be the first one to try, but I'm not sure that a court would uphold that clause in the loan documents if there were no other defaults under the loan. From an equitable standpoint, the lender is receiving exactly what they bargained for -- that is the P & I payments, so where are they damaged? But, as I wrote before, I'm sure you don't want to be the pioneer who takes Countrywide to the Supreme Court (and pays the legal bills) in order to prove that point (although it would make lots of borrowers very happy if you won).

Next, I am not a Lawyer, but I would suspect that 80-90% of the RE LLCs out there are worthless. If you have never run an LLC, it is a complete pain in the ###. I am as diligent as I can be, and my Lawyer is all over everything, and Honestly, I don't know if I am free of getting my corporate veil pierced. You are constantly updating your minutes, filling out paper work, meeting deadlines. Do one dumb thing like use the LLC Credit card for groceries on accident 3 years ago, and you could be entirely open to attack. If you aren't continually updating and including minutes, you LLC can be seen as a non entity, and be worthless.This isn't easy folks. MOST RE LLCs are worthless, give you no protection when you believe you are protected, and they are a complete pain in the rear to run. If you are going to do this, get a ton of professional advice. DON'T buy an LLC over the Internet for a low low price. It won't protect you. Find a good RE lawyer that will work with your good RE accountant if you are going to have an LLC.

I disagree with your point above. RE LLCs are extremely valuable and that is why every single one of my clients uses them -- and believe me, my clients are sophisticated real estate investors. Also, there is very little to running an LLC -- as opposed to corporations (that is the LLC advantage). LLCs don't have minutes, don't have meeting requirements, and don't file annual reports. LLC owners do, sometimes, create resolutions from the members which authorize certain actions, but those can be very broad and are very short documents -- and they can cover actions which took place 3 years ago.Besides, what's the alternative to owning in an LLC? A corporation is more of a pain in the ### than LLCs. And owning the property in your own name exposes you to liability in excess of the value of the asset.

I know a number of people that have the LLC out of Nevada (This provides zero protection in my state as you must have the entity in the state you are doing business, RE ties you to the state as you are doing real business in Indiana)

I don't know Indiana law -- but I would check with a lawyer about this. I live in Arizona, and I deal with many LLCs formed in NV, DE and CA. In most states, any foreign LLC (meaning another state, not another country) can own property in that state -- because simply owning property in another state is not deemed to be transacting business in that state. Further, even if your a state's law says that owing property is deemed transacting busines in that state, every state will allow a foreign entity to transact business in their state -- all they require is that you complete an application to transact business as a foreign entity. These forms are usually available online with the state's Corporation Division or Secretary of State, and there is usually a small fee.

However it works, You NEVER want a C-Corp for RE.

I agree.

I have been completely under insurance for new properties for a few years running now. I put the levels on each property at $500K/$1 Million, then bought an additional $2 million Umbrella over everything.

The problem with this strategy is that liability related to one property can bring down your entire portfolio. If some kid gets killed because your roof collapses, you'll get sued. It's possible that a judgment against you could exceed your policy limits and then the plaintiff will be able to recover against any asset you own. If all of your properties are under your own name, then they are all at risk -- not to mention the fact that you will likely be in default under each and every loan you have taken on those properties.

I should add that one of the Huge contributing factors for me not going forward with LLCs is that the vast majority of any wealth I might have is tied up in RE. It's more valuable than my personal side, so the personal side doesn't entirely need the protection that the entity provides.

I don't understand this distinction. If your RE is in your own name, then it is part of your personal wealth. Any judgment against you would enable the party to file a judgment lien on any property you own (although there are some hurdles to jump through if the judgment is in a different state than the property - but they can be overcome) and foreclose on that lien.
Great stuff to all. :thumbup: I would also just add that in Pennsylvania, for example, there is a corporate stock tax that LLCs are required to pay once they reach 100K in net assets (I think it is $100K? - I am a lawyer, not an accountant). So here in PA, nearly all commercial properties are purchased by a Limited Partnership with an LLC as the General Partner. The GP then generally would only own a very small portion of the LP. Only the GP in a LP is subject to liability, provided the limited partners do not participate in the managing of the business. So it essentially works like this:Property is owned by GLOBAL, LP. The GP of GLOBAL, LP is GLOBAL, LLC. DrunkinDwarf would be the sole owner of the LLC and would also be a limited partner in GLOBAL, LP owing a 99% interest in the LP. The managing of the company is conducted by GLOBAL, LLC as the general partner. All documents are signed ...GLOBAL, LPBy: GLOBAL, LLC, its general partnerBy: MEMBERI know that PA is one of the few (and maybe only) state that has this LLC tax, but just thought I'd point that out to anyone doing business in the beautiful state of PA.
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