Real Deal REInvestor Network

Property Management Most of us have set our sights on earning money through real estate investing. Including me. But what will you do when you actually own a property, or multiple properties? Whether residential or commercial, ultimately someone, or some business, will occupy that space. Speaking from a residential point of view, occupied is preferred over vacant, in most cases. Oh, come on, Mark, isn't that obvious? Perhaps. Let's think it through. What if you have a rental property, no matter how large or small, no matter the location or anything else? If there is a tenant who is not paying rent on time, or at all, you are losing money you are owed. However, you also will find it difficult, if not impossible, to show the property to prospective tenants until the problem tenant is removed. And once the problem tenant has left, do you believe they are likely to leave the dwelling in "broom clean" condition as (hopefully) specified in the lease agreement? Chances are good that if the payment agreement has not been honored, other clauses will be ignored as well. So now you are facing additional costs for cleaning and refurbishing the property, perhaps including damages inflicted intentionally. Depending on your state, it may also cost additional fees to file court orders, such as unlawful detainers or intent to evict notices. The eviction process can take weeks to months, depending on your state's laws. How much rent will be collected (rather, how much rent will you lose) if and while eviction is being pursued? If an attorney needs to become involved, ...I think you get the point. There's often much more at stake than simply lost rental revenue. The most valuable lesson I can share with you is to conduct your due diligence with background checks to obtain sufficient information about your potential tenants as you can, BEFORE anyone moves in or takes up residence. The old adage relating to prevention and cure, most definitely applies to checking tenants before they are in. In my experience, you do not always need every possible investigation for every tenant. If you collect sufficient references, including all family, whether local or not, employment history, as well as friends and associates, and actually speak to all of them, you should have a good platform to begin. While credit history is not the highest on my list of qualifications, if I have an accurate financial picture of debt-to-income, I will always look for criminal records. While it seems reasonable, even obligatory, to speak to previous landlords, you may find cases where the former property owner negotiated a favorable recommendation with the tenant, in exchange for the tenant leaving the premises. I do not intend to paint a grimey, Dickensian portrait of property management. At the same time, you must be aware of some of the pitfalls that await the uninformed or uneducated property manager, just as you must be aware in any other aspect of investing. Managing your own properties, at least while building sufficient revenues to hire an agency, if you desire, provides several benefits to the beginning investor. You do not have the expense of an outside agency, and you gain valuable experience so you can better interview property management agencies when you do hire them. You also have more control over policy if you manage the property yourself. In the end, if you are a property owner, you will be managing your property, whether yourself or through a professional agency. It's just a matter of the degree of direct or indirect contact you have with your tenants.

How can you own investment property without dealing with tenants or toilets?

 

1.        Are you scared of being a landlord?  - In the real estate investing world it can be daunting, especially for new investors, to become a landlord.  Your brain starts hitting you with questions from every angle, trying to talk you out of what should be a great investing experience.  Questions like:  How much should I pay for the property?  How do I find a good tenant?  How much should I charge for rent?  What if I end up losing money every month?  What if I’m not available to make the repairs necessary to keep the tenant happy and my property well maintained?

 

2.       Is being a landlord a huge pain and more work than it’s really worth? – Many  inexperienced investors think that owning an investment property is all glitz and glamour, collecting passive income every month while you sit by the pool.  Soon after they buy their first properties , however, they get a dose of reality.  The tenants they’ve pre-screened are now becoming a nuisance, turning their hair gray with phone calls at 9pm about water pipes bursting, trees falling on the roof, the toilet leaking, and the dogs eating the charming wood trim that they just had painted.  Many people don’t count in the ‘human factor’ when purchasing an investment property.

 

 

3.       A Professional Property Management Company is your BEST friend (and business partner) – If you’re a smart investor (and you are), you will hire a professional property management company to take care of everything for you.  Eliminating ALL your headaches while reaping the rewards of your passive monthly income or cash flow.  The tenant calls them when they have a problem, NOT YOU.  This creates a totally turnkey, passive way of real estate investing.

 

4.       Proven Process for getting Good Tenants – With a good property management company you don’t have to worry about finding and keeping good tenants.  You want to choose a company that has a proven track record for finding quality tenants that will bring you stable passive monthly income for years to come. 

 

 

5.       THEY deal with any tenant or building issues – Do you get it yet?  THEY do ALL the work.  No more late night calls, no more putting that ‘for rent’ sign out in the yard, no more evictions, no more screenings/applications, no more hiring a handyman to fix ANYTHING.  A Professional Property Management Company will do all of that for you because that’s ALL they do.

 

6.       You get income and a monthly report on your properties – If you want to build a truly passive portfolio of income producing properties, you only have ONE choice.  That’s right, property management.  Have I hit this one home yet?  Not only do you get monthly income right to your mailbox or bank account, but you also get a detailed monthly report on all of your properties so you can track EVERYTHING.  What easier than that?  Put your money to work for you.

 

Want to know how you can buy turn key, cash flowing rental properties in Orlando for
fixer-upper prices from an experienced team of investors who have done over
$500,000,000 worth of business? 

Visit http://www.RealOrlandoDeals.com

Or call Adam direct at 502-509-5061

As a Special bonus, get 2 FREE tickets (a $997 value) to an upcoming 2 day training event on residential REO and commercial distressed asset investing.  Where you can have an Exclusive opportunity to purchase turnkey "done for you" discounted REO rental properties our team has bought, fixed up and put a tenant in for you.

 

-Adam Walker

Executive Director, Investor Alliance Asset Management Group

Millionaire in Training, http://www.MMMChallenge.com

Top 5 reasons you want a Turn Key Investment

 

1.        Cash Flow from Day  1 – Today’s Savvy Investors know that cash is king.  If your property isn’t cash flowing, then it’s a burden on you, your family and your portfolio.  If you buy a Turn Key Investment property right, it should be cash flowing from the second you close.  Which means  2 things:  A) Buying at the right price is crucial and B) The number most important to you is the difference between your rental income and the debt on the property.  This is your passive income.  Your money working for you.

 

2.       You don’t have to worry about finding contractors – What if you buy a property out of state that needs work?  Are you going to drive hours on end each way to find and hire contractors to fix the property?  Heck no you’re not.   Turn Key Investment strategies take care of this for you by locating reputable contractors that will finish the work needed in a timely and professional manner without you lifting a finger.

 

 

3.       You don’t have to worry about managing contractors – Managing a worksite can be one of the most stressful experiences of your life.  From contractors and sub-contractors  to day laborers and material deliveries, it can be a real hassle to take care of everything and manage your workers by yourself.  If you don’t want to start growing gray hairs just yet, Turn Key Investing is for you.

 

4.       You don’t have to worry about finding a renter up front – You can’t have cash flow without a renter.  Finding someone who will pay on time every month with a smile can be harder than you think.  Especially if your property is out of town.  How are you going to find that qualified renter?  A ‘For Rent’ sign and one local ad just won’t cut it for a serious investor.  With a Turn Key Investment,  your renter is already in place and paying you every month.  How easy is that?

 

 

5.       You don’t have to worry about finding an excellent property management firm – Ok, so you’ve bought, renovated, and rented the property.  Now what?  You’ve got to maintain your investment to not only keep your renter happy but also to maintain and increase your property value.   There’s no sense in buying a property if you don’t plan on maintaining it.  This can prove to be time consuming and down right annoying, especially if you have your own residence to take care of or are out of state.  No investor wants to deal with tenants or toilets.  This is why Turn Key Investing is so appealing to smart investors.  You don’t have to worry about finding a great property management company to take care of everything.  It’s already set up for you.  All you have to do is open your mail box and collect your check every month.  Sound good to you?

 

-Adam Walker

Executive Director

Investor Alliance Asset Management Group

502-509-5061

Millionaire in Training, www.MMMChallenge.com

Ask me how you can buy Turn Key, Cash Flowing rental properties in Orlando for fixer-upper prices from an experienced team of investors who have done over $500,000,000 worth of business.

 

http://www.RealOrlandoDeals.com

http://www.TheKingofTheCity.com

In my last blog post, I talked about ways to shift responsibility to pay for damages that may come from an injury on your property. This post will discuss ways to transfer liability away from yourself and further protect your personal assets. The real question is, how can you benefit from ownership but not have the personal liability?

 

There are a number of alternatives available for owning property in the United States. They come in a number of fancy names and an alphabet soup of letter designations including: C corp., S corp., LLC, LLP, LP, General Partnership, FLP, Land Trust, Living Trust, and Children’s Trust, just to name a few. Each entity has its advantages and disadvantages for asset protection purposes. Each entity also has specific tax issues that may affect how much you benefit from it monetarily. When picking an ownership structure you must consider not only liability issues but also tax issues. We will not address the tax issues in this discussion but I highly recommend that you consult your tax advisor (you do have one, don’t you?) prior to purchasing investment property in any structure.

 

The most familiar place to start our discussion is with the corporation. A corporation is a separate legal entity whose purpose is to allow you to contribute a certain amount of capital or an item (i.e. real estate), and generally limit your risk in the business venture to that item or the cash. You might lose what you contributed to the corporation, but the rest of your personal assets would not be at risk. Assuming your investment property is owned by a separate corporation of which you are the sole shareholder, and someone is injured on the property, the corporation would be sued as the owner, not you individually. If your company lost the lawsuit, it might lose the property, but your personal assets would be safe. However, in some states, a director or officer of the company might still be liable if they contributed to the damaging act or they had control over the act causing the damage. The keys to making a corporation work for asset protection purposes are to follow all corporate formalities required by your state and make sure that the corporation has adequate capital for the type of business it conducts. Undercapitalization of corporations is the undoing of many shareholders in protecting their personal assets.

 

The next group of structures is the partnerships which include the General Partnership, Limited Partnership, Family Limited Partnership, and Limited Liability Partnership. A General Partnership is nothing more than an agreement between two persons or entities to go into a business venture together. In this type of partnership, each partner can be held responsible for the other partner’s debts or obligations in the partnership. If your partner signed on a promissory note or opened a credit account and charged it up, the creditor can come after you for payment. This type of partnership offers no asset protection and has no place in your asset protection strategy.

 

A Limited Partnership (LP) is a partnership consisting of a general partner, who is personally liable for all the debts and obligations of the partnership, and one or more limited partners, who are only liable for the amount of money they contributed to the business venture. If the general partner is a corporation, it could limit the risk of the general partner. A Family Limited Partnership (FLP) is the same thing, just with the partners all being within the same family. A Limited Liability Partnership (LLP) varies from a Limited Partnership in that no general partner is required. Therefore each partner risks only the amount he has contributed to the partnership. Many consider a limited partnership one of the best asset protection entities available to real estate investors because it can be structured to severely limit the legal remedies available to those who file lawsuits against it. From a tax standpoint, it also allows you to spread the gains on the sale of assets, thereby reducing taxes. To see if this entity is right for you and your investment goals, see your attorney and your tax advisor.

 

An LLC or Limited Liability Corporation is a relatively new entity, now valid in all states. It provides the limited liability of a corporation with the tax advantages of a partnership. It is structurally similar to an LLP in that it doesn’t require a general partner. It can choose how it wants to be taxed for IRS purposes and can include in its operating agreement the same limitations on legal remedies that Limited Partnerships include to reduce liability. There may be tax issues in your state related to doing business as an LLC so seek competent tax and legal advice before proceeding with any entity structuring.

 

Finally, let’s briefly look at trusts for asset protection purposes. As a general rule, if you control any aspect of the trust, such as being the trustee, you have no protection from creditors. If you are a beneficiary of a trust, such as a land trust, your name might not be readily seen in public records, but in judgment proceedings to levy your assets, you will have to reveal your true ownership interest. Trusts can also create problems when working with banks and mortgage companies to obtain financing and they have their own special tax issues. Therefore, I don’t generally recommend trusts for asset protection. The one exception would be a Children’s Trust where you permanently transfer ownership of your asset or property to the trust for the benefit of your children. This can be good for longer term investments that you intend to give to your children anyway.

 

There are many good books available on asset protection strategies. First get educated. Then talk to your attorney and tax advisor about a strategy that fits your circumstances. Most importantly, start today.

 

 

Ed Young is a Florida licensed attorney who has been practicing law for 22 years in the Tampa Bay area. He is a member of the Board of Advisors and regularly advises clients on entity structuring and asset protection issues. He can be reached at elyoung2909@hotmail.com.

Asset protection is one of those phrases bantered around more and more these days in all sorts of places, especially in real estate investment circles. You’ve probably heard all the statistics about the number of lawsuits in America, so much so that you’d believe me when I say that 3 out of every 2 Americans will be faced with some kind of lawsuit in their lives (credit to Yogi Berra for that kind of statement). But what does it mean to you as a real estate investor and how can you benefit from thinking differently about liability as you go about your real estate business.

 

In its simplest form, asset protection is shifting liability from you to someone or something else. Legal liability generally follows ownership and responsibility. If you own something that causes harm to another, your name will be on the lawsuit to remedy that harm. If you have an employee who discriminates or is involved in harassment, you as the employer are generally responsible for their behavior. Each state may have variations of these principles, but these are the general rules of thumb.

 

The key then to asset protection is don’t own anything and don’t be responsible for anyone. Wow, that was easy! But can you live your life that way or do you even want to? Is there a way to have it all and still not be a target? Let’s explore some possibilites.

 

As a real estate investor, you should be familiar with title insurance to protect you against title defects when you purchase a property, homeowners insurance to protect the house and renter’s insurance to protect your tenants’ property. You may also have a general liability policy for your business or a personal umbrella policy to cover any excess liability. Insurance is generally the first line of defense for common liabilities. Your payment of the premium, shifts the burden of paying for a larger claim against you to the insurance company. The more insurance you have, the less risk you will have of coming out of your own pocket to pay for damages.

 

However, what happens to you if you have a rear end collision with a highly paid neurosurgeon’s car, his injuries leave him a quadriplegic and your auto insurance cannot cover the full amount of the claim. Or a drug deal goes bad at one of your rental properties and your tenant shoots innocent people who then sue you as the home owner for wrongful death of their loved ones. Your insurance company may not cover the full amount of damages and you could still be a target for the remaining amount. This is where your asset protection plan must come into play if you want to keep all your hard earned investments.

 

Your asset protection plan must begin now, BEFORE you actually need it. In a number of court cases, judges have undone asset protection plans that were structured up to three years before a party became liable. In fact, most judges will find a way to undo an asset protection plan that looks like it was structured to avoid liability. How do you overcome this trap? Talk to an attorney who is familiar with your type of business and regularly helps people structure their affairs to avoid liability. If your plan looks like it was put together as a normal part of your business and personal life, it is much more difficult for a judge to undo your plan.

 

What should your plan include? Two components – First, ways to avoid or shift responsibility to pay for damages and second, ways to keep your personal name off your assets. We’ve already touched on one way to shift liability through insurance. Another way to shift liability is to delegate responsibility by contract to someone else. For example, when you have an accountant prepare your taxes, he will accept liability to the IRS for his preparation errors. Similarly, hiring a management company to manage your properties can allow you to shift liability to them for items covered in your contract with them. Again, get an attorney involved in either drafting or reviewing any contract such as this to make sure you know where you stand and your assets are covered. Additionally, if you have others you have delegated authority to, make sure you have procedures in place so they don’t do or say things that they shouldn’t. A written procedures manual will help you be better organized and can potentially save you from liability.

 

In my next post, I will discuss some of the ways to keep your name off your assets so you can reduce the risk of losing everything in one lawsuit.

 

Ed Young is a Florida licensed attorney who has been practicing law for 22 years in the Tampa Bay area. He regularly advises clients on asset protection issues. He can be reached at elyoung2909@hotmail.com.