Real Deal REInvestor Network

What is the situation?  To say it shortly, in this economy and market, many prospective home buyers have left the market and they along with others who have faced an unfortunate foreclosure may be looking for properties to rent until they can get back on their feet.

Being a landlord can be profitable, especially if you are in a resort area or your properties are located near a college or a university.    It can be a chancy proposition though if you are not educated in rental property ownership or if your personality does not fit with what a landlord has to face and do!  Recently there was a survey and it found the 44% of RPO’s (rental property owners) lost money on their investments.

Yet if done right the profits, tax advantages and building of equity can allay any problems you have being a RPO.

What about NOW?

It’s true that “if they can’t afford to buy, they may be able to afford to rent”.   This means you need to know your market before you jump into the RPO business.  Check out the local rental ads, how many are there? What sort of rents are they asking for, and in what areas? Gauge for yourself how competitive the market for Rental Properties is currently.  Is there a Rental Property Owner’s association in your area? Might be a good idea to check it out, as they keep track of dead beat tenants who try to “play” the eviction game and they can also be a source of good information about the local market for rentals.

Thus, if the market is inundated with Rentals, it may not be wise to enter the game yet.

Plan to Make a profit, not just keep EVEN!

When searching for properties whether foreclosures or owned outright, remember the rule that you begin making your profit by BUYING RIGHT in the first place.  If you want to make money forget the rule I heard when first starting to rent properties.  The other Real Estate people who invested back 10-15 years ago figured that 1% of you purchase price keeps you even.   Yet, you don’t want to be just even, but you want to get ahead for profits to come in to you.

Estimate not only the cost of your loan, (unless you are buying out right) but also include maintenance (including immediate repairs needed) utilities, clean up, insurance, property taxes, etc.  Then you will have an estimate of monthly and yearly costs of your investment.  Look to one of my other pages to help you get a feel for what to look for and how to calculate expenses.

What type of Rental Property do you want?

Single Family Homes- Most RPO’s will tell you that SFH’s are their first priority, why? Because the tenant will usually pay all the utilities and probably be required to cut the grass, shovel snow, and other simple maintenance.  More renters will desire single family homes in that they get the privacy that owning a detached home gives them.  Then if you want to sell, SFH’s are the easiest to market.  Stick to 3 bedroom homes, followed by 2 Bedroom homes, and NEVER BUY one bedroom units.

DUPLEXES or 2-FAMILIES- priority here will be single level buildings, then 2 story residences.  Then the priority goes to bedrooms, 2-3 bedrooms are the most desired.  They also retain tenants whose families may grow a bit during their tenancy.   One bedroom apartments have the highest turnover of tenants and while not to be completely avoided like 1 bedroom homes, they would be at the bottom of the list.  Along with this note residences that have SEPARATE utilities, meaning that while you may have to pay for water and sewer, (as these usually are not separate), you can have tenants be responsible for gas, electric, trash, etc.

MULTI-UNIT Buildings- Some RPO’s will swear by these, but your complications can be quadrupled or more, and when it comes to selling, if you desire to, this sort of building will be the hardest to market and sell.

Author

Jon Porrey

Realtor/Greenridge Realty, Inc.  Grand Rapids Mi 49525

www.how-to-buy-sell-foreclosures.com/landlord.html

 

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

Managing Tenants
To manage tenants effectively, proper and prompt communication should be your first order of business. You also have a variety of primary tasks to handle:
• Tenant complaints
• Pre-emptive management
• Renewal programs

Tenant Complaints
Usually you have the responsibility for major equipment in your buildings, such as a working elevator. If your tenants keep reminding you that something isn’t working and you don’t fix it, you are responsible for any problems or injuries that occur.
When their lease comes up for renewal, they probably won’t move out. Businesses don’t move as often as people in residential situations because moving involves some major expenses, such as business cards, letterhead stationery, and telephone service. However, if they become dissatisfied enough, they will move.
Therefore, handling complaints becomes a critical issue. This is especially true when the market slows down, because happy tenants normally stay. Otherwise, they wouldn’t consider moving unless they are expanding and need more space, or perhaps they are extremely successful and profitable and they’d like a more prestigious base, perhaps from a Class B to a Class A building.

Tip: Handle complaints promptly and communicate effectively with your tenants to avert any troublesome situations.

Pre-emptive Management
If you buy a building that already has tenants be sure to determine when each lease expires. This will immediately show if there might be any vacancies occurring at about the same time. If you have only a few tenants and even if only two of them have leases expiring about the same time that could possibly represent a huge loss for you.
What you need to do in this type of situation is meet with each of these tenants separately and discuss the expiration date now, before it occurs. If a tenant in a commercial building is going to move, they usually decide that at least six or eight months before the lease expires, so they can create detailed planning and scheduling.
When you meet with them, be prepared to talk about renewing their lease immediately. If they are willing to renew this far ahead of schedule, you should consider granting them extra concessions. Offering three or more free months when the lease expires is usually a deal that most commercial tenants would certainly appreciate.
It’s also a good deal for you, because it could be significantly more than three months of vacant space if a tenant leaves. You might even have to include the cost of cleaning and re-renting and possibly remodeling the space, by moving walls or adding extra tenant improvements, like new carpeting. Those costs could be far beyond what you would be giving away with three months of free rent.
Sometimes the conversation with tenants turns up the fact that they would like some more space, perhaps a few thousand square feet. If your meeting with the second tenant helps you to determine they need more space, but it’s more than you can provide, they may need to move. This will allow you to offer some of their space to the first tenant.

If the first tenant signs the new lease that includes the extra square footage, you could have less of a tenant vacancy problem than you had earlier. Sometimes this solution will work easily because it’s contiguous space.
The whole point of this is to be proactive in your leasing. To ensure that you don’t have too much vacant space and reduced cash flow, pay particular attention to your tenants’ needs. Be careful to monitor your leases.
Preemptive management includes offering these renewal programs to balance your turnover, and make sure you’re on the top of your game.

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.

Cultural Memory

You don’t want your shops turning over— turnover is worse than not getting the money.

It’s even worse than keeping a store vacant, because turnover will create the cultural memory of your little strip center as a black eye. The cultural memory of your strip center will become a negative force in your ability to do business. Even people who have had fantastic reputations as business movers and shakers have to deal with cultural memory.

For a concrete example you’ll probably recognize as describing somewhere in your town: if people are used to rolling up their windows  when they drive by a specific place, a remodeling and re-landscaping will not erase the memory that is already associated with that particular location. And as another instance of cultural memory, buildings that house restaurants that go through three or four owners over a long stretch and stay empty for a period of months make people reluctant to try whatever business it houses.

They aren’t interested in checking it out, because everyone assumes that it will close in the near future. Cultural memory has a lot to do with your success in the strip center business. It really is true that if you have a lot of turnover in your strip center, after a while people start regarding it as a poor business area and will stay away from your property. Then, other tenants begin moving out and your center is on the downhill path to failure.

Tenant Mix

The following story is related by one of our real estate investment instructors:  I first heard about tenant mix when I set up two real estate offices, one in Kailua and one in Honolulu. I hired a broker to be the branch manager of that location. That broker taught me much about commercial business over the next six months. The first thing he taught me was retail and he started with shoe stores. He told me that the best place for a shoe store was next door to another shoe store.

That didn’t make any sense to me—to have competing stores next door to each other. However, when I began really looking at our retail areas, I saw that it was true. Shoe stores tended to flock together. Other types of businesses did, too. Some of that was regional, some was related to our own particular marketplace, but some businesses seemed constant, one of which was shoe stores.

Another business that abides by this precept is restaurants, since most cities have one or more of what’s come to be called a “restaurant row”. When you go out to eat, sometimes you decide on a special place before you leave. Much of the time though, you will leave the house without having decided on a place to go and just go to the same area every time, your favorite restaurant row.

So, just like shoe stores, restaurants tend to cluster together. I’ll never forget when I was teaching realtors how to market retail properties. I was instructing a class in Atlanta, Georgia, which I did many times over seven or eight years, two or three times a year.   After a while, we figured out that we could get some input from the retail community.

One of the things we did was to ask McDonald’s real estate manager for the Southeastern United States to come visit our class. He explained how McDonald’s went through the process of selecting sites in the cities in the Southeast. He would show up with 2 or 3 assistants, people who were actually going out in the field and looking for sites. He had seven site selectors in his office, and they’d bring another couple of store managers and each of those store managers had a couple of people with them. So, they had this entourage of people showing up in our class carrying big muffins and coffee that we had during our break. The vice president of real estate would stand up and give us an hour of lecture with slides on demographics of how they picked the traffic counts, and all the rest of it. My students loved learning this scientific way to select a site.

Then one day, I had the idea that I should probably invite the Burger King guy, too. He was also in Atlanta, and he covered exactly the same territories—the same seven states. Burger King accepted the invitation, and their organization came down for the special purpose of giving their side of the story, knowing full well that the McDonald’s guy was doing the class, too. So, I had McDonald’s guy come on Tuesday, while Burger King came on Wednesday.

The Burger King guy shows up with no helpers, but with two huge bags of sausage biscuits—we had to fend for ourselves to get coffee. He came by himself, because he had no assistants or site selectors working for him. He covered his seven states all by himself. He selected every site, wrote every contract, and did all the research himself. He had no big research facility and he didn’t pay much attention to demographics. Although his talk took about 45 minutes, it boiled down to this, “I go in to Greenville, South Carolina, and look around for McDonalds. Then, I’d buy whatever is closest to them.” That was 15 years ago, but that is still their strategy today. They go and look for McDonald’s.

So, to recap that lesson: if you are filling up a little strip center, tenant mix is an important thing.

However, you still should shop for an anchor tenant business first. For example, let’s suppose you have a little six-unit strip center. If it’s empty, one of your first concerns is to determine what business is going to anchor the center. There’s a special word for that in retail real estate—a strip center’s anchor is called the end-cap. Now, there are two ends to this building. That’s why it’s so important to pick the business at the end of the strip that will bring the most traffic into the strip.

Letters to a landlord

Excerpts from actual letters sent to landlords

The toilet is blocked and we cannot bathe the children until it is cleared.

I want some repairs done to my stove as it has backfires and burnt my knob off.

This is to let you know that there is a smell coming from the man next door.

The toilet seat is cracked: where do I stand?

I am writing on behalf of my sink, which is running away from the wall.

I request your permission to remove my drawers in the kitchen.

Our lavatory seat is broken in half and is now in three pieces.

The person next door has a large erection in his back garden, which is unsightly and dangerous.

Will you please send someone to mend our cracked sidewalk? Yesterday my wife tripped on it and is now pregnant.

 Our kitchen floor is very damp, we have two children and would like a third, so will you please send someone to do something about it.

Will you please send a man to look at my water? It is a funny color and not fit to drink.

Would you please send a man to repair my downspout? I am an old-age pensioner and need it straight away.

Could you please send someone to fix our bath tap? My wife got her toe stuck in it and it is very uncomfortable for us.

I want to complain about the farmer across the road. Every morning at 5:30 his cock wakes me up, and it is getting too much.

When the workmen were here, they put their tools in my wife's new drawers and made a mess. Please send men with clean tools to finish the job and keep my wife happy.