Structuring RE Inestments

[elnuk]

Hi All,

I am a new member of this forum after only one visit. I must commend all the informative post on this site of which i have only reviewed a few and can't wait to read a lot more.
I am also a new RE investor (single family homes) and i need some help!

1, Got involved in no money down deals which is Ok i guess but i now may be looking at negative cashflow from the properties (HOA fees, Termite maintenance, ongoing maintenence etc...). i need ideas on how to turn this around. An idea i have is to try and put the properties in a LLc and then look for investors to buy into the LLc, any thoughts?

2, How do i go about putting rental property in my name into an LLc?

I would greatly appreciate any and all comments.

Thanks.

Elnuk.

[Dan Auito]

Elnuk, I don't think investors would be in to big of a hurry to buy into a negative cashflow LLC.
What comes to mind is selling the current properties for whatever profit can be had and reinvesting into positive cashflow properties on the second go around.

Another approach would be to get in touch with your local investors association and ask them who they recommend as being a knowledgable real estate attorney in your area, you'll need this professional to ensure you cross the T's and dot those I's properly!

I've always operated as a sole proprietor and have not as of yet needed the LLC.
I have a message into one of our folks on the board here to catch this thread, he does use the LLC format and may be able to offer you more in this vein. :SM113:

[Aldo]

I hate to say this, but you apparently didn't do your homework before buying this condo. The fact that 'no-money-down' makes for a good deal isn't at all true and you have now learned that valuable lesson. As Dan suggested, your best chance at survival is to sell the property for the best buck you can get. I would strongly suggest doing so ASAP for this reason. Within the next few months the R.E. market is going to take a hit due the interest rate increases. I don't know where you are, but CA and the northeast will be hardest hit.

As an aside, forming an LLC, in my opinion, is not necessary until one has about 10 rental units. Additionally, as Dan suggested, you would be hard pressed to find an investor for a business (yes, this is as business) that is not showing a substantial profit.

[elnuk]

Wow, Thanks a lot for the responses, :praise: i was not expecting any feedback at this time of the night. Methinks i have found my RE home on the web.

I actually make enough from the properties to cover the mortgage, insurance and taxes, the homes are all less than 3 years old in Snellville GA. My negative equity is comes in when i factor in the HOA which i did not realized i was going to be responsible for :oops:(Due diligence?) and also the GA madated yearly termite inspection fee.
I will not know for a couple of months, but i am hoping that refund in taxes from the intrest payments may cover a lot if not all of the shortfall.

My thoughts on getting investors was to try and come up with capital to refi the properties at favorable investor rates that i have been offered if i can bring the properties to 80% LTV. This will dramatically improve the cashflow even after 8% or 9% yearly returns to the investors who will have their loans secured by RE in the LLc.

Again, thank you very much for your contributions so far and please keep them coming, i am already learning a lot.

[jpopkin]

If that is your plan, you need to write it out in detail so you have something to show potential investors. BUT, I agree with whats already been said, you should probably sell. Your investor would probably have to be someone that already knows and trusts you, because right now the property is a loss.

One thing I slightly dissagree on is when one should form an LLC. I know many people think you don't need them I think its like insurance, you may not need it but you sure are glad you have it when something happens. I do not keep anything in my personal name. I form a new LLC for about every 3 properties, and if i have 2 $200,000 properties, and an $800,000 property, I use have separate LLC's. Its all a personal preferance. I know investors who have 50+ units and no LLC. They us an umbrella insurance policy to protect them instead.

If you do want to transfer a property to an LLC it is a simply process.. Simply file a Quit claim deed at the county.

[Dan Auito]

Jason could I twist your arm on giving folks a mini course on the ins and outs of setting up an LLC. This would be great training and information for people to begin considering how they could use an LLC to protect themselves. :SM056:

[elnuk]

Thanks for the input Jason, I like your idea about the LLc's and will second the motion to request more information on setting up LLc's.

[jpopkin]

I let either the accountant or lawyer put everything together for me. If it's a company where it is either my wife and I, or just myself, I will have my accounant put everything together. If it is a partnership, I will use the lawyers. There are certain items that need to be addressed with partnerships, so the lawyers are better suited. They also cost more, but you want to make sure EVERYTHING is addressed with a partnership.

I am in the process of setting up another LLC, so I will gather more detailed information and post in the next week.

A quick note on partnerships...

They can go to south! Friendships and relationships can be ruined. But they can also multiply your success!

Know Your Roll.

If you have 2 people doing the same thing, there is no reason to work together. In a partnersip, each member must have separate rolls and responsibilties.

Jason Popkin
RentalCashflow.com (http://www.rentalcashflow.com)

[Dan Auito]

Looking forward to the information Jason. Thanks for stepping up to the plate! :beer: