Posted by Jeff (FL) on March 20, 2000 at 13:09:40:
Dear Anthony,
What a response! Thank you for taking the time to cover all the details. Now I’m just wondering if I would have had the tenacity to accomplish what you did?But as has been said by many, “If it was easy, everyone would be doing it.”
Thanks again,
Jeff (FL)
JUST HOW IMPORTANT IS CREATING A LLC OR NEVADA CORP…HELP - Posted by Anthony Henry
Posted by Anthony Henry on March 19, 2000 at 11:26:32:
I was wondering, Im buying a Four Family which should net me roughly $1000/month consevatively. Im almost through to closing now. This deal was way too much hassles…lol…BANKS My God…lol. Then I came to this site and my eyes really got opened, amazin what a lack of knowledge can cost you :(. My Question I intend to be in RE for the rest of my naturally breathing existense. So how important is this creation of a Nevada or Delaware corp. Should I have this set up before I even pursue my next deal or what? Have any of you guys actually done this. It seems this would be inportant as I intend on concentrating on L/O and Flips. I think I understand the benefits, but not too sure about how I would even go about setting one up. Also is an LLC the same thing as this Nevada corp. Whats the Difference. From those of you who have done this can you PLEASE forward me some good insights into Costs, Paperwork, Phone numbers etc. Im in NYC. By the way is there anyone willing to be a Mentor to this Newbie :), Would greatly appreciate it.
My thoughts… - Posted by Mark (SDC A)
Posted by Mark (SDC A) on March 20, 2000 at 11:12:47:
I think it matters… But I don’t think it is imperative. What IS imperative is insurance with a serious liability component. 500K to a mil depending on what other assets you have. When you are first starting out, I think insurance is more important. Additionally, LLCs do have start up and ongoing costs. Maybe not outrageous (unless you are in Cali) but for a small landlord… shrug
I waited… And it was fine. The only issue was that it was somewhat of a paperwork hassle to set up the asset protection for all the properties I had acquired. But that was a one shot deal. Now that paperwork just gets handled along with all the other paper when I acquire a property.
Hope this helps,
Mark
You forgot something… - Posted by Jeff (FL)
Posted by Jeff (FL) on March 19, 2000 at 15:41:07:
Dear Anthony,
I cannot help you with your question concerning LLCs, etc., but would ask you to do us beginners a favor. I read your post with bated breath hoping to read just what problems you had with the bank and the site. AND how you were able to overcome them. It never came.
If it’s not too much trouble, how about filling us in on how you did it and how you managed to set yourself up with a thousand dollar a month annuity. That’s priceless information, so how about sharing.
Thanks, Jeff (FL)
Re: JUST HOW IMPORTANT IS CREATING A LLC OR NEVADA CORP…HELP - Posted by Mark_MB
Posted by Mark_MB on March 19, 2000 at 15:12:10:
Anthony Henry,
Go to the upper left corner of this site and click on the Books/Courses link. Listed inside are some asset protection and LLC - Corporation set-up courses. I attended the CRE convention that this site sponsors. It was in Atlanta in late February.In a word it was awesome. The author of some of those courses was a speaker at that convention. Bill Bronchick is a Real Estate attorney who practices what he preaches. I have all of his asset protection and set-up courses. I highly recommend them. Hope this helps.
Good Luck!
Mark
Re: JUST HOW IMPORTANT IS CREATING A LLC OR NEVADA CORP…HELP - Posted by phil fernandez
Posted by phil fernandez on March 19, 2000 at 15:03:15:
What I like about Corps or LLC’s is the seperation of your properties from each other. Example. I set up 8 seperate LLC’s. It cost me a total of about $800, that’s in Vermont, your cost may be higher.
I put a 10 unit apt house in one LLC, an 8 unit apt house in another seperate LLC, other rental houses in their own LLC.
Let’s suppose someone sues me who lives in the 8 unit apt. house. They can sue only my LLC that controls the 8 unit apt. house. They can not touch my 10 unit building or any of my other assets. They are sueing only the LLC that owns the 8 unit building.
Of course you still want to have liability insurance on each property. The insurance is your first line of defense.
Re: JUST HOW IMPORTANT IS CREATING A LLC OR NEVADA CORP…HELP - Posted by Mark_MB
Posted by Mark_MB on March 19, 2000 at 15:02:53:
Anthony Henry,
Go to the top left side of this page and checkout the Books/Courses Link. There are asset protection books and courses listed. I attended the convention the CRE had in Atlanta in late February. It was awesome to meet many of the people that post here frequently and the author of some of those courses was a speaker. Bill Bronchick is a real estate attorney who practices what he preaches. I have bought all of his asset protection and LLC - Corporation forming courses. They are in depth and compare each so you have a better idea which direction is better for your set of circumstances. I highly recommend them.
Good Luck!
Mark
Re: My thoughts… - Posted by Anthony Henry
Posted by Anthony Henry on March 20, 2000 at 11:49:28:
Ahhh Mark I appreciate the help. Thanks a lot. I’m thinking I should wait also. I mean as far as rentals are concern I figured Id try to retain one a/yr. For the next 5/yr. That should provide some nice cash flow esp in NYC. I guess I will look more into the insurance for now. As a beginning landlord this does make a lot more sense.
Anthony Heny
Still Working on Retiring 
Re: You forgot something… - Posted by Anthony Henry
Posted by Anthony Henry on March 19, 2000 at 18:54:46:
OK First off I would like to thank all who responded to my inquiry. It was greatly appreciated.
OK Jeff Im sorry I was not more detailed so here goes. THIS WILL BE LONG AND I APOLOGIZE FROM NOW)
First off Im a Newbie just like you. Ive had the RE bug for three yrs, I went out and bought the Carleton Sheets program last yr. In my opinion it was money well spent.
Unto my deal. Well honestly I dont think there was anything special in this deal at all but here goes.
My PROBLEM - I have the drive and intelligence but not the Capital…lol…whats new. So I had to find a way to increase my cash flow because Im not really cut out for Corporate America at all. The RE buss in NY is fierce and highly competitive. I had to find a way to create a small and immediate return so I decided that rental was the way to go. Its not as easy as it sounds locating motivated sellers and negotiating your own deals. This is not to say its impossible. Mostly in my early and admittedly limited practical experience I find that in my area in Queens NY you are pitted up against Realtors and Investors. Now this is not bad if you are willing to search out the good realtors who understand what you are attempting to do. It took me three months to lacate the Realtor Im dealing with now. In approaching them I find the most helpful thing for me to ask is HOW MANY PROPERTIES DO YOU INVEST IN NOW. and 2.WHAT DO YOU CONSIDER A CREATIVE INVESTMENT DEAL. My realtor was quite up to speed on both so he passed my test. Ohh in this capacity I find it also important to make sure that your Realtor has connections and I mean connections with Brokers, Contractors, Lawyers etc. This may not seem important to the Experienced here but it made a wealth of diference for me.
So Jeff here is the SPECS on the DEAL Im working now.
PROPERTY
4 Family in Far Rockawya Queens NY.
Being sold by Investor, Ohh by the way on the contract for sale I noticed he too is an LLC, Ummmm.
Asking Price 275K(with 6% seller concession)
Comps in this Area easily for the same propety roughly 290-350K the reason for such a wide disparity is because even though this is a low to middle income neighborhood its bordered by Inwood a more uppity neighborhood. And the market has been increasing steadily(Appreciation) for the last three years…Investors are coming back in droves.
OK how do I acquire this property when the down required FHA by the way would be 8250(3%)Ummmm. Well I had $3K in my account liquid. My Credit Score was 611 & 670, somewhere in that range I got two diff numbers from two diff sources. Well I had to get creative so I
did the following.
Asked Mom to co-sign with me and she agreed, dont you just luv Moms :). With Mom on board I approaced my Realtor quite honestly and told him I wanted this property and I intend to get it. But I would need his help. So we sat and worked it out as follows.
I would put down 5820. Well you say but Anthony where did you get the other $2820. Ahh thats what Overdraft accounts are for. My realtor got me in touch with a Mortgage Bank of which he has a close working realationship with the President(contacts), dont have them create them.Well he the President after going back and forth for three days said he could work with my situation. Mom and I have excellent credit and between us we have the neccessary appearance of the funds needed. Im beginningg to understand that this can be more important sometimes than the actual liquid assets. So on his word we drew up the contract…But then it hit me if this property could easily appraise for atleast 290K why not pull money out of the Mortgage. So here I go. I approach my Realtor and The Bank President and I say well here is what I want. I want to secure my investment and your money. I intend to increase the selling price to $280K($5K extra) the seller had already agreed. After all all he is losing is a measely 200 or so in taxes which he will write off anyway. Man I luv this country. Well they both looked at me like I just stepped out the shower. But after I showed them my plan they agreed that it could work. I intend to park the 5K in a Money Market(Vanguard). The $5K will be kicked back to me by the seller at closing. Ohh here is where I am realisin that working with investors can be to a Newbies advantage.
OK everything sounds great right…But here comes the Paperwork…lol. Well Mom and I had to furnish Banks Statements and proof of Moms Assets(She owns her own house). Well that took a while.
Then the president calls me up, (we are on a first name basis now). Anthony we have a problem I say what. he says well because this is a four family and you guys live in a SF we need to show that you intend to move from your SF and lease it. At first this scared the hell out of me, but then I sat and thought it out with my Realtor. It turns out all we had to do was show intention that we intended to move. So I had to find someone who would legally say they “intended” to lease our SF for $1850/m. Well thats what girl friends are for. So I called up mine and said Honey How do you feel about buying Mom’s house(she’s cracking up). But after I explained she agreed. So we full out the Forward Lease Agreement and closed that chapter. Wow.
Then President calls up…Anthony I need you to fill out and mail me several letters of explanation. Im like OK what do you need. Well I had to explain why my income for 98 and 97 were so low. 18500 and 14200 respectively. Ohh by the way I graduated from College in 97…long story. So I had to explain this. I also had to explain why we were moving from our SF. We had to explain and verify that the mortgage on the first family was not FHA(cant have more than one at a time). Had to explain why there were two late payments on my Credit Check. Mind you this was from 92 and 93. Well finished off the letters and sent them off. Closed that chapter. Now he sent me my letter of commitment on the 16th my attorney looked it over wasnt really neccessary but Iwas in his neck of the woods. Basically Im paying 9%…honestly I could care less. Ill explain why later. My lawyer began Title search on the 17th. And here we are.
Well Jeff why would I go through all this…lol… First off let me say that this was what I knew up to about a month ago. Im just realisin that L/O and flipping might be worth my investing time in learning so I intend to do just that.
BUT time for #'s.
As it stands.
Mortgage(est) - $2,234.53/m includes Taxes of 66/m. Insur of 50/m. I was told by the the President that those numbers wont change by much if any. Well lets hope so.
RENTS(section 8) will equal 920/m(with utilities) x 3(2BR). and 1150 for the 3BR.
TOTLAL RENTS - $3910. Now remember this is once all the units are 100% occupied.
NET after Mortgae = 1500. You will notice I rounded off the Mortgage to cover me.
But here’s the cream on the pie. and I hope the people at Section 8 werent lying to me. THEY GIVE YOU RENT SUPPLEMENTS ON THE FAMILIES YOU RENT TO BASED ON # of INDIVIDUALS.
2 - 1000 6 - 3666
3 - 1667 7 - 4333
4 - 2333 8 - 5000
5 - 3000
So by my calculations even if I only rented to 2 member households I would still be getting $4000 in SUPPLEMENTS.
That $4000 I will add to the amount in the Vanguard Fund as it rolls in.
So In closing Jeff here’s the synopsis.
I put up $3000 of my own money
I borrowed $2820 from my overdaraft account @ 9.9%
Add to that I also paid for the Appraisals $575 from said overdarft account. For a Total of $3395 = payment of 172/month
So lets ay Im spending $5820 for the privalege of leveraging a $275K piece of property. This seemed like it was a smart deal to me. Ohh by the way IF ANY OF THE MORE KNOWLEDGABLE AND WISE AMONG CAN SEE WHERE IWENT WRONG PLEASE COULD YOU SHOW ME :). It may be too late now but I could still learn something that might help the next deal.
So Jeff back to numbers. In my first yr…based on Carleton Sheets info I should expect to set asise 15 to 20% of rents for maintenance well I say Id rather put aside 25%
So that means out of my 1500 net after mortgage Im netting $1125. As you can see even with these conservative numbers I would still be making roughly around $13500 for my first yr off this property. Ohh and mind you I should say the rentals I gave you are the Max section 8 will pay not what I could actually charge but I wont be greedy just now.
Add to that 13500 the $4000(at least)that I collect for SUPPLEMENTS.
GIVES A TOTAL OF 17500 for my first yr. Granted its poss I could still be missing things but I cnt see what right now. So lets say with my conservative nature we rreduce that by 15%. I would still be netting 14875.
SO WHATS MY RETURN ON MY MONEY :). And Friends ask me why would I want the hassle of dealing with tenants. I would much rather have my freedom and can do this kind of deal every yr or two. While working part time and L/O and Flipping my way to TRUE INDEPENDENCE.
So Jeff it was long but I wanted to give you the full picture. I hope this helps. But like I said this is nothing compared to the creatively I have seen on this board, nothing at all.
Anthony Henry
Trying to retire in 3-5yrs.